22 April 2021 / Macro

Investors should consider biodiversity and pharma this Earth Day

By Michael Lewis, head of ESG thematic research, DWS

As much as 50% of prescription drugs are based on a molecule that occurs naturally in a plant

Investors should consider biodiversity and pharma this Earth Day

Today marks Earth Day, intended to unite the world in support of environmental protection. But since 1970, when the first Earth Day was held, threats to land and marine ecosystems as well as species populations have vastly increased.

For example, over this 50-year period, 32% of the world’s forest area has been destroyed, 85% of wetlands have been lost, 50% of the world’s coral reef systems have disappeared and there has been, on average, a 60% decline of vertebrate species.

This level of biodiversity loss puts at peril the air we breathe, the water we drink and the food we eat. According to the Sustainable Business Development Commission’s estimates, biodiversity loss directly creates societal burdens at 3% of global gross domestic product (GDP) per year. Only conflict and armed violence, at 9.1% of global GDP, places a more severe burden on the planet.

The two are related. According to a 2019 study by Nature, climate has influenced between 3% and 20% of armed conflict risk over the last century and that share could grow in the years ahead, even if we can limit global temperature rise to no more than 2° Celsius.

It may therefore be no coincidence that this week also marks US president Biden convening 40 world leaders to a Leaders’ Summit on Climate. Given the US’s recently declared intention to be net zero by 2050, new US greenhouse gas (GHG) emission reduction targets are also on the table.

Work by Climate Action Tracker reveals that for the US to reclaim its place as a climate leader requires a minimum GHG emission reduction target of 57% from 2005 levels to be announced anything less would mean the US still falls short of European ambitions when it comes to greenhouse gas emission reduction.

Credible estimates suggest the indirect costs of biodiversity loss could be higher still: more than half of global GDP depends on nature and the services it provides. Food and beverages, agriculture and fisheries and construction are exhibiting the highest nature dependency. The technologies of the fourth industrial revolution can potentially deliver a shift towards a net zero emissions, nature-positive world focusing on forest restoration, sustainable aquaculture, plant-based meat, precision and regenerative agriculture and reducing food waste.

Pharma’s place

But spare a thought for the pharmaceutical industry, which also relies heavily on nature. As much as 50% of prescription drugs are based on a molecule that occurs naturally in a plant. When it comes to the treatment of cancer, 70% of cancer drugs are natural or synthetic products inspired by nature.

In addition, it is believed that so far only 15% of an estimated 300,000 plant species in the world have been evaluated to determine their pharmacological potential. And where we know there is medicinal value, such as the malaria drug quinine from the South American cinchona tree, that species is currently on the endangered list.

So, as the world continues to deal with a global pandemic, it is worth pointing out that drug discovery would be a direct casualty of failing to stop the collapse in land ecosystems. That comes at a time when scientists are warning us that antimicrobial resistance is on the rise.

Investors have a key role to play to ensure these risks are managed in portfolios, but more importantly, to use our influence with companies and governments to help humanity stop destroying our only home. A study by the Dutch central bank found Dutch institutions have 36% of their portfolios exposed to companies with high or very high dependency on ecosystem services. No surprise then that insurance supervisors covering 92% of global premiums are undertaking a landmark scoping study on the financial risks of biodiversity loss and analyse how insurance supervisors and insurance companies are responding to these risks.