From grassroots projects to mangrove bonds to innovative revenue streams, it’s now possible to invest directly into restoring the most important ecosystems in our world.
Our natural ecosystems are eroding at a dizzying rate. Biodiversity – the whole variety of life on earth – is declining faster than at any point in human history. Since 1970, animal population sizes have shrunk by 68 per cent on average1 and, today, as many as one million animal and plant species are at risk of extinction2.
Protecting biodiversity is the key to our survival, and what’s needed is investment. Investors have the power to reverse animal and plant loss, rewild forests and protect coastlines. Treating nature as an important asset can reduce portfolio risk and negative impact. And investing in projects and companies that support biodiversity brings new opportunities and the chance to reshape a future that currently hangs in the balance.
“There is powerful potential in companies that are positioned to harness, regenerate and protect biodiversity,” says Cheuk Wan Fan, Chief Investment Officer, Asia, HSBC Global Private Banking and Wealth. “Turning the biodiversity crisis into investment opportunities and channeling capital into a sustainable circular economy is not only critical, but increasingly feasible. Investors have the opportunity to gain exposure to secular growth through nature-based solutions; they can also support positive long-term change in rebuilding a more resilient and sustainable world.”
Environmental restoration has been a major talking point in the lead-up to the second part of COP15, scheduled to be held in Kunming, China, later this year. But where is innovation happening right now? What projects are catching attention, and what impact are they having on biodiversity?
From large-scale to grassroots
The UN has set 21 ambitious targets for national governments to meet by the end of the decade to protect biodiversity3. These include protecting a minimum of 30 per cent of the world’s oceans and lands, reducing pesticide use by at least two-thirds, eliminating plastic waste, and increasing financial resources dedicated to biodiversity to at least USD200 billion annually.
Two of the UN’s Sustainable Development Goals – SDG14 Life Below Water and SDG15 Life on Land – are directly related to biodiversity, and biodiversity plays an essential role in achieving a range of other SDGs. Yet SDG14 and SDG15 face significant financing gaps.
There is clearly work to be done, and while this top-down pressure to safeguard biodiversity is vital, innovation is already happening at the grassroots level.
In Peru, an initiative called the Potato Park uses indigenous knowledge to conserve more than 1,300 varieties of cultivated potatoes, as well as other native Andean crops and medicinal plants4. By establishing an alternative development model, the scheme supports cultural identity and biocultural heritage. It also brings economic opportunities, especially for local women, and facilitates experiments to cultivate varieties resistant to climate change.
Technological innovation to protect nature
“Preservation and regeneration of biodiversity is increasingly driven by cutting-edge science and technological innovation,” notes Fan. “Finding the best technological solutions for environmental protection and nature regeneration is vital, as is searching for promising secular growth opportunities from nature-based investment solutions.”
In China, for example, smart technologies are widely adopted to protect biodiversity. Artificial intelligence (AI)-enabled video monitoring systems are deployed in natural reserves to allow researchers to collect real-time data on wildlife activity, health and safety without disrupting their natural habitats. Chinese authorities use drones and satellites to undertake real-time monitoring, intelligence and verification to detect wildfires in inaccessible areas of forests.
In the UK, the start-up Better Origin has created a technology called insect-based bioconversion: food waste is fed to insects, and the insects are used to feed farm animals. Traditional livestock feed is made from soy and other crops that have been linked to deforestation, but enough insects to feed a poultry farm can be harvested in a space the size of a shipping container. Better Origin uses AI to automate the process of feeding and growing insect larvae, which are then fed to livestock. This technology allows farmers to save 150 tonnes of food waste a year, 574 tonnes of carbon emissions and 5.6 hectares of land from deforestation, the company says5.
The use of technology when investing in natural capital can be used to improve transparency and accountability in green investing. For example, satellite technology can allow the monitoring of deforestation and forest redevelopment.
“So, if you’re investing to protect a tropical rainforest, technology gives you the ability to see that it’s being protected rather than being stripped,” Fan notes. “Harnessing technology in this way helps investors to avoid greenwashing, protects value and creates accountability.”
Reversing forest loss
A farmer-driven project called Restore Africa aims to restore more than two million hectares of land and directly support two million smallholder farms across Africa over the next five years. A process called ‘evergreening’ will restore degraded agricultural, pastoral and forest lands, improve soil and increase land productivity.
The programme connects the efforts of local farmers with new revenue streams from global carbon markets. HSBC Asset Management will help finance it through Climate Asset Management, its partnership with Pollination. This project shows how the private sector can get involved in community-led initiatives to protect biodiversity and tackle climate change – in this case, companies benefit from carbon credits to offset their own carbon emissions.
Elsewhere, the Tropical Forest Alliance has created a USD90 million BioCarbon fund6, a public-private sector initiative that promotes sustainable development and low carbon. In the Colombian region of Orinoquía, the main drivers of deforestation and ecosystem damage are palm oil plantations, cattle grazing and soybean crop planting, as well as illicit forest clearing to grow coca. The programme helps farmers manage their land more sustainably and encourages more energy efficient ‘climate-smart agriculture’.
Restoring coastal and marine habitats
Coastal and marine habitats shield up to 300 million people7 worldwide from storm surges, flooding and erosion, and have a vital role to play in fighting climate change because they are ‘carbon sinks’. Mangroves, tidal marshes and seagrass meadows sequester and store more ‘blue carbon’ than forests8. They also provide valuable habitats for many species of wildlife.
HSBC Australia and London-based Earth Security have joined forces to create a mangrove bond that can be used to finance projects that protect and restore these vital natural habitats – an example of financial markets embracing nature as an asset.
Biodiversity loss has implications for sectors including food and beverages, healthcare and consumer goods, as well as financial markets: the World Economic Forum esti-mates that more than half of the world’s GDP is moderately or highly dependent on nature. A decline in our ecosystem services and resulting loss in productivity can affect investment portfolios.
It’s increasingly clear that biodiversity should be on investors’ radar, and that investing in biodiversity opens up a world of opportunity for sustainability-minded investors. We need to think differently and get behind the biodiversity theme before even more is lost.
At HSBC Global Private Banking, we are committed to funding sustainable growth. To read more about biodiversity, see our article here. And for more information on our key investment trends for the year ahead, visit our Insights page.
It is important to note that the capital value of, and income from, any investment may go down as well as up and you may not get back the full amount invested. Investing should normally be seen as a medium to long term commitment, for example at least 5 years. Advice fees and eligibility apply.
1 World Wildlife Fund (WWF), September 2020 ↩
2 Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, April 2019 ↩
3 First Detailed Draft of the New Post-2020 Global Biodiversity Framework, Secretariat of the UN Convention on Biological Diversity, July 2021 ↩
4 The Thriving Diversity of Peru’s Potato Park, United Nations University, July 2011 ↩
5 Better Origin, accessed February 2022 ↩
6 BioCarbon Fund Initiative for Sustainable Forest Landscapes, ISFL, accessed February 2022 ↩
7 Flooded Future: Global Vulnerability to Sea Level Rise Worse Than Previously Understood, Climatecentral.org, October 2019 ↩
8 International Union for Conservation of Nature, accessed February 2022 ↩