The hidden cost of nature loss

Biodiversity is declining at an alarming rate, threatening the ecosystems that support human life, economic stability, and social well-being.

With over half of global GDP reliant on nature [1], the loss of natural systems like forests and pollinators jeopardises food security, health, and livelihoods especially in vulnerable communities.

Despite this, only a small fraction of companies have biodiversity targets, exposing investors to potential unmitigated risks.

Royal London Asset Management is responding by integrating biodiversity into its engagement strategy, launching two engagement programmes:

1. Exploring the interconnectedness of climate and nature, to help understand the impact one is having on the other.
2. A ‘just nature’ programme to ensure that conservation efforts are not only environmentally sustainable but also socially inclusive, supporting local communities, indigenous peoples, and workers in the transition to a nature-positive future.

The problem

Nature is in crisis. Biodiversity is deteriorating worldwide at unprecedented rates. Around 25% of known species in animal and plant groups are being threatened, which suggests around 1 million species already face extinction. Biodiversity is declining faster than at any time in human history [2].

The consequences

Nature is critical. Healthy, biodiverse ecosystems provide environmental, social and economic stability.

The environmental consequences of the deterioration of our natural world are widespread. Natural systems such as forests, wetlands, and coral reefs act as buffers against extreme weather events, helping to mitigate the physical and financial impacts of floods, storms, and soil erosion. The degradation of nature can disrupt these services. Nature loss can lead to resource scarcity as this can disrupt processes such as pollination and decrease soil fertility.

Economically, in 2025, nearly 55% of global Gross Domestic Product (GDP), US$44 trillion, is dependent on nature. The pharmaceutical industry alone earns approximately US$32 billion annually from products derived from nature and 80% of rural populations in developing countries rely on plant-based medicine [2]. This highlights the value of sustainably managed ecosystems. Preserving biodiversity is a strategic economic investment that can unlock new markets, drive innovation and significantly boost GDP. Traditional agriculture is another example, relying on natural processes such as water, pollination, soil fertility and climate regulation.

The decline we are seeing in biodiversity and the deterioration of nature also has social consequences. Many stakeholders in society are reliant on nature. Not only from the benefits of pharmaceuticals as mentioned earlier but also the value it brings to local communities and indigenous peoples. These groups often possess valuable knowledge regarding nature, and their livelihoods can be dependent on it. The degradation of nature could result in the loss of deep ecological knowledge passed down through generations, the dilution of cultural identity and forced migration, ultimately leading to a reduction in indigenous communities.

Equally, as we transition to reduce impacts on nature there will be industry shifts, technological advancements, and changes in operational structures which may inadvertently result in job losses. These adjustments, while vital for fostering environmental sustainability and biodiversity conservation, can bring significant social challenges if not addressed holistically.

The solution

While many of the world’s leading companies have a climate target, only 5% have a biodiversity [1] target. Considering the global economy's reliance on nature, it is critical that all companies play a proactive role in halting and reversing nature loss within this decade.

While many of the world’s leading companies have a climate target, only 5% have a biodiversity target.

Nature can still be conserved, restored, and used sustainably. The primary forces driving changes in nature are human impact on land and sea. These forces can be direct, when we use natural resources like animals, plants or land, or indirect – via climate change, which we will explore in our engagement programme on the climate-nature nexus later in the year.

During the fifteenth meeting of the Conference of the Parties (COP 15) in 2022, there was international agreement to adopt the Kunming-Montreal Global Biodiversity Framework, which sets out an ambitious pathway to reach the global vision of a world living in harmony with nature by 2050 [4].  A global ‘30by30’ target was also developed, to ensure and enable that by 2030 at least 30% of land and sea are effectively conserved and managed through ecologically representative, well-connected and equitably governed systems. The UK has committed to protect 30% of land and sea for nature by 2030 in support of the global 30by30 target.

What we are doing

Nature is one of Royal London Asset Management engagement priorities. We are members of Nature Action 100, a global initiative encouraging companies to disclose their impacts and dependencies on nature and to act to reverse nature and biodiversity loss. Previously we have engaged on Biodiversity Net Gain and have a long-standing engagement project with the UK water sector, incorporating biodiversity risk, which you can read more about in our Stewardship and Responsible Investment Report.

We recognise that nature does not operate in isolation and there are clear, non-environmental consequences of the decline in nature as outlined above. Nature and climate are also intrinsically linked. This is something we are exploring and intend to launch an engagement programme on this topic.

Additionally, we are launching an engagement programme focusing on the social impact of biodiversity conservation and nature deterioration (‘just nature’), where we will be looking at some of the most materially impacting sectors [5] such as pharmaceuticals, chemicals, food, forestry and packaging, and metals and mining.

We intend to focus more on the social implications of the decline in nature and working with our investee companies to incorporate ‘just nature’ into their biodiversity plans. Just nature means ensuring nature conservation is fair and inclusive. It supports local communities, indigenous peoples, supply chains and workers. As part of our engagement programme, we will encourage companies to develop nature plans and ask them to consider the knowledge, rights, and livelihoods of these stakeholders within them.

This approach emphasises our commitment to fostering a nature-positive future that is not only environmentally sustainable but also socially equitable, ensuring that the transition to a thriving natural world benefits all stakeholders.

Our voting, engagement, research, and advocacy activities are designed to be pragmatic, informed by evolving market insights and local best practices, and always aligned with the long-term interests of our clients. These activities aim to enhance the value and integrity of our investment decisions.

Please note that voting and engagement practices may not apply uniformly across all Royal London Asset Management funds or strategies, as each has distinct investment objectives. For details specific to your investment, please refer to the relevant fund prospectus.

[1] How a nature-forward global economy can tackle both instability and inequality | World Economic Forum

[2] Ibid

[3] How much of the world’s food production is dependent on pollinators? - Our World in Data

[4] Kunming-Montreal Global Biodiversity Framework

Introductory sections of the GBF

[5] Nature Action 100 has identified eight key sectors for engagement

For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the Royal London Asset Management at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.