The Failure Of Investors

How can you call something an investment when it is driving biodiversity loss?

Lynn Johnson
14 October 2021

We cannot overcome the biodiversity loss, associated with the legal trade in endangered species, unless we can change the minds and strategies of the individuals and groups who invest in these wildlife and timber markets. In the end, getting investors committed to tackling biodiversity loss, associated with legal trade, maybe a key action to dealing with the extinction crisis.

Investors have started to exert influence in relation to climate change policies and carbon emissions targets in the companies in which they invest. They have been under increasing pressure from consumers and activists to divest from fossil fuels and to not finance new projects. The question is, can a similar approach work in relation to biodiversity protection and the trade in endangered species?

We already know from our research, starting in 2018, that one failure of investors is that too many respond negatively to the implementation of sustainability practices in the luxury sector; they perceive sustainability is an identity mismatch with what the luxury industry represents. Given the fact that investors have a very powerful influence over a company’s decisions and actions, it is vital to educate investors about the negative consequences of the legal trade in endangered species.

Over the last 18 months I have spoken with representatives of the banking industry, superannuation funds, ethical investment funds and investor groups tackling climate change and more. Below outlines some of the themes that came from these discussions.

  1. When speaking to investor groups influencing and lobbying companies on climate change actions, they all stated that they knew of no similar groups, anywhere in the world, where investors were joining forces to tackle the biodiversity loss associated with the trade in endangered and exotic species. This topic is currently not on the radar for investors.
  2. In discussions with ethical investment funds, including superannuation funds, while they did have policies on investing in companies dealing in live animals, these were in the main policies regarding the welfare of stock animals. All stated that they know very little about the trade in CITES listed endangered species (and captive breeding of exotic and endangered species). Some stated their ethical investment mandate wouldn’t allow them to invest in captive breeding of endangered and exotic species.
  3. Speaking unofficially with representatives of the investment arm of banks, regarding the company’s policy of investing in captive breeding programs of endangered and exotic animals, most stated that this was too risky for their portfolio, and they would expect that it would be wealthy private investors and hedge funds who would be the main investors in captive breeding and legal harvesting of endangered and exotic animals.
Image Viktoriia Hnatiuk

The main theme through all of these investor conversations was their surprise at the value and scale of the legal trade in endangered species and the fact that they knew very little about it, though they were well informed on other issues, such as climate change.

Investing in the captive breeding of endangered and exotic animals fell into ‘no man’s land’ between those who:

  1. Ethically wouldn’t invest and, as a consequence, know nothing about the trade, and those who,
  2. Are happy to invest and, in the main, show no interest in the negative outcomes and risks.

The lack of knowledge in this second group is partly a result of them not having to cover the financial cost associated with the ‘risks’ of the trade. This was clearly demonstrated during the pandemic.

As insurance companies keep their distance from businesses involved in the captive breeding of animals, farmers have expected governments to compensate them for the disruption to trade associated with culling. In Denmark alone, mink farmers requested up to AUS$4 billion compensation, after a nationwide cull was undertaken, amid coronavirus fears; that equates to nearly AUS$700 for every man, woman and child in Denmark. The costs associated with the ‘disruption to trade’ in captive breeding facilities created to produce non-essential products should be covered by the business, consumers and investors who want to maintain the trade, not governments. When compensation given to producers appears to come with no conditions attached, there is no imperative for behaviour change in these industries or for investors. It is an all profit, no responsibility approach.

This lack of knowledge or corresponding lack of concern in investor groups is a problem, as investors exert significant influence not only on business but also government policy.

In 2014, American political scientists published a ground-breaking peer-reviewed paper, analysing 30 years’ worth of US policy-making that compared policy outcomes to public polling results. They found that general public sentiment had almost no impact on US policy making – but the political preferences of wealthy people and large corporations were hugely predictive of what laws and regulations were implemented by the government.

Image tifonimages

Their conclusion being “Economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.”

While this research was done for the USA and can’t be readily generalised to other so-called advanced western democracies, because of differences in electoral systems and campaign financing, undoubtedly intensive investor and business lobbying on policy development has favoured shareholder and company interests in the last 30 years.

The concentration of influence and power is even more apparent when you consider three giant financial companies, used by the global elite, represent the largest ownership blocks in 88% of the companies that are currently listed on the S&P500; namely BlackRock, Vanguard and State Street. These three organisations managed US$18 trillion in combined assets in January 2021, equivalent to more than three-quarters the size of the US economy.

BlackRock alone has US$8.67 trillion in assets under management, as of January 2021, Vanguard is nearly as big, with US$6.2 trillion and State Street had US$3.1 trillion. BlackRock and Vanguard are shareholders in Kering Group, LVMH, Prada, Burberry and L’Oreal, to name just a few, Vanguard also has a stake in Hermès.  

Given this level of concentration of ownership it is crucial to educate investors in the risks inherent in the trade in endangered species and the lack of transparency in supply chains today. They must take more responsibility for their role in dealing with the biodiversity loss associated with the legal trade in endangered and exotic species.

The consequences of investors being so ignorant of this issue was made clear again in recent days, with an article titled, Halt destruction of nature or risk ‘dead planet’, leading businesses warn. The article is about an open letter sent to world leaders from Business for Nature, calling on governments to take meaningful action on mass extinctions of wildlife and the collapse of ecosystems, or risk “a dead planet”.

What is telling is that while the letter states that, “Because there will be no business on a dead planet, more than 1000 companies, representing USD 4.7 trillion in annual revenue and employing over 11 million people, have signed the ‘Nature is Everyone’s Business’ Call to Action urging governments to adopt policies now to reverse nature loss by 2030.”; but only 9 CEO’s have signed the open letter!

While I congratulate Business for Nature for the initiative and the 9 CEOs who have signed the letter, it does beg the question, what happened to the other 991 BfN signatories?

Maybe they didn’t feel they could engage because there was pressure from their investors not to sign? Possibly they didn’t feel they needed to engage with this initiative because their investors showed no interest? Or perhaps they signed the ‘Nature is Everyone’s Business’ call to action because they knew that any ‘actual’ action was optional?

Is this just more evidence for what we have suspected all along, namely that pledges are useless and only concrete targets and accompanying laws, regulations and extensive monitoring will lead to meaningful change.