We are trying to focus more on biodiversity and in December launched a ReGeneration strategy that focuses specifically on the issue. It is important because biodiversity loss is happen- ing at a staggering rate.
The universe we have created around biodiversity metrics has outperformed the market. You could say that this is due to there being more asset light businesses that depend less on natural resources.
Then there are companies that may have issues sourcing mate- rials because of biodiversity loss. When that value chain breaks down you get inflation. Companies that are less tied to those risks tend to do better and we are seeing investors giving more value to them.
It is an important theme. Allocating capital to companies that have the right impact on biodiversity is the smart thing to do.
What do investors want to know when discussing biodiversity? Tim Manuel: What appeals about biodiversity is that it feels much more tangible than talking about climate change. You see it around you, you see it on television, you understand the stories. People buy into it intuitively. You cannot look up to the sky and see carbon, but you can see land being degraded around you. Pension funds are asking where they start, because this can be a difficult topic to get going with. What helps with climate change is that there are some key pillars that everyone has gathered around, especially with there being a helpful, if not perfect, metric of emissions. With biodiversity, the issues are more complex and nuanced, there are so many more considerations and they can be local- ised. There is not necessarily a central hook that everyone can grab on to.
Is adopting a deforestation policy enough to fight biodiversity loss? Paul de Zylva: It’s a good start, but it is not enough. Companies and investors are building up massive risk profiles on climate and biodiversity loss as they are adopting false solutions. They are going for offsets and plantation forestry, which will burn down because it is usually the wrong trees in the wrong place. These risk profiles are building up. Everyone says they are coming round to biodiversity, but it is not a new issue. We do not have time to grab the wrong lever. Deforestation is a great way of approaching it. You can look at it globally and across supply chains as well as what happens locally in how it is embodied in building projects. Deforestation is a good way in, but you could pick other issues. Marine aggregates, for example. Marine dredging is plunder- ing our resources, but because it is below the surface no one sees it.
Don’t worry about where you start, but quickly join the dots and try not to put things in pigeonholes, because that is not the way the world works.
What biodiversity issues is the regulator concerned about? Mark Hill: It comes back to climate and nature being intrinsically linked. You cannot get to net zero without looking at biodiver- sity and nature-related risks. From our perspective, it is making sure that investment deci- sions are taking a holistic approach. Otherwise, there is the risk of unintended consequences. For instance, investing in agriculture, and inadvertently funding deforestation at the same time.
It is also about avoiding stranded assets. If you look at the move towards sustainable palm oil production, in Indonesia, I believe from memory, some 28% of concessions are now seen as stranded assets because they involve deforestation. This comes back to making informed investment decisions that are holistic.
In what instances can investors consider biodiversity and cli- mate together? Jackson: There is scope in agriculture to increase the biodiver- sity of farmland through introducing mixed woodland, hedge- rows and animal migration pathways. There is an awful lot there and that’s just in the UK. Most of the world’s food is grown on farms smaller than five hectares. That being the case, it would not take much to wean people off pesticides and get back to a more natural way of fer- tilising the soil.
If you can sort the soil degradation problem, you will go a long way to sorting the climate problem. If you increase the organic matter of soil to a healthy 3%, that is a big carbon sink. If you make sure it is vegetated throughout the year, that is another carbon sink and it stops heat being reflected into the atmos- phere and halts that warming feedback loop. There are so many opportunities, but you have to find ones which also have a positive social impact because you cannot look at this in isolation. de Zylva: Governments are realising that the way we manage land, in general and through farming, is unsustainable and counterproductive to the aims they have set. There are investors interested in helping to improve how the land is managed, but farms are being picked off with bad investments. Farmers have sold their land because of the state they are in, and they have been bought to put plantation forestry in, which is the flavour of the month and is usually the wrong trees in the wrong place.
That is the market working, but is it working to allow farms to operate? There are investors who perhaps have not picked up
February 2023 portfolio institutional roundtable: Biodiversity 9
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28
