Biodiversity: An emerging factor in long-term investing

According to research, over 55% of global gross domestic product (GDP) is highly or moderately dependent on the environment. The potential implications of environmental degradation can be wide ranging, from water shortages impacting supply chains that increase costs for companies to the destruction of forests threatening the long-term security of commodities and natural resources. As an investor, assessing how companies are mitigating and managing their exposure to environmental risks is crucial for developing a long-term view of a company’s risk profile.

We expect governments may increasingly hold companies accountable for negative environmental impacts. This could mean increased regulations requiring companies to pay for the total cost of a product including any social and environmental costs related to the use and disposal of their products. Underlying this trend is a broader shift towards minimizing waste and promoting the sustainable use of natural resources to achieve a circular economy Opens in a new window..

An example of limiting a company’s environmental impact is reducing plastic use. In 2022, the United Nations (UN) reached a monumental agreement with 175 nations — endorsing a resolution to end plastic pollution and establish a legally binding agreement in 2024 that will encompass the full lifecycle of plastic use, including its production, design and disposal. This means companies moving away from heavy reliance on plastic may be better positioned for the long term.

The environment and biodiversity can be key contributors to a company’s long-term risk and opportunity set. As a result, investors must be aware of potential environmental impacts, evolving regulations and expected policies, and should adjust forecasts for demand and profitability accordingly.

CIBC Asset Management is committed to developing and implementing best practices in responsible investing analysis. Our goal is to ensure our actively managed strategies account for all sources of environmental and investment risk. Read the 2023 ESG and Stewardship Report (PDF, 16 MB) Opens in a new window..