LPEA Webinar Highlights Half of Global GDP Dependent on Nature

On Wednesday 31 January 2024, the Luxembourg Private Equity & Venture Capital Association (LPEA) and other partners co-organised a webinar entitled “Rising Private Equity Concerns on Biodiversity”, which took place over Zoom.

Luis Galveias, Chief Operating Officer and CSR Manager at LPEA, and Aurélien Roelens, Managing Director and Head of ESG at Cube Infrastructure Managers, introduced the webinar and moderated the Q&A at the end of the presentation.

The speaker was Justine Mariette, biodiversity manager at ICare, a Luxembourg-based consulting firm specialising in environmental and social issues aiming to help clients to transform their businesses. The firm’s focus is on sustainable finance, aiming to bring sustainability to every level of their clients’ businesses. Justine Mariette noted that the goal of this webinar was to raise awareness about biodiversity in private equity.

First, she explained that biodiversity is complex and means multiple things, but it has three main dimensions. These are the diversity of genes, the diversity of species and the diversity of ecosystems. There are three types of ecosystems: marine, freshwater and terrestrial.

Justine Mariette noted that natural capital can be seen as the “stock” of natural resources. The ecosystem service flows refer to the benefits provided by ecosystems that contribute to human life and the economy (e.g. food, water, timber, pollination, climate and water flow regulation, natural destinations and other cultural services). Ecosystems produce goods or can be enjoyed as such. Support services support our ecosystem services (such as water cycles and atmospheric oxygen production).

The speaker emphasised that we are losing ecosystems and species. WWF studies showed that between 1970 and 2018, in 50 years, 69% of wild vertebrate populations have been lost. Human activity is the main cause of this decline, she stressed. Reducing consumption is considered one of the most effective measures to solve this issue. The five key drivers of biodiversity loss are: land and sea use changes, direct exploitation of resources, climate change (a key pressure on biodiversity), pollution and invasive alien species. These five drivers heavily impact the three ecosystem realms.

Justine Mariette went on to explain why biodiversity should be a consideration for companies. Biodiversity furnishes the ecosystem service, and companies contribute to drivers of biodiversity loss, causing its decline. Political actors through regulations can help reduce the impact. However, “we are at high risk,” the speaker highlighted. She noted the “physical risk” incurring in a first instance for companies dependent on the ecosystem service for goods production (e.g. companies dependent on pollination’s inability to produce a certain amount of goods). Furthermore, she added that there is a “transition risk” (alignment to a new market, reputation and non-compliance) and many systemic risks (economic activity halts).

Moreover, Justine Mariette emphasised that $44,000 billion of global value creation (50% of global GDP) is highly dependent on nature: construction, agriculture and food products are especially reliant on nature but every other sector is interlinked with the three named here. Concerning impact, she stressed that certain industry, such as agricultural products and the mining industry, may cause particular harm and encouraged viewers to “look deeper” into this if they had them in their portfolio.

She went on to discuss developments in regulation over the past five years, which include voluntary initiatives, more and more European regulation (green taxonomy, European Green Deal, Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR)…). At a global level, she also noted a number of (voluntary) initiatives, such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN) to set science-based targets on nature, COP15 2022, which ended with a global biodiversity framework – a key framework on biodiversity, among others. She reminded viewers to keep in mind that companies and financial institutions will have to report on impact.

To conclude, Justine Mariette introduced specific tools that can be used to get started, such as the TNFD, which can provide a qualitative analysis of a portfolio to understand the fundamentals. It is a recommendation for disclosure and aligned with GBF Target 15 for “business to asses and disclose biodiversity dependencies, impacts and risks and reduce negative impacts”, although she mentioned that this was just the “tip of the iceberg”. Finally, to assess one’s company, one can use indicators like STAR, and to go deeper into dependencies, one can use the use tool ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) to give key dependencies for each sector. There are also tools on pressure indicators, but Justine Mariette recommended starting with a qualitative analysis, for example through ENCORE or with the help of a specialised consulting company.