We need to bring biodiversity to the Bloomberg terminal
05 07 2022 | George Darrah
Nature is the world’s most valuable asset class. Without nature, we have no oxygen to breathe, no freshwater to drink, no food to eat, and limited removal of carbon dioxide from the atmosphere. The scale and reliability of the services that nature provides are underpinned by biodiversity – the diversity of the plants, fungi, animals and other organisms that combine in a web of near infinite interactions. Protecting and restoring biodiversity is therefore critical to the continued viability of Earth for complex life, and the future of humanity. And it is only now that developments in monitoring technologies and unprecedented momentum in the finance sector to value biodiversity are coming together, resulting in a dramatic acceleration in private-sector funding into the protection and restoration of biodiversity. The first biodiversity unicorn will soon be ready to leave the stable.
New technologies, powered by advances in AI, biotechnology and remote sensing, will for the first time enable biodiversity to be affordably monitored in near real-time and at scale. Previously reliant on labour intensive ‘catch and count’ methods, biodiversity monitoring is being revolutionised by a suite of visual, acoustic and genetic tools which can quickly gather vast amounts of data on the constituent inhabitants of an ecosystem[1]. Core to this is AI-powered species labelling in visual and acoustic datasets, and the detection and analysis of environmental DNA, which are strands of DNA shed by organisms present in the environment – ‘eDNA’. Drones deployed by companies such as Dendra Systems are now capable of quickly collecting vast amounts of minutely granular visual data and increasingly capable algorithms can identify individual plant, animal and fungi species present in a fraction of the time it would take a trained human operator. Increasing availability of high-resolution satellite images across visual and hyperspectral bands also has an important role to play in scaling accurate biodiversity monitoring.
Blending data streams from different sensing hardware will be key. Training an algorithm to predict species distributions from remote sensing images using granular ‘ground truthed’ biodiversity data, such as that from eDNA, has already been demonstrated. NatureMetrics, a UK based biodiversity intelligence company, is building a product around these capabilities now. Pivotal Earth are blending acoustic and visual data into coherent biodiversity intelligence for land managers. And for monitoring hardware left in the field, such as camera traps and acoustic recorders, ‘forest IOT’ companies like Dryad deploying low-power and long-range communication networks will ultimately enable data to be near live streamed back to the cloud.
Drones and other remote sensing systems can also overcome logistical issues accessing biodiverse ecosystems. I took this photo during my time working with land managers in Sumatra in 2019/2020.
This ability to cost-effectively measure biodiversity will be a gamechanger for scaling private sector financing into activities protecting and restoring biodiversity. There is significant appetite in the financial sector to differentiate investments supporting biodiversity. Momentum is powered by regional regulation, such as the European Sustainable Finance Disclosure Regulation, but also global industry consensus driven by groups such as the Taskforce on Nature-related Financial Disclosures (TNFD) and Science Based Targets for Nature (SBTN). To date, a lack of data has prevented effective action: in a recent survey conducted by Credit Suisse, 70% of investors cited lack of data as a key barrier to making investments supporting biodiversity[2].
Two emerging data streams will enable financiers to rapidly and accurately assess their portfolio’s impact upon biodiversity. Firstly, data from corporates, who are deploying biodiversity monitoring technology at their physical assets in response to pressure from their financial stakeholders and organisations like the TNFD. And secondly 3rd party remote sensing data and analytics, increasingly used by algorithms trained on ground-truthed biodiversity data to accurately predict species distributions across large areas. Existing biodiversity datasets will also play a role (with efforts underway to improve their accessibility). Investors can therefore choose to allocate capital to companies with lower biodiversity risk profiles, and companies are incentivised to invest into reducing their biodiversity risk. And secondly, project developers responding to emerging demand for ‘biodiversity outcomes’ can quantify biodiversity gains they achieve, enabling them to package and sell these outcomes to customers wishing to manage reputational or regulatory obligations.
Assessing biodiversity impact seems conceptually simple, but quickly gets complex. One approached pioneered by Nature Alpha is to start by using existing spatial datasets to assess a physical asset’s proximity to a recognised biodiversity hotspot, and perhaps including the asset operator’s ability to manage their impact upon adjacent biodiversity. This data can be complemented by employing communities living alongside biodiverse ecosystems and physical assets to record timestamped and spatially explicit biodiversity and asset data, such as flaring or blasting intensity, using tools like CyberTracker (a simple app with over 500k downloads enabling local communities to record biodiversity data). However, bringing this data together coherently quickly gets complex: different species, habitats and ecosystems need different weighting in a final ‘score’, different data collection methods have different human biases, data on asset mitigation activities is difficult to obtain and compare like-for-like, and how often and how fully to measure biodiversity change over time will inevitably be a finely balanced trade-off between cost and completeness.
Complex biodiversity data streams will need to be dramatically simplified for use by non-specialist financial decision makers. Developing simple metrics that adequately describe biodiversity impact and yet are comprehensible for financial decision making is critical to bringing biodiversity to the Bloomberg terminal. For carbon, developing an agreed upon metric was relatively straightforward: tonnes of CO2 either avoided or removed (albeit determining whether those outcomes have been achieved has been far more complex). For biodiversity, attempts to simplify biodiversity to habitat indicators, such as that developed by the UK’s Department for Environment and Rural Affairs, are a helpful development but risk missing presence of rare or key stone species. Future developments must acknowledge biodiversity’s immense complexity, our rapidly increasing ability to collect biodiversity data, and the need for metrics to be simple to use. Opwall’s biodiversity indicator, which acknowledges a local approach to setting specific biodiversity targets, is a strong start.
Collecting biodiversity data needs to be as simple as possible. Despite requiring a sophisticated laboratory and bioinformatics, collecting and filtering eDNA from water is remarkably straightforward. Photo credit NatureMetrics.
Biodiversity impact data that can be understood and compared by non-specialist actors also unlocks a new and essential business model: protecting and restoring biodiversity directly. Such a company was inconceivable a decade ago, but pioneers over the past decade have been quietly building momentum restoring forests and other landscapes, funding themselves through the sale of carbon to voluntary purchasers. In the last couple of years the voluntary carbon market has exploded, but many buyers have struggled to differentiate the true impact of various carbon credits available. Immense and necessary effort is flowing into quantifying the true carbon impact of a carbon credit, and carbon credits with higher integrity ratings command higher prices. Biodiversity impact will be next. Using biodiversity metrics to add a quantified ‘biodiversity premium’ or for a separate biodiversity credit goes necessarily beyond competing marketing montages of orangutans and elephants, to a metric that buyers can understand as they purchase carbon credits at scale. It also offers a direct path to recognising the critical contribution of the local communities to protecting and restoring biodiversity in a carbon project. It is the beginning of a market for biodiversity outcomes, with fair and equitable compensation for local communities driving these outcomes. For these project developers, proving that biodiversity is returning is the product – and therefore they have every interest in measuring it.
Biodiversity monitoring technology needs to be ‘blitzscaled’ to halt and reverse the 6th extinction. Without it, private sector financing critical to stemming the tide of biodiversity losses will not flow at the scale or with the precision required. Bringing together massive advances in eDNA, bioacoustics, satellite and drone based imaging and the interconnecting algorithms can unlock deep quantification of biodiversity. This will enable financiers to allocate capital to companies which are effectively managing their biodiversity risks, including those which demonstrate net positive biodiversity gain. Managing biodiversity cannot be done effectively without creating mechanisms that incentivise local community participation in the monitoring and protection of biodiversity. TNFD, SBTN and eventually regulatory developments will accelerate this trend. Venture capital has a defining role to play in bringing these solutions to market, now. The next climate unicorn may be a unicorn from nature.
Special thanks to co-contributors Cameron Frayling, Dan Morris, Douglas Flynn, Floor van Dam, Georgina Fleming, Jessica Stewart, Katie Critchlow, Maximilian Bucher, Mitch Reubin, Scarlett Benson, Vian Sharif and Zoe Balmforth.
[1] https://www.wildlabs.net/community-announcement/state-conservation-technology-2021
[2] https://www.credit-suisse.com/media/assets/microsite/docs/responsibleinvesting/unearthing-investor-action-on-biodiversity.pdf
George Darrah
Investing in the future of nature.
contact@
systemiqcapital.earth