When biodiversity matters for investors

Biodiversity loss is becoming one of the defining environmental challenges of our time. The WWF estimates a 73% decline in monitored wildlife populations over the last 50 years², while the Stockholm Resilience Centre reports that seven of nine planetary boundaries have been transgressed³. At the same time, the World Economic Forum estimates that more than half of global GDP⁴ is moderately or highly dependent on nature and its services. Many of these dependencies are hidden. For example, the World Health Organization estimates that around 40% of approved medicines⁵ are derived from natural products or inspired by compounds found in nature. The ecosystems being degraded today have historically provided many of the building blocks of modern medicine.

The relationship between nature and the economy is complex. Businesses depend on ecosystems for everything from agricultural productivity and water availability to raw materials and pharmaceutical discovery. At the same time, economic activity can alter the ecosystems on which it depends⁶.

To better understand this issue, we used AI to support an initial screening of around 150 investee companies from Carmignac portfolios, selected based on position size, while ensuring a mix across sectors, asset intensity and developed and emerging markets. This helped us to identify potential biodiversity dependencies and prioritise deeper fundamental research. We asked AI the following questions:

• Dependency – does the company rely on a specific ecosystem, species or natural resource?
• Degradation – is there evidence that the resilience of that system is deteriorating?
• Catalyst – could weather, disease, regulation or another event expose the vulnerability?
• Financial impact – could this affect costs, volumes, pricing power, margins or capital allocation? And what adaptation and response levers are available to the company?

Following our initial screening, we conducted deep fundamental reviews of the most relevant companies. We found that the strongest path to financial materiality was through reliance on agricultural commodities and biological inputs. Natural rubber provided one of the clearest examples. Disease pressure, weather variability, long planting cycles, crop switching and regulation have reduced flexibility within the supply system, increasing its sensitivity to future shocks. Coffee, palm oil and forestry revealed a more nuanced picture. Despite evidence of ecosystem degradation in some regions, the main drivers of short-term financial performance remained weather, inventories and supply-demand dynamics rather than biodiversity itself.

One of the most interesting findings came from our work on Novonesis. We initially expected biodiversity to be relevant because the company's products are rooted in biology and biological discovery. Instead, we found a more significant financial connection through agricultural commodities used in production. By reducing ecosystem resilience, biodiversity loss can amplify the impact of weather events and supply disruptions, increasing volatility in commodity markets and therefore Novonesis’ input costs.

1. Biodiversity risks are often highly localised
Unlike climate change, biodiversity loss is highly localised. This makes biodiversity risks more diversifiable at the portfolio level and companies frequently have more adaptation options available.

2. Dependencies matter more than impacts
Our work suggests biodiversity risks are most likely to become financially material where companies depend directly on ecosystems, agricultural commodities or biological resources. In contrast, biodiversity currently lacks a transmission mechanism comparable to carbon taxes, emissions trading schemes or net zero policies, meaning broad nature impacts do not necessarily create financial risks for all companies. Instead, we see impacts as a long run risk best addressed via stewardship and engagement.

3. Biodiversity is best seen as a risk amplifier
The most significant risks typically arise when ecosystem degradation reduces resilience and increases vulnerability to other events such as extreme weather, disease outbreaks, regulation or supply chain disruption. In this sense, biodiversity often acts as a risk multiplier rather than a standalone driver of financial outcomes.