One approach in our view is to start with sub-asset classes where the impact on biodiversity is more direct, facilitating the task of demonstrating additionality and intentionality. Examples include nature-based solutions (NBS) focused on investments that restore, help protect, and manage landscapes to sequester carbon, sustainably produce timber and agricultural products, help to improve biodiversity, and seek to generate economic benefits for local communities.
One example is investments in a reforestation strategy in the Cerrado region of Brazil alongside BTG Pactual Timerland Investment Group (TIG). The Cerrado region is the biologically richest savanna in the world, which contains 11,000 plant species, half of which are endemic to the region. TIG’s two-part strategy seeks to conserve and restore native ecosystems on half of their properties, and establish commercial tree farms that produce long-lived, renewable wood products, and sequester carbon on the other half. As of December 31, 2023, we have invested in a 35,000-hectare portfolio of properties with TIG and other investors.15 Biodiversity baseline assessments indicate the portfolio supports over 319 species of animals and plants.
For public markets, we believe a key step is to develop a clear framework for identifying companies that are aligned with an investor’s definition of a biodiversity solution, with tailored applications across asset classes. In listed equities, for example, investors could assess the alignment of a company’s products and services with the Sustainable Development Goals (SDG), for example SDG 12 (Responsible Consumption and Production) or SDG 15 (Life on Land). In fixed income, a thematic approach could include labeled bonds with biodiversity-related use-of-proceeds categories, e.g. a paper and pulp company that allocate use of proceeds towards investments related to terrestrial biodiversity activities such as investments related to restoration and conservation of existing native forests. It could also include conventional bonds from issuers with leading biodiversity profiles, e.g. a packaging company that focuses on sustainable packaging solutions from majority recycled materials, and remaining non-recycled materials sourced from sustainably managed forests. This combination of labeled bonds and vanilla bonds that meet respective biodiversity criteria would provide exposure to a wider universe and allow investors who may consider seeking to build a portfolio with a better risk-return profile.
As global frameworks on biodiversity risk, dependencies and impact consolidate, it also provides a potential opportunity to leverage the power of stewardship to engage with key companies to understand their approach to managing biodiversity and nature-related risks, and to promote accountability and transparency. This could involve disclosure such as plastic-packaging usage for Fast-Moving Consumer Goods companies, deforestation reduction plans for commodities companies, more detailed deforestation risk-exposure analysis, and impact and progress reporting. See Goldman Sachs Asset Management’s latest Stewardship Report for more details on how we engage on biodiversity and nature.
Helping to protect biodiversity and nature is a critical part of advancing the transition to a sustainable economy. Awareness of the importance of biodiversity is growing, and investment is on the rise, yet the need for increased capital is urgent. As investors begin to explore nature-related risks and opportunities, many find that techniques applied in climate investing do not translate directly to the nascent biodiversity market, and that a new, targeted approach is needed. Based on our own experience and engagement with investors, we think investors should begin by clarifying their objectives and then select tools that are fit for the purpose of assessing companies and identifying investment opportunities.
Our approach to sustainability is founded on two intersecting areas of impact: helping to accelerate the climate transition and advancing inclusive growth. These are the areas where we believe we can have the most impact. Learn more on Climate Transition and Inclusive Growth.
1See “Investing in Biodiversity: A Multi-Asset Guide,” GS SUSTAIN. As of October 5, 2023. Net assets in 20 European funds and one US-domiciled fund amounted to about $3.4 billion according to the report, based on the latest data then available.
2 “Biodiversity in ESG: State of the Sustainable Finance Market,” Sustainable Fitch. As of October 9, 2023.
3Goldman Sachs Asset Management, MSCI. Based on analysis of annual reports from companies in the MSCI ACWI Index. As of December 31, 2023. The MSCI ACWI Index is MSCI’s flagship global equity index.
4Goldman Sachs Asset Management, MSCI. Based on analysis of annual reports from companies in the MSCI ACWI Index. As of December 31, 2023.
5“Living Planet Report 2022,” WWF. As of October 2022.
6“Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy,” World Economic Forum in collaboration with PwC. As of January 19, 2020.
7For example, the Kunming-Montreal Global Biodiversity Framework, an international agreement reached in 2022, set a range of targets for 2030, including cutting global food waste by half and ensuring effective conservation of at least 30% of the world’s lands, inland waters, coastal areas and oceans. See “Kunming-Montreal Global Biodiversity Framework,” Convention on Biological Diversity. As of December 19, 2022.
8Kunming-Montreal Global Biodiversity Framework, Convention on Biological Diversity. As of December 19, 2022.
9https://www.un.org/en/climatechange/net-zero-coalition
10For example, MSCI researchers identified 15 funds globally bearing the term “biodiversity” in their name as of the third quarter of 2023, whereas the number of funds with names and objectives thematically related to biodiversity, such as environment and circular economy, was far larger at 134. See “Biodiversity Funds: Welcome to the Jungle,” MSCI. As of September 20, 2023.
11“Five Drivers of the Nature Crisis,” United Nations Environment Programme website. As of August 21, 2024. IPBES stands for Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services.
12“Regulation (EU) 2023/1115 of the European Parliament and of the Council,” Official Journal of the European Union. As of May 31, 2023.
13“EU Proposes to Delay Landmark Anti-Deforestation Law by 12 Months,” Reuters. As of October 2, 2024.
14For investors who care about all three lenses, individual metrics or frameworks will likely not provide a complete picture and a combination may be required.
15“We” refers to the Goldman Sachs Asset Management Imprint team.
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