According to the Intergovernmental Panel on Climate Change, if we heat our planet by 1.5°C, we will lose 70% of the world’s coral reefs. At 2°C or more, the pathway many scientists agree we are on, 99%
will die.
Legal & General Investment Management (LGIM) has partnered with endurance swimmer and UN Patron of the Oceans, Lewis Pugh, in a campaign to highlight the precipice Earth’s flora and fauna teeter on today.
Biodiversity loss (the faltering variety of living species on Earth, from plants and animals to bacteria and fungi) is both a component part and an underpinning factor of nature loss (the loss and decline of the state of nature). These intertwined issues increased in prominence within the financial community in 2022, even amid crises such as the Ukraine war and spiralling inflation.
They represent not only a biological tragedy, but a major global systemic risk. According to the World Economic Forum, more than half of the world’s gross domestic product – around $44 trillion – depends on nature. Destroying oceans, forests and other ecosystems undermines its ability to provide the goods that societies and economies rely on.
As part of LGIM’s aim to create a better future through responsible investing, its investment stewardship team engages with companies and policymakers to pro-actively address biodiversity and nature loss risks. That means aiming to generate sustainable outcomes and value, while seizing opportunities as we transition to a different economy.
Indeed, globally, all economies need to manage a ‘just transition’ (that is, one that’s as fair and inclusive as possible) to become both net zero and nature positive, and in which ecosystems are restored.
Stemming the tide
Fortunately, global efforts are underway to stem the tide of nature loss.
At the United Nations biodiversity conference (COP15) in December 2022, representatives from all parts of the international community, including LGIM, gathered in Montreal to negotiate the Global Biodiversity Framework (GBF).
The GBF will govern, guide, and set the policy mandate for all stakeholders to tackle biodiversity loss and become ‘nature positive’ over coming decades.
The outputs of COP15 are critical to financial institutions. At COP15, LGIM called for the GBF to be as strong for nature as the 2015 Paris Agreement was for climate change. While LGIM would have liked the GBF agreement to have been even tougher on some areas of mandatory adoption, we hope what has been achieved at Montreal will pave the way towards a more sustainable relationship with nature.
Biodiversity in business
To enable companies and financial institutions to report and act on evolving nature-related risks, we need consistent ways of capturing the relevant data.
The developing Taskforce for Nature Related Disclosures (TNFD) framework, and announcement by the IFRS International Sustainability Standards Board (ISSB) of the inclusion of ‘Nature and a Just Transition’ into their framework, will be crucial in overcoming the challenge presented by the lack of comprehensive data, robust frameworks, standardised metrics and definitions.
The ISSB and TNFD are working closely, and we are calling for governments to adopt these frameworks to strengthen how companies manage biodiversity impacts and dependencies and disclose them clearly.
LGIM is an active forum member of the TNFD and has long endorsed the need for a framework to improve data quality and quantity on deforestation.
Making members’ money count
As well as addressing the financial risks that stem from biodiversity and nature loss, a key element of our role as stewards of our clients’ assets is providing transparency over our actions on the issues scheme members care most about.
We were the first provider to officially roll out a partnership with fintech company Tumelo giving scheme members oversight of where their pension is invested and have a say on how they would vote on companies’ ESG policies (which include biodiversity) if they could.
On the back of the successful client/member engagement that followed this initiative, in 2022, we extended our partnership with Tumelo to expand the service to support scheme trustees with their new regulatory reporting and decision-making responsibilities. Again, we were the first provider to do this.
The ‘Expression of Wish’ service with Tumelo allows trustees to express their views and policies on upcoming AGM votes (informed by their members’ views) directly to LGIM’s investment stewardship team. These views are taken into account when shaping LGIM’s investment strategy.
Other ways in which we’re integrating biodiversity considerations into our investment decision-making processes include:
- our biodiversity policy, detailing how we seek to meet our commitments under the Finance for Biodiversity Pledge to address biodiversity loss
- expanding our engagement with companies, policymakers, regulators and broader market participants
- publishing our deforestation policy, which sets out how we aim to meet our commitments under the COP26 Commitment to Eliminating Agricultural Commodity Driven Deforestation from Investment Portfolios, including how we assess, measure and engage on deforestation risk
- adding a biodiversity metric into the LGIM ESG Score (which we use to rank thousands of companies against environmental, social and governance factors) and integrating biodiversity expectations into our sector-specific guides as part of LGIM’s Climate Impact Pledge engagement programme, which covers around 5,000 companies across 20 climate-critical sectors
Changing the nature of nature loss
As pension providers, we believe there’s an indisputable case for investing in well-run, sustainable businesses as a way of mitigating risks, unearthing opportunities and striving to strengthen long-term returns for those who trust us with their retirement savings.
Investing in a way that’s mindful of risks to the natural world is essential to our inclusive capitalism approach. By using capital that we allocate on behalf of our clients to generate sustainable benefits for the economy, the environment and society, LGIM can play its part helping to create better futures for everyone.