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“It is an extension of biodiversity: an emerging theme in the past couple of years that has become much more pointed in 2023,” she says. “Biodiversity, deforestation and water pollu- tion are areas that clients are now focusing on and asking us what we are doing to improve things.
“What is interesting is that the market has been talking about anti-microbial resistance for quite a long time, often under the S considerations,” Ramscar says. “Linking the S and the E in the food chain and in water pollution has been an interesting development.
“It is a nuanced discussion, but people want to know what we are doing with water companies on pollution and how those companies monitor and treat these issues,” she adds. “This is about the results of engagement being more tangible.”
It’s good to talk Ramscar’s colleague Amelia Tan says they are working on tan- gible metrics because the sustainable industry is maturing and investors want to see results. “We have always talked about our stewardship activities but what people want to know more about are the outcomes of those engagements. In many ways, our clients expect us to better articulate that on an aggregated basis, within their portfolio holdings. “It is a measure of success, but it is also the measure of the companies who have not responded. So what is the conse- quence of that non-response? This will be the overarching theme,” Tan says. For Niklasson, agriculture and food are areas Newton will con- tinue to focus on. “The inflation situation, and the Russia- Ukraine situation, are putting pressure on the food system. That will definitely continue this year,” she says.
Beating the drum
One asset manager who has been “beating the drum” to get more attention on biodiversity is BNP Paribas Asset Manage- ment. For Pieter Oyens, who is the asset manager’s co-head of global product strategy, the hard work is paying off. “This year will be progressively more about the critical role biodiversity and natural capital plays,” he says. “Agriculture and forestry are going to be a far hotter debate, because people will understand that continuing high-intensity agriculture is simply not a solution. You have to change,” he says. Peter Mennie, chief sustainable investment officer for public markets at Manulife Investment Management, describes biodi- versity as an existential challenge, just like climate change. “It is important that people realise that nature is a crucial part of our economy. The goods and services nature provides are critical. “We have to act to address biodiversity loss in the same way that people are getting together to act on climate change,” he adds. For Sandra Carlisle, head of sustainability at Jupiter Asset Man-
agement, it is not about wanting to focus on biodiversity…it is a must. “We will see more focus on nature and nature-positive solu- tions this year,” she says. “50% of global GDP is linked to nature. Due to our demand on nature, we are depleting it faster than it can regenerate itself. That is not sustainable in the long term, so we have to find innovative ways of protecting it.” Carlisle expects to see more innovative companies next year which will work to make the world more sustainable. “Our Ecology Fund is looking at lab-based meat, for example, because the population will continue to grow. “Land is being stressed by water challenges, but also climate change. If you get more floods and encroaching on land, we are going to have to feed more people on less land and find differ- ent ways to do it. “There will be opportunities in innovative new companies that emerge to solve these issues,” she adds.
New policy The good news here is that it is not just investors who are work- ing to protect the ecosystem. In December, at the United Nations Biodiversity Conference, popularly known as COP15, in Montreal, Canada, governments announced a landmark agreement to protect the natural world. The bid to halt species extinction and maintain genetic diversity includes targets for safeguarding rainforests and wetlands. “It is truly a moment that will mark history as Paris did for cli- mate,” Steven Guilbeault, Canada’s minister for the environ- ment and climate change, was quoted at the time. So, governments will now be making safeguarding biodiversity a policy alongside net zero. Another initiative is on the hori- zon. The Taskforce on Nature-related Financial Disclosures (TNFD) will be a framework that allows pension schemes and other institutional investors to include nature risks into their investment decisions. It is modelled on the Task Force on Cli- mate-related Financial Disclosures (TCFD). Such interest from governments and regulators is matched by growing investor interest. Indeed, assets managed by the 11 funds focused on biodiversity restoration and ecosystem ser- vices have more than doubled to $1.3bn (£1bn) from $525m (£426.8m) in the past two years, according to Broadridge and Pictet Asset Management. With the annual funding gap to reverse the decline in biodiver- sity globally by 2030 put by the Paulson Institute at $711bn (£578bn), such interest from investors, governments and those overseeing financial institutions is a great start, but it is clear that more is needed.
If the world is to achieve carbon neutrality by 2050, it will also have to reverse the damage to the natural world. We cannot achieve one without the other.
February 2023 portfolio institutional roundtable: Biodiversity 25
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