Yahoo Finance UBS calls out ‘shortsighted’ bias of climate investors
By Sheryl Tian Tong Lee
(Bloomberg) — UBS Group AG is warning that investors have vastly underestimated the financial and economic impact of the biodiversity crisis.
“Biodiversity loss requires just as swift action as climate change,” UBS Chair Colm Kelleher and Chief Executive Officer Sergio Ermotti wrote in a study published by the bank’s sustainability and impact institute on Monday. The situation requires a “new wave of transition finance, governmental resolve and stakeholder partnerships,” they said.
While climate change has dominated the green investing agenda in recent years, biodiversity has remained under the radar. That bias is “shortsighted, considering almost two-thirds of the economy is at least moderately dependent on it,” according to the UBS study.
Most corporations and investors don’t treat biodiversity and natural capital risks — the loss of species, as well as air, water and soil pollution — as an issue that can affect financial outcomes. Nor is there adequate data to measure its real impact. The result has been that “private capital allocation, corporate actions, and consumer behaviors mostly ignore its value in their everyday activities,” the UBS study said.
The first hurdle is figuring out how to accurately measure biodiversity, UBS said. For now, however, an absence of reliable data has left assets mispriced.
It’s a warning that others have also issued. Analysts at Barclays Plc noted last year that failure to correctly price biodiversity risk opens the door to lost value and even litigation. And some investors are already looking for ways to profit from the skewed asset prices that have resulted as corporations and governments ignore natural capital.
On Tuesday, the Taskforce on Nature-related Financial Disclosures said that 320 organizations from more than 46 countries have “committed to start making nature-related disclosures” based on a list of recommendations that it published last year. The signatories, which include UBS, have agreed to start releasing nature-related disclosures as part of their annual reports, TNFD said.
The finance industry has faced pressure to pay closer attention to biodiversity since a landmark deal was struck at the COP15 summit in late 2022, paving the way for new regulations and more investor demand. The Global Biodiversity Framework requires the roughly 200 signatory states to work toward a reversal of biodiversity loss by the end of this decade.
“Now the challenge is delivery, and based on the targets, it will be a race against time,” a team of authors led by William Nicolle wrote in the UBS report. If key ecosystems start to collapse, the toll on global gross domestic product may reach $2.7 trillion a year by 2030, according to the World Bank.
For now, there’s a huge gap between what the world is spending on protecting biodiversity, and what’s needed, UBS noted. And the larger role for private finance envisaged in the COP15 agreement “sits uncomfortably next to the needs of institutional investors for stable returns and efficiency, which nature-related assets struggle to offer today,” it said.
Some banks and asset managers have already been adjusting their operations to adapt. These include Standard Chartered Plc hiring its first head of biodiversity, while Deutsche Bank AG set up a panel to help it assess nature-related risks and identify new financial product offerings tied to biodiversity.
And late last year, UBS named Ramzi Issa as its head of global structured credit and sustainable credit products. The former Credit Suisse banker helped build the current market for debt-for-nature swaps, one of the fastest-growing corners of finance for biodiversity.
Delays in action risk making “the task of reversing biodiversity decline by 2030 harder as time passes,” UBS said.
—With assistance from Natasha White.
©2024 Bloomberg L.P.
