The extinction of cycas, a threat to your savings?

Cycas, close to palm trees, are the species most at risk of extinction. Worrying? Does this concern us as asset managers? The answer is yes! The 2019 report of IPBES[1], the IPCC for biodiversity, is final. One million animal and plant species are threatened with extinction, one in four. However, many of them play a major and non-substitutable role in the economy, health, energy production, food and air quality.

Each year, the equivalent of $125 trillion worth of ecosystem services are provided to the global economy free of charge by Nature (drinking water, food, pollination, CO2 absorption…), the equivalent of 1.5 times the global GDP[2]! In other words, we do not produce enough wealth in one year to pay for the services that Nature provides us. We even have the luxury of being outrageously prodigious since on Earth Overshoot Day, July 29, we spent all the resources that the Earth regenerates in one year.

These services are vital. For example, [3]70% of the drugs used to treat cancer are derived from natural substances or mimic a mechanism found in nature. Natural marine and terrestrial ecosystems absorb 60% of man-made CO2 emissions.

And are companies concerned?

Many of them depend on biodiversity as a source of inspiration, raw materials or energy. The threat to biodiversity is a risk, and companies have an obligation to inform their shareholders: the declaration of non-financial performance requires them to mention the protection of biodiversity. Businesses are an essential part of biodiversity conservation. They can reduce resource waste, better manage their waste or reduce the end-of-life impact of their products. It is in their interest to do so, since they draw their resources from Nature.

Let us mention L’Oréal, a remarkable example in environmental matters, for which “59% (by volume) of the raw materials used are renewable, i.e. 1,567 raw materials from nearly 338 plant species”. Of these 338 species, “about 12% (by number) have high biodiversity stakes (protection measures, impact of production on natural environments, etc.)”. It is easy to understand the risk that the disappearance of certain species poses to the cosmetics, agri-food or pharmaceutical industry.

SCA, Sweden’s leading private forest operator, is another good example. The sustainable management of its forests implies leaving 8% of its productive area (166,000 hectares) in its natural form, areas of high ecological value. For each tree felled, SCA replants at least 2. The group also has the world’s largest nursery, which produces more than 100 million seedlings per year. Necessary practices, since forests are home to more than 80% of the world’s animal and plant species. Through its responsible management, SCA also ensures sustainable access to a resource that is essential to its other activities (production of pulp, paper and building materials).

It is this type of company, ambitious in terms of biodiversity conservation, that we are looking for in our SRI funds. It is they who, by properly managing biodiversity risks, will enable us to generate long-term financial performance that will help us build our clients’ financial performance.

[1] Intergovernmental Platform on Biodiversity and Ecosystem Services, May 2019 Report
[2] Costanza, R. et al., 2014, Changes in the global value of ecosystem services, Global Environmental Change, vol. 26
[3] IPBES report