The Unhedgeable Risk

Matt Orsagh, CFA, CIPM, Former Senior Director, Capital Markets Policy, CFA Institute, author of the report Integrating natural capital and biodiversity in the investment process, published by CFA Institute, outlines why asset owners and asset managers have to take the crossing of planetary boundaries into account as they have a direct impact on investments and markets.Systemic risk in natural capital issuesInvestors also need to take into consideration the systemic risks inherent in many natural capital issues. For example, an investor will need to address the systemic risks of climate change to ensure that there are markets to invest in in the future.It does little good to tilt a portfolio so that it is more “climate friendly” than its peers if climate change remains unchecked, eventually leading to market and societal collapse. This will involve investors making the case to policymakers that climate change action is needed to preserve markets so that they are there to serve future generations.

"Like climate change, natural capital

as a whole presents investors with an “unhedgeable risk.”

Matt Orsagh, CFA, CIPM

"This means that the risks of climate change and natural capital cannot be diversified away, because they will affect all companies around the world. The problems of climate change and natural capital must be addressed by investors, business leaders, and policymakers because they are so all encompassing that they affect all investments, all businesses, and all governments. There is simply nowhere to hide from their impacts", as explained by Matt Orsagh.

The report represents a comprehensive introduction into the concept of Natural Capital and provides insights into a number of very important areas, including the following:

• What is Natural Capital?
• Planetary boundaries and impact on civilization
• Economic, investor and societal implications of Natural Capital
• Valuing Natural Capital and the challenge of data
• Existing data from scientists and how to make them investor-friendly
• Resources on Natural Capital: Taskforce on Nature-Related Financial Disclosures (TNFD), Natural Capital Protocol, NatureFinance, Science Based Targets for Nature (SBTN), World Benchmarking Alliance
• Case Studies: Ocean; Cattle; Vultures; Carbon Capture, Utilization and Storage
• Green Growth
• Degrowth

More articles on biodiversity on investESG.eu All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.