According to some estimates, ecosystem restoration could create USD 6 trillion worth of business opportunities and require USD 2 trillion annually in capital investment by 2030 (see Exhibit 1).
Restoration will involve cutting back on air, ocean and water pollution, improving flood control, coming up with alternatives to shipping, making farming more sustainable, preventing land erosion, among other things.
Here is why it will matter to investors.
What are the objectives?
The UN decade runs from 2021 through 2030 which is also the deadline for the Sustainable Development Goals (SDGs). Biodiversity loss imperils achievement of 80% of SDGs’ sub-targets related to poverty, hunger, health, water, cities, climate, oceans and land.
The stated objectives of the UN decade are to:
- Showcase successful government-led and private initiatives to halt ecosystem degradation, restore those ecosystems that have already been degraded
- Create links between ecosystem restoration opportunities and initiatives with businesses interested in building a robust portfolio of sustainable production and impact investment
- Enhance knowledge exchange on what works and why (policy, economics and biophysical aspects), and how to implement restoration at scale
- Connect initiatives working in the same landscape, region, or topic to increase efficiency and impact
- Bring a broader spectrum of actors on board, especially from sectors that are not traditionally involved, by demonstrating the importance of ecosystem restoration to conservation as well as generation of social and economic benefits.
Why does ecosystem restoration require an economic transformation?
The UN estimates that damage to ecosystems including forests, grasslands and coral reefs — and the associated loss of biodiversity — could drain nearly USD 10 trillion from the global economy by 2050. Losses would be the result of declining crop yields and fish catches as well as greater exposure to floods and other natural disasters, among other factors.
Research by the UN Food and Agriculture Organisation has shown that the bulk of the world’s food production is now derived from fewer than 200 plant species with just nine — including rice, maize and wheat — accounting for two-thirds of the world’s total crop production.
An outbreak of new diseases in any one imperils food supplies to a global population projected to reach 9 billion in 2050. Only 40 types of livestock provide the vast majority of meat, milk and eggs eaten, with diversity decreasing in each species. More than half of fish stocks have reached their sustainable limit, posing a similar risk to communities that rely on the oceans for their food.
According to the World Economic Forum, halting biodiversity loss will require a fundamental transformation across three socio-economic systems, representing over a third of the global economy and providing up to two-thirds of all jobs. These systems are:
- Food, land and ocean use
- Infrastructure and the built environment
- Extractives and energy.
Together they drive the threats which endanger almost 80% of the total threatened and near-threatened species. These systems, therefore, have a significant opportunity and responsibility to reverse nature loss. But there are also potentially tremendous benefits to be gained by embracing this transformation quickly.
Why will it matter to investors?
We expect ecosystem restoration to be fuelled by a deluge of investment and create a raft of business opportunities (see Exhibit 2).
Many governments have already included ‘green’ recovery measures in their crisis recovery packages – for example, through grants, loans and tax relief directed towards green transport, the circular economy and clean energy research, development and deployment.
The next step will be a shift in the balance between green and non-green spending, so it is favourable in terms of the support towards positive environmental outcomes.
Green recovery measures are likely to include new funding and programmes to create jobs and stimulate economic activity through ecosystem restoration, control of invasive alien species and forest conservation.
Today, we estimate there are over 1 000 global companies focused on ecosystem restoration across aquatic, terrestrial and urban ecosystems.
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Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.