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How can VCs invest in biodiversity?

Biodiversity loss is a critical part of the climate crisis, but the methods for investing in protecting it are far from established.

By Freya Pratty

There’s a lot of VC focus on carbon management, carbon accounting software and carbon offsets. But carbon is just one part of the climate crisis. Biodiversity loss is another, and the methods for investing in protecting it are far from established. Lena Thiede, partner at Planet A Ventures, told our Climate Tech newsletter how investors can back biodiversity protection.   

Why should VCs think about backing biodiversity?

We talk a lot about climate change, for obvious reasons. What gets easily missed is that there’s an extinction crisis in progress and it’s a crisis that should concern all of us. Not only because it significantly contributes to climate change but since it threatens the very fabric of life and the ecosystems we rely on — to produce food to eat and maintain an habitable atmosphere. More than half of global GDP — $42tn — depends on high-functioning biodiversity, according to a study by the WEF. 

Although the world’s 7.6bn people represent only 0.01% of all living things by weight, humanity has already caused the loss of 83% of all wild mammals and half of all plants. The current rate of extinction is tens to hundreds of times higher than the average over the past 10m years — and it’s accelerating. The main drivers of biodiversity loss are habitat loss and degradation, climate change, pollution, over-exploitation and invasive species.

What effect will that have on business?

These drivers translate into risks to businesses and investors. There can be risks to operations should ecosystems break down — businesses also depend on healthy ecosystems for things like waste disposal. There are also regulatory, reputational and market risks for companies causing harm to biodiversity levels.

Investors are largely blind to their impact on nature. Initiatives like the Natural Capital Investment Alliance are trying to change that, aiming to accelerate the development of Natural Capital (the world’s stocks of natural assets which include geology, soil, air, water and all living things) as a mainstream investment theme. 84 financial institutions with over $12tn in assets under management have signed the Finance for Biodiversity Pledge, committing them to protection and restoration through their investments. Planet A is one of them. 

There is also a growing momentum in regulators’ attempts to translate biodiversity risks into financial market parameters. The proposed EU Corporate Sustainability Reporting Directive (CSRD) requires more than 50k companies to report on biodiversity, among other things, from 2023 onwards; the Sustainable Finance Disclosure Regulation (SFDR) requires reporting on biodiversity-related principal adverse impact, the EU plans to extend its taxonomy to cover biodiversity, and the Taskforce on Nature-Related Financial Disclosures is working on establishing nature-related risk management and disclosure frameworks.

Which biodiversity protection tools are VC-backable?

We anticipate a surge in nature data requirements from investors and regulators as nature becomes the “next carbon” for data disclosure. 

This is an interesting breeding ground for innovative startups like Naturemetrics, for instance, which offers DNA-based biodiversity monitoring. Similarly to the voluntary carbon market one can imagine investments going into biodiversity or ecosystem credits, creating a new asset class. Pivotal is building a nature exchange, and Single.Earth is offering trading of tokenised assets backed by natural capital. Trustworthy methodologies to measure, report and validate will be key to advance that market.

Major opportunities lie in the intersection between nature and climate change: startups like GoodCarbon, a Planet A portfolio company, ArtREDD and Forestbase are working on nature-based solutions for climate mitigation.

Although early-stage investments into tech companies linked to SDG 14 — life below water — and SDG 15 — life on land — have increased, biodiversity is still one of the least-targeted by investors, who cite a lack of data as the primary reason. While defining common metrics for biodiversity remains challenging, these limitations should not stop us from investing in nature.

Freya Pratty is a reporter at Sifted. She tweets from @FPratty and writes our climate tech newsletter you can sign up here

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