Ethos ESG Issue Brief: Life on Earth
Brief background on the issue:
Our continued existence as a species depends on our relationship with the planet. Life exists in a harmonious balance that we are currently stretching to the breaking point. Protecting biodiversity and ensuring we use our ecosystems in a sustainable manner are vital as we look to the future.
An article written by The Guardian points out that while humans make up .01% of all life, we have destroyed 83% of wild mammals. In addition, more than one fifth of the Earths total land area was degraded from 2000-2015, largely due to human-induced processes such as desertification, cropland expansion and urbanization. The threats to forest and ocean health endanger the lives of billions of people, both directly and indirectly. Corporations play an essential role in addressing these threats.
Ethos ESG provides a comprehensive framework for understanding how companies and funds impact the broad cause of Life on Earth, which includes the sub-causes of Healthy Oceans, Humane Treatment of Animals, and Terrestrial Biodiversity. This issue aligns with United Nations Sustainable Development Goal 14 and 15.
Discussing Life on Earth:
As with the other Issue Briefs released by Ethos ESG, we view any investment decision as a combination of both emotional and pragmatic (financial) elements. When taken together these elements allow for a more holistic approach to investing. We believe it is possible to make money while also respecting the planet.
Emotional Case:
As mentioned above, human beings have destroyed a massive percentage of the worlds mammal population (as well as other species). One need only look to examples such as The Great Pacific Garbage Patch to see what human consumption has wrought on the ocean. It is estimated that 100 million marine animals die each year from plastic waste.
Moving to land, we see that cattle ranching on a large scale is a significant contributor to greenhouse gas emissions. Each year, a single cow can emit up up to 220 pounds of methane, a gas 28 times more potent than carbon dioxide in warming the atmosphere.
Our terrestrial biodiversity is decreasing each year and with the increase in global temperatures. Biodiversity underpins the functioning of ecosystems and its loss threatens services that these systems provide to humans, such as flood prevention, soil conservation, water purification, crop pollination, food provision, tourism etc. It is estimated that if global warming is not limited to 15C, large-scale geographic range loss for up to 50% of the worlds plants and animals will occur. This will lead to accelerated risks of extinction and a massive disruption of our functioning ecosystems.
Financial Case:
As mentioned, healthy ecosystems provide the tools necessary to sustain life on planet Earth. And much as with climate change, biodiversity loss will result in increased financial risk. And the costs are high. The OECD estimates that between 1997 and 2011, the world lost between 6 and 11 trillion dollars just from land degradation. They also estimate that the ecosystem services delivered by healthy biodiversity, such as crop pollination, water purification and flood protection are worth up to 140 trillion dollars, or more than one and a half times the size of global GDP.
According to research conducted by the NGFS (Network for Greening the Financial System), about 85% of global arable land is threatened by erosion, pollution, salinization, and soil compaction. The resulting economic cost is estimated at $10.6 trillion per year. With loss of habitat and other biodiversity-related issues, the genetic pool among plants is shrinking and an associated dramatic reduction in food production is possible.
It is not just agriculture and our ability to feed our populations that is at stake. Energy production, tourism, real estate, transport and retail are all impacted by biodiversity loss. For example, the United States national parks contribute over $20 billion to GDP, through direct and indirect methods (labor and supply chains). As we lose more of our biodiversity, this number is sure to decrease.
Perhaps even more drastically, roughly 70% of cancer drugs have a natural origin, and roughly 80% of the most prescribed medications in the United States have a natural origin. The destruction of our natural habitats ought to be a factor in an individuals investment plan.
How Ethos ESG can help:
Evaluate investments by their Life on Earth score, an aggregation of over 300,000 data points related to metrics like deforestation and factory farming.
Incorporate the Global Warming Potential analysis into client reports. Show investors how the policies and actions of portfolio holdings align with varying degrees of global temperature increase.
Utilize Impact Stories to show investors how investments in funds or companies make a direct impact on addressing the climate crisis
Other Life on Earth resources:
biodiversity_and_financial_stablity_building_the_case_for_action.pdf (ngfs.net)
G7-report-Biodiversity-Finance-and-the-Economic-and-Business-Case-for-Action.pdf (oecd.org)