Amidst the daily routine we often forget to appreciate – at least I do – how truly extraordinary our planet is! There are around 8.7 million unique species on Earth. And yet regardless of the technological achievements we still have not discovered all of them. There are corners of the world – like deep oceans and dense forests – where nature has kept her secrets well-concealed.
The big and colorful mosaic
All the species together make up a big colorful mosaic – that is Biodiversity. Each piece of mosaic – no matter how small or inconspicuous – must remain in its place. Otherwise, the picture would be distorted, the balance will no longer hold.
In our ecosystem everything works together – each member is producing services for others and is relying on others in return. Trees clean air in the forest, plants provide food for animals, animals help plants to survive by spreading their seeds, bees pollinate flowers to make them flourish. These are “ecosystem services” – all the helpful things living creatures do for each other.
Besides services, there are valuable artifacts nature possesses: clean water, fertile soil, minerals – so-called “environmental assets”. Despite our comparatively short existence on Earth we, humans, have excelled at utilizing both the assets & services to their full capacity. Giving back, unfortunately, has not been our strong side. Result of this utilitarian approach can be seen today: biodiversity is declining at the rate never seen in history. Over 1 million species are under threat of extinction. Time is high for us to start paying back our debts to nature.
What are the risks biodiversity loss poses?
In The Future of Life (2002), Edward Osborne Wilson of Harvard calculated that, if then-current rate of human disruption of the biosphere continued, one-half of Earth’s higher lifeforms would be extinct by 2100. With fewer species, ecosystems become more fragile, more prone to collapse. Ecosystem services such as soil fertility and water purification on which we rely for existence become unavailable. Systemic risks, economic risks, health risks – are among the first things that come to mind, but there are many more hazards and ripple-effects.
Policies and regulation to halt nature loss
Financial supervisors having recognized acute systemic risk from nature loss have put forth policies and regulation – most ambitious being the Kunming-Montreal Global Biodiversity Framework (GBF) which aims to halt & reverse nature loss by 2030.
European Sustainability Reporting Standards (ESRS) are expected to substantially raise the quality of nature-related disclosures at least in the EU. The Taskforce on Nature-related Financial Disclosures (TNFD) has developed a set of disclosure recommendations that enable companies to assess their nature-related impacts, risks, and opportunities with the ends of integrating Nature into decision-making. TNFD is more rigorous in specifications and expansive in scope than ESRS. This year’s Conference of the Parties (COP16) to the UN Convention on Biological Diversity (CBD) will discuss progress of the countries towards national goals and targets under the Kunming-Montreal Global Biodiversity Framework.
To advance achievement of GBF targets, all stakeholders must join forces. Policymakers, academia, financial institutions, and private sector must do their part in repairing our planet. On its part, Erste AM contributes to biodiversity restoration by:
- integrating Nature considerations into its investment decisions.
- engaging with companies regarding their Nature strategy.
- engaging with broader community on Nature-related topics.
Financial flows must be directed towards “nature-positive” projects. Investment decisions – of the corporate and financial actors alike – must embed nature considerations. To be sound, decisions must be based upon facts revealed by comprehensive corporate disclosures. However, mandatory disclosures, as they are today, leave it to the discretion of managers to decide what is important for their business and disclose only that. Many see it as a pretext to forego nature-related reporting altogether.
Chemicals and pharmaceuticals industries in focus
That is why it is crucial to engage companies and question their stance on biodiversity so that the issue is included in the agenda of their board meetings. Impacts & dependencies on nature must be thoroughly assessed and disclosed. Biodiversity transition plans must be put together. Biodiversity targets must be embedded in corporate governance. These are the targets we have as our North star when we are engaging companies on the topic of biodiversity.
For an engagement to be effective, it must be targeted. We have singled out chemicals and pharmaceuticals industries as our top priority for biodiversity engagement this year as companies within these fields rely heavily on natural capital and are at the same time a large contributor to environmental pollution. The production processes and waste disposal practices of pharmaceutical companies can produce biowaste that creates biosafety hazards for humans and the environment—especially aquatic ecosystems. One of the most hotly debated topic is the use of pesticides. According to PAN Europe their use “in crop production has a major effect on biological diversity, alongside habitat loss and climate change.” Target 7 of GBF speaks directly to that by aiming to reduce the risk from pesticides by at least 50% by 2030.
Our new engagement with Bayer AG
Being one of the largest pharmaceuticals and chemicals companies, as well as one of the six companies responsible for almost 80% of world’s pesticide production, Bayer AG seemed to be a perfect target for an engagement. Bayer has made substantial progress towards integrating Nature into its product and investment decisions, however, there are still unresolved concerns that need to be addressed.
First, Bayer has not aligned its targets with the Global Biodiversity Framework: it had committed to reduce the hazard from pesticides by 30% – against the 50% mandated by the Framework. We are also concerned that the methodology for assessing environmental impact of its crop protection products is not comprehensive enough and considers only the impact on the aquatic ecosystem. Hence, a third-party audit should be beneficial once the methodology is complete.
Furthermore, there are several controversies in which the company is involved. In 2023 Bayer was accused of withholding 9 brain toxicity study results from European regulators – most probably fearing the loss of distribution market for its pesticide products containing controversial active components. According to ShareAction study, in 2018 Bayer had 3,055 tons of EU-banned pesticides notified for export. The destination was Ukraine. The pesticide was banned as some evidence showed their active component “acetochlor” caused cancer and damaged fertility. Nevertheless, the company is actively working to improve its governance, and the management has been both open to dialogue and willing to listen to shareholder concerns.
More ambitious targets needed
We are cognizant of the fact that the change cannot take place over night, yet we hope to see more ambitious targets and more radical change in the next years. Bayer should assess & disclose its contribution to biodiversity loss, set science-based targets aligned with the Global Biodiversity Framework, implement a clear strategy to reach these targets, set up governance and align incentive schemes – for the board, management, and employees.
For that purpose, we are engaging with Bayer through multiple channels, among them are Nature Action 100 (NA100), PRI Spring, and ShareAction’s Pesticide Working Group. NA100 is a collaborative engagement led by investors from all over the world and it pushes companies to assess, disclose & better manage their nature-related impacts, risks, and opportunities (I/R/O).
As part of ShareAction’s Pesticides Working Group we will engage with Bayer on the topics of scaling its sustainable product solutions and on aligning its targets with GBF. Through PRI Spring initiative – a collaborative engagement set to start in the summer of 2024 – we plan to engage with Bayer on a deeper level. To make meaningful progress, the company needs to align its supply chain management practices and pollical engagement activities with the targets of GBF.
Finally, we will engage with Bayer through one-on-one dialogues whenever possible to learn about the ways they are integrating Nature into corporate governance and the ways they ensure nature-related issues are detected early and addressed proactively.
Open dialogue, collaboration, and willingness to talk and listen we have found in Bayer so far makes us optimistic about the outcomes of these engagements. We will keep you, our dear readers, informed of the progress – so look out for our next ESGenius letters to see how this story unfolds.