CONTRIBUTORS
Magdalena Gruszecka
Sustainability Analyst
Franklin Templeton Fixed Income ESG
Justyna Tasic, Ph.D.
Fixed Income Sustainability Manager
Sustainability & Europe Fixed Income
Preview
“From the world’s great rainforests to small parks and gardens, from the blue whale to microscopic fungi, biodiversity is the extraordinary variety of life on Earth.”1
Nature is a valuable asset that must be protected. Currently over 50% of the world’s total gross domestic product (GDP) is moderately or highly dependent on nature.2 According to the World Economic Forum’s 2023 Global Risks Report, the loss of biodiversity and collapse of ecosystems is the fourth most severe global risk facing us in the next decade.3 Therefore, we believe integrating biodiversity considerations into investment strategies is essential not only for long-term financial resilience, but also for our environment.
In our view, high-impact companies should prioritize the protection of biodiversity alongside their transition to a net-zero economy. We would like this publication to serve as a call to action for high-impact companies to address the challenges related to land use, deforestation, water conservation, climate change mitigation, waste management and species conservation.
In his report, we present the findings of a survey we received from 70 respondents (out of more than 220 surveys sent) from high-impact industries to understand their approach to biodiversity and assess the actions they have taken to address biodiversity-related concerns. We selected companies that have a significant impact on the reduction in biodiversity, as well as those that are highly dependent on it.
Key findings
- Nature is a valuable asset, and it is our job to consider the ways in which use of that asset can have a positive or negative impact on our investments. Investors need to raise awareness around and drive action for prioritizing the consideration of biodiversity risks and opportunities in business practices.
- Of the companies we surveyed, 77% had a biodiversity-related policy in place.
- Our survey revealed that 54% of companies had operations located in or near biodiversity-sensitive areas and implemented all the relevant mitigation measures to ensure that they did not negatively affect them.
- Within our survey, 11% of the companies were unaware of where their facilities were located in relation to biodiversity-sensitive areas, highlighting the need for more engagement.
- Companies are not standalone entities and often cooperate with a wide network of suppliers. We have found that there is still much room for improvement in integrating supply chains in companies’ biodiversity protection efforts.
At Franklin Templeton Fixed Income (FTFI), we understand how valuable nature is. Therefore, for all strategies where biodiversity is taken into account as an investment factor, we include biodiversity-related considerations in our investment decision-making process. Moreover, by actively engaging with companies, understanding their operations and products, advocating for stronger commitments and promoting sustainable practices, we are trying to mitigate the risks associated with biodiversity loss.
Endnotes
- Source: “EU Biodiversity Strategy for 2030, Bringing nature back into our lives.” Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. May 2020.
- Source: “Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy.” World Economic Forum. January 2020.
- Source: “The Global Risks Report 2023.” World Economic Forum. January 2023.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
Green bonds may not result in direct environmental benefits, and the issuer may not use proceeds as intended or to appropriate new or additional projects.
The managers’ environmental, social and governance (ESG) strategies may limit the types and number of investments available and, as a result, may forego favorable market opportunities or underperform strategies that are not subject to such criteria. There is no guarantee that the strategy’s ESG directives will be successful or will result in better performance.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.