Investments into Biodiversity: ESG, SDG & TNFD
The Changing Corporate Landscape
A key aspect to consider when reviewing the value of sharks relative to the commercial shark fishing industry is the changing corporate landscape. With the advent of the Global Biodiversity Framework and the growing interest in ESG (Environmental, Social, and Governance), SDGs (Sustainable Development Goals), and the TNFD (Nature-related Finance Disclosures), it is important to acknowledge and to recognize the perception of businesses and supply chains.
What is ESG?
ESG is an umbrella term that stands for the “Environmental”, “Social” and “Governance” aspects of commercial activities. Broadly speaking, ESG can be utilized as a set of criteria (outside a traditional balance sheet analysis) by investors when evaluating risk in a company. Increasingly, investors are aligning investments with ESG values and capitalizing on companies that actively address ESG risk through high ESG standards.
Environmental factors assess a company’s impact on the environment and vice versa. Social factors examine how a company manages stakeholder relationships, i.e. the rights and well-being of people both inside and outside of an organization. Governance factors assess how a company governs itself. In other words:
(E) – how does the company treat the environment?
(S) – how does the company treat employees, consumers and the community?
(G) – how is the company being run?
Financial institutions, and increasingly the insurance industry, have vested interests in upholding their pledges and commitments to nature, biodiversity, society, and climate change. These are all factors that are adversely impacted by the loss of the shark populations.
These industries will gradually be placed under increased pressure to ensure that their clients and their supply chains act in the best interest of planetary boundaries.
As such, by promoting unsustainable, destructive activities that impact health and well-being, equality, decent work, responsible consumption, climate resilience, food security, and life underwater, these institutions can be held responsible by the general public and other interested stakeholders. Furthermore, the target to protect 30% of the oceans by 2030 also needs to consider migratory species such as sharks to ensure their long-term sustainability. Therefore, using the example of blue sharks, the values of these sharks in the Azores of EUR 39.3m and the Northern Atlantic, Spain of EUR 57.8m are not only determined by the tangible financial value but also by the implicit role that they play within the ESG and impact community space.
With each of these arguments, it becomes evident that the value that the blue sharks can create for society, the economy, and the environment substantiates the need to ensure the long-term survival of the species. They do not provide a viable food source that resolves the threat to food security. They help to maintain the oceans in a way that balances these resources for effective food security. This further validates, in financial terms, the need to support the blue shark population's survival for both the marine ecosystem and for humans.
Can ESG disclosure improve investment efficiency?
According to the World Bank, “In 2019, 90% of S&P 500 firms published sustainability reports, up from only 20% in 2011. Pressure is mounting for companies worldwide to disclose Environmental, Social, and Governance (ESG) information. Investors like BlackRock are voting against companies such as the US oil giant ExxonMobil because of their insufficient progress on integrating climate risks into their business models and disclosures. More and more countries are mandating institutions to disclose ESG-related risks, including China and South Africa. In the European Union (EU), listed companies, banks, and insurance companies with more than 500 employees must include a non-financial statement as part of their annual public reporting obligations under Directive 2014/95/EU, also called the Non-Financial Reporting Directive. Whether the United States will mandate ESG disclosures is still being discussed, but large US corporations operating in the EU are expected to comply with EU rules.” (continue reading)
It is time the industrialized fishing companies are scrutinized in the context of ESG. Sustainable, non-extractive industries and those that protect biodiversity in the ocean will be considered better investments for the future.