On Aon Insights: Biodiversity and Institutional Investments

On Aon Insights: Biodiversity and Institutional Investments
December 20, 2023 10 mins

On Aon Insights: Biodiversity and Institutional Investments

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Host and chief marketing officer, Reinsurance Solutions, Alexandra Lewis, is joined by UK Investment Partner at Aon, Jennifer O’Neill, for insights into the critical role that biodiversity plays in planning for the future.

Key Takeaways
  1. This episode addresses the critical role of biodiversity in planning for the future.
  2. This episode discusses complexities presented in measuring the success of investments.
  3. This episode provides a recap of biodiversity, climate and institutional investments.

Alexandra Lewis:
Welcome to the On Aon Insights Podcast, where we explore the hot topics surrounding the issues that matter to you. Today, our world is more volatile than ever. We’re overloaded by data and compounded by complexity and uncertainty. Important decisions are often being made without the right information, the right insight and, more importantly, the right advice. This is where we come in. From traditional areas like risk and health to new challenges like technological and digital disruption, we’ll bring together Aon thought leaders and industry subject matter experts to give you the clarity and the confidence to make better decisions. This season, we’re exploring ESG – the world of Environmental, Social and Governance issues.

While climate change is a continuing concern for organizations and individuals, one thing may be missing from the conversation: Biodiversity. We asked Jennifer O’Neill, UK Investment Partner at Aon, how biodiversity plays a critical role in planning for the future.

Jennifer O’Neill: 
Biodiversity is really the concept of the abundance of life on earth. We're talking about the variety of all life forms, plants and animals. If we look back to 1970 and compare that to where we are today, there's been a 69 percent decline in biodiversity. That tells us that we are losing species at a very alarming rate. Now, that coincides with some of the negative impacts that we are seeing presently manifesting from a climate change perspective. Rising global temperatures make it harder for some life forms to exist. Extreme weather events make it harder for those life forms to be sustained. There's often a tendency, particularly in light of some of those physical impacts of climate change, which are very real and which are affecting all of us at the present time in various different ways to focus on climate issues in isolation.

Alexandra Lewis:
Biodiversity and climate change are closely linked. Our oceans, for example, contain untold varieties of marine life, and are natural carbon sinks. But the rise of sea levels threatens the diversity of life, as well as efforts to stem climate change. Institutions can help protect biodiversity, and with it fight climate change. And one key way is institutional investment. Jennifer explains.

Jennifer O’Neill: 
Thinking about ways that capital allocation decisions and decisions about where to invest and specifically what to invest in, and really understanding how that then has an impact, both from a climate perspective and also from a biodiversity perspective is really key. There's a number of complexities behind this, and really it's teasing out some of those complexities and taking those into account in the decision-making process. They can affect biodiversity in a positive sense as well, of course. And that's really important too, to think about how efforts to preserve and sustain biodiversity can be accelerated through some of the capital allocation choices that investors can make.

Alexandra Lewis:
While institutional investment can be a powerful tool for organizational change, it also introduces challenges. Institutions must be aware of new risks they may be exposed to. And they must understand the complexities involved in measuring the success, or otherwise, of their investments. Jennifer says more.

Jennifer O’Neill: 
If we think about a portfolio which is invested in a global sense across multiple different markets, et cetera, then there may be common risks that you were exposed to, even though your portfolio is well diversified. Sometimes those risks may not be obvious, and again, having a holistic understanding of risks is very important. Thinking about risk is really vital, but one of the primary questions that investors really want to get to the heart of is how do we measure this and really understanding what frameworks exist to be able to do that effectively. 

What I would point to there is the development of a global methodology for exactly this topic and this concept, which is the Taskforce on Nature-related Financial Disclosures or TNFD. This is a global framework really aimed at better articulating exposure to biodiversity related risks or nature related risks, and thinking about a common way of expressing those risks such that it becomes easier to standardize and to understand and conceptualize how those risks are being presented. 

Alexandra Lewis:
How can institutions prioritize biodiversity in their investment? Jennifer outlines an action list.

Jennifer O’Neill: 
Number one on that list for me is that engagement piece. Engaging with the parties that they're entrusting with their assets, whether they're investing directly in companies or whether they're using fund managers to do that. Really engaging with those parties to understand what their capabilities are and how they're taking forward some of these priorities on investors' behalf. 

I would also team that with the education piece and really learning about the importance and criticality of these issues today and how they apply across the relevant investments for any particular investor. That's going to look a little bit different depending on the nature of the investor themselves and where they're located. And thirdly, I'll finalize by saying that there are tools, there are ways of measuring. This is a fast moving and fast developing area. I think that the key thing for investors to take away is that we need to be thinking about this now so that you're not left behind.

Alexandra Lewis:
Let’s have a quick recap of what we’ve learned. Biodiversity is often overlooked in the climate change discussion. Institutional investment is a way to help protect biodiversity. Planning for institutional investment in biodiversity must take into account new risks and measurement needs. Engagement and education are great places to start. One final thought. Jennifer advises remembering a key idea as companies embark on institutional investment in biodiversity.

Jennifer O’Neill:
Don't let the perfect be the enemy of the good. We're talking about some fundamental issues that really go to the heart of existence on Earth ultimately. There's a lot to digest, there's a lot for investors to think about, and it can be very natural human tendency to say, this is so big and so complex that actually I'm not sure I can really do anything with this right now. 

We are really talking at a pivotal time for making decisions today rather than deferring those decisions for future and looking to park those until such time as we have perfect data. One, I don't think that the time that we have perfect data will come, and secondly, if we do, it will be too late. It's important that investors really think about this now and begin to understand not only what they can do, but also what their current position is so that they can determine what actions might look like for them.

Alexandra Lewis:
Thanks for joining us at On Aon Insights. And thanks to Aon’s Jennifer O’Neill for her expert take on the topic. Remember to check our show notes for recommended reading and places to learn more.  And don’t forget to rate, review and subscribe to the podcast. Until next time.

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The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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