Biodiversity doesn't only sustain the health of the planet and its inhabitants – it's critical to the health of the global economy, too. More than a third of global GDP is dependent on biodiversity, which provides more than $125 trillion in direct benefits annually to a host of resource-intensive industries like food and agriculture, logging and medicine, according to the OECD.
Yet, biodiversity is in rapid decline thanks to changes in land and sea use, land exploitation, climate change, pollution, and invasive species. Such destruction is a global phenomenon carrying an economic toll of $20 trillion a year, according to environmental researchers.1
Given all that's at stake, biodiversity should be an integral part of the investment process. Exposure and initiatives related to environmental preservation not only impact a company's risk profile, they can also serve as investment opportunities. The World Economic Forum estimates that addressing biodiversity issues could create 395 million jobs and unlock new business opportunities worth $10.1 trillion each year by 2030.
Our Research analysts highlight three areas that could deliver the biggest impact, both for the planet and investors.
More stringent certification will drive growth in geospatial data services.
Robust certification processes are a critical tool for improving biodiversity, as they confirm that goods have been grown or produced in a sustainable manner. Certification is poised to play an even greater role as products fall under increasing scrutiny by consumers, corporations and regulators. However, current certification methods rely on physical inspections and audits, which are inefficient and not always reliable.
The answer may lie in tech-enabled certification to meet the growing demand for sustainable commodities. The Covid-19 pandemic has strengthened the case for virtual monitoring, potentially accelerating the use of technology in the certification process. There is a growing opportunity for the use of geospatial data from drones and satellites to help ensure that commodities are produced sustainably.
The Agriculture sector will play a sizeable part in growth of drone revenue by 2040
Source: Gartner, DJI and Barclays Research estimates
Regenerative farming will help with profitability as well as preservation
Ag-tech focused on regenerative or circular farming practices will become more mainstream as land management and conservation becomes increasingly important. While ag-tech encompasses a wide range of practices, it generally falls under three categories.
Reforestation: The OECD estimates that restoring 46% of the world's degraded forests could provide $7-$30 in benefits for every dollar spent. As an investment theme, demand for reforestation services is growing as companies seek to meet their net-zero deforestation targets and offset their carbon emissions.
Regenerative agriculture: Precision farming, and organic fertilisers and pesticides are among the top priorities for boosting biodiversity. Farms using these practices can expect material payoff: A 2018 study by the Ecdysis Foundation found that regenerative farmers were 78% more profitable than those using conventional techniques.
Food and farming alternatives: The third area within ag-tech includes vertical farming and lab-grown produce and meat alternatives. Vertical farming could reduce land and water use in growing produce. At the same time, synthetically produced commodities, such as beef, palm oil and cotton, are increasingly being explored as potential sustainable alternatives. Already, startups are harvesting palm oil alternatives from the likes of coffee grounds and fermented microbes, cotton is growing in U.S. labs, and beef alternatives are a fixture at fast food and supermarket chains.
'Planet-compatible consumption' will unlock $1 trillion by 2030
While reforestation and alternative agriculture address the supply side of declining biodiversity, consumption is also a key part of the equation — and another opportunity for investors. Companies that invest proactively in sustainable production methods or shift to non-contentious commodities are likely to appeal to consumers who are increasingly tuned into the importance of sustainable practices. Sustainable consumption accounts for $1 trillion in opportunities over the next decade, according to the World Economic Forum.
Beyond these areas, investors can take steps to consider biodiversity in their portfolios more broadly. We believe biodiversity will become an important factor in evaluating a company’s risk profile, encompassing physical, legal and transitional risks, among others. And with environmental impact disclosures on the rise, investors can use a company’s commitment to biodiversity as one of many measures by which to gauge its approach to sustainability.
No single step can reverse the decline of biodiversity, but a combination of measures can improve the sustainability of the planet's resources — and in the process unlock significant investment opportunities across many industries.
1 Source:Global Environmental Change, Costanza et al., 2014
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Katherine Ogundiya is a member of the Sustainable & Thematic Investing team within Equity Research at Barclays. She joined the team in August 2018, following completion of the Compliance graduate scheme at Barclays. Katherine read Law at the London School of Economics.
Anushka Challawala is a member of the Sustainable & Thematic Investing team within Equity Research at Barclays. Anushka joined the team in September 2018 following two years covering European Telecoms. Anushka graduated with a BSc in Management from the University of Warwick.
Hiral Patel is the Head of Sustainable & Thematic Investing within Equity Research at Barclays. Hiral joined the team in June 2018 following five years covering the European Technology, Payments and FinTech sector. Prior to that, Hiral qualified as a Chartered Accountant with KPMG, where she worked in Audit covering Financial Services. Hiral graduated from the University of Warwick with a degree in Economics, Politics and International Studies.