Why biodiversity must be front of mind in climate investment

  • Edward Perry
  • 10 January 2022
  • Blog | Green Finance | Blog

Biodiversity loss and climate change are intricately linked and must be tackled together. Land-use change is the main driver of biodiversity loss and a source of greenhouse gas emissions. What’s more, climate change has already affected species and ecosystems across the globe, and is on track to become the biggest driver of biodiversity loss this century.  

A narrow focus on climate objectives could miss opportunities for win-win outcomes. Worse yet, it could move us further away from our biodiversity, climate, and broader well-being objectives. Policies and investment decisions need to consider these multiple objectives together. As the OECD outlined in Biodiversity, Natural Capital and the Economy: A Policy Guide for Finance, Economic and Environment Ministers, failure to do so could increase risks to people, the economy and the financial sector.  

Nature-based solutions (NbS) to climate change constitute one area in which we need to get it right for biodiversity and climate. NbS can play an important role in mitigating climate change, boosting communities’ resilience to climate impacts, and halting biodiversity loss. But only if they are designed and implemented effectively.  

Investment in monoculture forests and the planting of exotic tree species in places where they do not naturally belong are often labelled as an example of NbS, but such investments may do more harm than good for biodiversity. We need to plant the right mix of tree species in the right places. And we need to remember that non-forest ecosystems such as grasslands, wetlands, and marine ecosystems also provide critical services for society, including mitigation and adaptation benefits.  

Investments that harm biodiversity will undermine the longevity of any climate benefits.  This is because biodiversity underpins the current and future flow of ecosystem services such as carbon sequestration and flood protection. And species-diverse ecosystems tend to be more resilient to climate change than species-poor systems.  

NbS are not a silver bullet for climate change mitigation. They must also be accompanied by other efforts, for example, the reduction of fossil fuel use.  This is another area where biodiversity and climate actions must be aligned. While phasing out fossil fuels is critical, we need to ensure that the transition to net zero does no significant harm to biodiversity. 

Achieving climate targets will require a massive scaling up of renewable energy (RE). By mitigating climate change, this can be good for biodiversity too. But scaling up renewables will place increasing demand on land and create new risks to biodiversity. As with any development, it’s vital to assess and mitigate the potential adverse impacts on biodiversity of RE expansion.  

Climate and green are not synonymous. To ensure investments in RE are indeed green, RE must be deployed in a way that’s consistent with biodiversity and other environmental objectives. In practical terms, this means avoiding ecologically important or sensitive areas and then putting in place measures to minimise and remediate any residual impacts. For investors, it requires integrating biodiversity considerations into their strategy, risk screening, due diligence, and disclosure.  

Businesses and the financial sector must consider not only climate risks but also nature-related dependencies, impacts, risks, and opportunities. Only then will we effectively harness synergies between biodiversity and climate action, and avoid harmful outcomes.