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We depend on the Earth for our sustenance and livelihoods. We need access to the Earth’s resources, and we need an Earth in balance to harvest from these resources. As investors, we live off exchanging this harvest for value creation and financial returns. Everything threatening to destroy this harvest and life on land is, then, a financial risk to investors.
Every year, 13 million hectares of forest are lost, while the persistent degradation of drylands has led to the desertification of 3.6 billion hectares. Loss of natural habitats and biodiversity creates serious risk for global food security, water security, human health, climate change and peace.
This summer, global leaders met again at the High-Level Political Forum on Sustainable Development. The Forum emphasised the inherent interdependence between human development and a healthy planet, highlighting that the achievement of poverty eradication and socioeconomic development depends on addressing drivers of unsustainable natural resource management practices, such as climate change, deforestation and other terrestrial and marine ecosystem degradation, as well as managing increased disaster risks and their socioeconomic losses. It highlighted that conservation, restoration and sustainable use of ecosystems and their landscapes and seascapes offer a proven and cost-effective opportunity to recover better, fairer and greener from the COVID-19 pandemic and get back on track to achieve the Sustainable Development Goals.
While there has been a lot of focus on emissions from coal and oil & gas, the industry has been less aware of emissions from, and financial risk related to, changes in land use, land degradation, biodiversity loss and deforestation
An integrated approach to transforming economic systems, through nature-based solutions and circular economies, can ensure that societies and ecosystems become more resilient to shocks.
The financial industry has made great efforts to improve its understanding of the financial implications of climate risk, with emphasis on both how investments can contribute to the fulfilment of the Paris Agreement, and on reducing climate-related financial risk. While there has been a lot of focus on emissions from coal and oil & gas, the industry has been less aware of emissions from, and financial risk related to, changes in land use, land degradation, biodiversity loss and deforestation.
So far, the economic consequences associated with the wellbeing of Planet Earth have been limited for global financial institutions. But this is changing. While the Taskforce on Climate-related Financial Disclosures has been an important driver of investors’ understanding of climate-related financial risk, its younger sister, the Taskforce on Nature-related Financial Disclosures, will hopefully have the same effect for broader nature-based financial risk.
As awareness increases, there is good reason to believe that companies and investors depending on the services provided by the planet are exposed to increased financial risk – from reputational damage, reduced market access, value chain disruptions and legal sanctions.
There may also be physical risk, as environmental tipping points make it impossible to maintain harvests. Stricter regulation will stem from governments around the world striving to achieve the SDGs – the EU has already started to enter its progressive sustainability regulation agenda into force.
At KLP, we exclude companies if they contribute to serious environmental degradation. We have divested coal and oil sands, and are stepping up our efforts on climate risk and deforestation. We have actively engaged companies on these matters.
Together with Storebrand and The Rainforest Foundation, we have produced a report on how investors can manage deforestation risk. The report maps out what kind of data sources, tools and methods investors can use to work in a systematic, fact-based way with deforestation. The aim of the report is to start a discussion in the financial industry on how we can integrate deforestation risk into our work and identify what data and systems may be missing in order to manage the risk as efficiently as possible.
At KLP, we exclude companies if they contribute to serious environmental degradation. We have divested coal and oil sands, and are stepping up our efforts on climate risk and deforestation
But is this enough?
As more reports and research are published about the increasingly negative impacts on our planet, it is clear that the various efforts from investors, companies and politicians are far from enough. The dark side of the global economy is a planet filled with plastic, pollution and many perhaps irreversible damages to nature and life on land.
What is best for life on land?
Still, sound environmental and climate management is not always easy and straightforward. In Norway there is a strong public debate on wind parks on land due to the extensive footprint on the environment. The debate divides even environmentalists and those concerned about climate, and has become a real dilemma for politicians. And for sure there is a movement not only in Norway, but also globally, from climate risk and awareness to biodiversity and planet health risk and awareness. The wind park example showcases the need for a broader and more holistic climate and environmental risk assessment and management.
The recent fifth edition of the UN’s Global Biodiversity Outlook report warns that the continued degradation of the environment is increasing the likelihood of diseases spreading from animals to humans. The report notes the importance of biodiversity in addressing climate change, and long-term food security, and concludes that action to protect biodiversity is essential in preventing future pandemics. It is a wake-up call, and an encouragement to consider the dangers involved in mankind’s current relationship with nature: continued biodiversity loss, and the ongoing degradation of ecosystems, are having profound consequences of human wellbeing and survival.
Human activity, degradation of the planet and the environment: it is not only a real financial risk, it is a serious human health and survival risk – a risk we all, during 2020, have become very familiar with.
Ensuring a prosperous life on land will secure future financial returns. As investors and owners of companies, we must step up and create a financial market that values protection of the planet and ecosystems. We must engage companies on environmental protection, pollution prevention, circular economy, material and land use, risks of accidents, waste management and more.
2020 will always be remembered. There will be a new normal, for sure. Let us all do our utmost to make it sustainable and compatible with the boundaries our planet has set – one that really values our Mother Earth’s beauty, with all its magnificent nature, biodiversity and life.
Let us restore paradise.
Jeanett Bergan is the Head of Responsible Investments at KLP