Biodiversity concerns moving towards parity with climate change worries for investors

Written by Adam Cadle

21/03/2023

Biodiversity concerns among global institutional and wholesale investors are moving towards parity with those around climate change, Robeco’s latest Climate Survey has revealed.

Nearly half (48%) of investors say biodiversity is important or central to their investment policy and this is projected to increase to 66% over the next two years. Equities, green bonds and private markets are the leading asset classes for biodiversity integration, however the biggest barriers to implementation are a lack of suitable data and ratings (53%) and insufficient internal expertise (41%). Just 25% of investors are currently using funds specifically targeting biodiversity goals, but there has been a big jump in demand for impact funds (60%) and thematic funds (57%) compared to 2022.

The research also showed that this year slightly more investors have made, or are in the process of making, a public commitment to net-zero by 2050 compared to last year (48% vs. 45%). Figures showed a lot of progress on materiality assessment with a majority of investors (55%) assessing the impact of their portfolios on carbon emissions. Scope 3 emissions, or indirect emissions such as business travel and waste disposal, remain a challenge, however, with only 20% of investors measuring these. Just 27% of investors have obtained a forward-looking view of investee companies’ emissions pathways. The survey also showed a significant take-up of climate change scenarios with 25% of investors having either already integrated these into capital market assumptions or are likely to do so in the next 12 months. Furthermore, 29% have adopted or will adopt climate-tilted benchmarks over the next year.

Robeco said the energy crisis has reinforced the importance of backing renewables for over half (51%) of investors, yet only 30% have accelerated their portfolio decarbonisation efforts in the light of recent events. Nearly half of investors (47%) have reviewed some of their ESG approaches to avoid short-term underperformance, including unwillingness to miss out on strong returns in the oil and gas sector. In fact, 38% of investors in Europe have been allowing higher allocations to oil and gas companies in the short term, rising to 48% in North America and 59% in APAC. In the process of moving to a low-carbon economy, a just transition - or addressing the social implications of the energy shift - is also becoming more important to investors. Sixty-eight per cent said it will be a significant factor to their investment policy in the next two years, however only 41% have the knowledge to support this.

A final outcome of the 2023 Climate Survey is the intensified political pressure investors face, highlighting an important regional divergence. As the anti-ESG movement in the US picks up, 47% of investors in North America are concerned about rising political and legal resistance to their sustainable investment plans versus only 30% in Europe. A majority of European (63%) and APAC (57%) investors, on the other hand, are more concerned about political pressure for failing to act on ESG and climate compared to a minority in North America (40%) that feels the same.

Lucian Peppelenbos, climate & biodiversity strategist at Robeco, said: “At Robeco, we see it as our duty to share our expertise with others and we hope that this research will further stimulate the investment industry to help tackle climate change and loss of nature and to work on decarbonisation."

Robeco’s Climate Survey covers 300 of the world’s largest institutional and wholesale investors in Europe, North America, Asia-Pacific and South Africa, representing a total of around US$27.4trn in assets under management.

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