Climate change is now clearly recognized as an important issue for business, bearing both risks and opportunities. Many companies are taking measures to limit their GHG emissions, adopting strategies and plans to compete in a carbon-constrained world and are disclosing information related to these activities. Investors, asset managers and insurers are also growingly adapting their strategies, practices and product lines to take into account climate change issue.

Biodiversity, however, does not yet appear to be an issue which is fully taken into account in investment decision making. This is not to say that this issue is not considered at all. There is evidence that investors are considering biodiversity as an important topic. For example, biodiversity gets an average rating of 3.65 (on a scale from 0 to 5) in the Thomson Extel & UKSIF SRI & Extra-Financial Survey 2006 (1).

Emerging obstacles
In our view, there are some obstacles to overcome in order for biodiversity to be considered by financial markets the same way climate change is considered now:

1. Market mechanism — As there is currently no apparent cost associated with the depletion of biodiversity due to economic activity, companies typically externalize this cost. Consequently, investors and financial analysts tend to consider this issue as not relevant in the valuation of companies.

2. Methodological aspects — Biodiversity and the services rendered by ecosystems are complex issues. Except for some specific economic activities having a direct and visible impact on ecosystems (such as oil & gas, mining), the links and reciprocal influences between corporate activities and biodiversity are mostly diffuse and indirect. Therefore, there is a need to develop further the understanding of business risks and opportunities associated with biodiversity and to develop appropriate models and metrics to help investors factor this issue into their decision making.

3. Reporting and availability of data — As SiRi research shows, corporate reporting related to biodiversity is still at an infant stage. Out of 134 international companies surveyed (active in sectors such as oil and gas, mining, construction materials for which biodiversity is considered as a highly relevant issue), 119 were found to disclose insufficient information.

Mainstreaming biodiversity
Looking back at what happened in the past five years with climate change, one can expect that a market for valuing biodiversity may emerge in the coming years. Together with an increased understanding of the issue, this will lead to improved — qualitatively and quantitatively — corporate reporting and the development of suitable assessment and evaluation tools which may well trigger the mainstreaming of biodiversity. In the meantime, and considering the recent developments of thematic investment approaches (renewable energies, water, mobility, and so on), there is certainly some potential for innovative solutions that would integrate biodiversity considerations in a thematic fund.

Philippe Spicher is CEO, Centre Info SA – Sustainable Investment Consulting.

---

(1) Thomson Extel & UKSIF, 13 July 2006, “SRI & Extra-Financial Survey 2006” (www.innovestgroup.com/pdfs/2006-07-13_THOMSON_EXTEL.pdf)