ESG in 2023
understanding of the scale of the dependencies and impacts on nature, and its importance to us,” Skeates says. “We will have more detailed discussions around how sustainable investment relates to natural assets across the realms of freshwater, marine, land and atmosphere.”
This means mapping pollution and the degradation effects as well as looking at the physical climate risks locally. “Practically that means understanding deforestation in a different level of detail, or what actions are occurring in biodiverse-sensitive areas, and what transforming those interactions looks like as a part of these wider industry transformations,” Skeates says. “We are going to get to a different level of understanding around how finance can link to conservation and appropriate restoration efforts,” she adds. “So, taking more holistic approaches to how to think about the potential investment con- nections to restoration.”
The opportunities and risks linked to biodiversity come in many forms. Indeed, Ramscar is seeing interest from investors in tackling water pollution. “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, deforest- ation and water pollution are areas that clients are now focus- ing 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,” Ramscar says. “This is about the results of engagement being more tangible.” Ramscar’s colleague Amelia Tan says that they are working on such issues because the sustainable industry is maturing and investors want to see results. “We have always talked about our
It is important that people realise that nature is a
crucial part of our economy. Peter Mennie, Manulife Investment Management
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 into next year,” she says. 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 solutions next 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.
The enablers COP26 made 2021 a big year for ESG. In the lead up to the Issue 119 | December-January 2023 | portfolio institutional | 39
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