World leaders gathered in Montreal, Canada, to attend the UN Biodiversity Conference whose objective was to decide on new international goals and metrics to protect biodiversity. The negotiations have focused on reaching a common agreement to end biodiversity loss and put nature back on a path to recovery by 2030.
“In the lead-up to the UN Biodiversity Conference it has become clear that we really need to step up our efforts to prevent biodiversity loss, as the depletion of biodiversity has continued. As a responsible investor, we cannot just sit back and wait for summit results; we must be active in creating our own targets to preserve biodiversity. As investors, we must build a world that is sustainable also for future generations,” says Varma’s Sustainability Director, Hanna Kaskela.
Going forward, Varma will take biodiversity into consideration in its investment portfolio. To that end, Varma has assessed the impacts and dependencies of its investments to identify their biggest biodiversity risks. At the same time, Varma surveyed how large a share of the company’s investments are exposed to risks resulting from biodiversity loss. The survey covered Varma’s direct investments in companies and private equity, loan and hedge funds, which make up 77 per cent of the company’s entire investment portfolio.
“It is important for investors to understand what kind of risks biodiversity loss can cause. If we allow the Amazon rainforest to be destroyed, for example, rainfall volumes can change as far afield as the United States. Taking biodiversity into consideration is risk management and it must be integrated into financial decision-making. It is not only about protecting nature but also ensuring that natural resources are used sustainably,” Kaskela says.
WWF Finland is working towards channelling asset flows into ecologically sustainable business. Biodiversity loss and the climate crisis are interlinked and they must be solved together.
“Many companies are already making efforts to reduce their climate impacts, but companies and investors play an equally important role in halting biodiversity loss. Companies should start putting their business on an ecologically sustainable foundation now, because regulatory requirements for halting biodiversity loss will increase and impact companies even more strongly going forward. Those who anticipate changes are often also the winners of the market economy,” comments Raija-Leena Ojanen, Legal Advisor at WWF Finland.
Special focus on risky sectors
Almost all sectors face risks resulting from biodiversity loss. Investors should pay special attention to risky sectors with particularly high dependencies and impacts on biodiversity. Varma has classified electricity generation, oil and gas, the extractive industry, forest industry, automotive industry, construction industry, transport industry, food industry and chemical industry as sectors of this kind. These represented 10 per cent of Varma’s investment portfolio in 2021.
In addition to biodiversity loss, monitoring covers areas such as changes in land use, monitoring the endangerment of species, depletion of natural resources and various impacts on weather phenomena. Increasing regulation, the development of technology and changes in consumer behaviour create so-called transition risks. The collapse of a regional ecosystem is the most extreme of these risks.
Varma’s Biodiversity Roadmap outlines policies that can help prevent biodiversity loss. The objective is to have biodiversity integrated into the investment process in specific asset classes in 2023. The biodiversity guidelines for the real estate portfolio will be cascaded gradually in 2023–2025.
“In addition to climate work, we wish to cascade the integration of biodiversity into our sustainability efforts. Our goal is to ensure that the biodiversity and climate targets carry equal weight in the near future and that they together promote our environmental responsibility,” Kaskela says.
“We recommend that companies report transparently on the current and future impacts of biodiversity loss on the company’s operations and growth potential. We also encourage our investees to create biodiversity policies by 2024,” Kaskela says.
In investment operations, the integration of biodiversity at Varma will cover negative screening, monitoring of norm violations, selection criteria in investment decisions and principles related to active ownership. The intention is to create a policy that guides biodiversity work in Varma’s activities during 2023.
Varma signs investor pledge
For an investor, the most efficient way to manage risks caused by biodiversity loss is to reduce the business’s ecological footprint by engaging with investee companies.
Varma actively engages in international investor initiatives, one example of which is the financial institutions’ Finance for Biodiversity pledge. Published at the UN Biodiversity Conference in Montreal, the pledge has 126 signatories from 21 countries, with a total of EUR 18.8 trillion in assets under management.
Varma will join the Nature Action 100 initiative. The initiative drives greater corporate ambition and action on tackling biodiversity loss. Participating investors will focus on mobilizing companies deemed to be systemically important to the goal of reversing nature and biodiversity loss by 2030; the initiative is encouraging investor signatories to participate ahead of its spring 2023 formal launch.
In 2022, Varma engaged, together with other investors, in 41 possible or likely violations linked to the environment.