Why, more than ever, nature is a sound investment
- As companies develop ways to improve how we farm, breed fish for food, package food and drink, and so on, they will need the backing of investors
- If the world is to reduce carbon emissions and their impact on the planet and the global economy, billions more needs to be invested in nature-based solutions
Biodiversity is deteriorating at an alarming rate and its loss is causing damage not only to the natural world but to society, the planet and the global economy.
There are several areas that require more public awareness if the planet is to address the biodiversity challenge.
Biodiversity must be a priority, alongside climate change. Land and marine ecosystems absorb more than half of man-made carbon emissions, while some 25 per cent of greenhouse gas emissions come from land clearing, crop production and fertilisation, with animal-based food contributing 75 per cent of that. In turn, climate change is becoming an increasingly significant driver of biodiversity loss.
As climate change and biodiversity loss are interconnected, this means the issues must be tackled together.
01:24
Rare ‘butterfly explosion’ seen in China’s biodiverse southwestern Yunnan province
For instance, intensive farming – with the heavy use of pesticides and fertilisers – ultimately limits the ability of land to produce food and yield crops, while agricultural expansion has reached the point where over a third of the global land surface is being used for crops and livestock.
Pollution of a water supply not only has terrible consequences for those affected, it also puts the company responsible at risk of reputational and regulatory backlash, which could result in fines and higher taxes. Consumers may also boycott the company’s products.
These are economic risks that companies and investors cannot afford to ignore.
Quietly but surely, China is making strides in climate change fight
With higher-quality reporting from companies on their environmental footprints, asset managers will be better equipped to identify these businesses most exposed and how they individually impact the environment.
This will be crucial to navigating a world lacking a single point of focus – and will also facilitate more detailed engagement around those companies’ long-term plans to improve their business models and behaviour.
Given that the preservation of biodiversity and ecosystems is now a priority, it is crucial that we have the metrics and tools to assess the impact of investments on the environment. Collecting, analysing and reporting environmental data is accordingly important.
Today, companies like Iceberg Data Lab offer assessment tools and data solutions that demonstrate the environmental impact of issuers and assets throughout their value chain.
Moreover, advances in big data mean it is now much easier to monitor factors such as water quality and soil erosion, with satellite imagery and other technologies providing a reliable picture of exactly how and where the environment is changing.
This should enable investors to make detailed assessments of biodiversity-related risks and opportunities – and therefore make more informed decisions.
As with carbon emissions, the way to tackle the biodiversity challenge is twofold. First, as a society, companies and individuals can seek to reduce their biodiversity footprints (and investors can allocate capital to companies that do so). To have a real impact on the environment, investors can allocate capital to biodiversity-friendly solutions.
China’s hunger for Vietnamese durian shows US faces hard road ahead
Companies can develop products and services which promote biodiversity preservation beyond their own footprints. Key areas include agriculture and aquaculture, water treatment and sustainable materials.
There is already a myriad of investment opportunities and innovations in these areas which will improve the way we farm, breed fish for food, package food and drink, and much more. The more investment strategies there are to back the companies developing these solutions, the better.
Policy will ultimately be key. Government interventions such as banning plastic food packaging, which are being considered, will be game-changers for providers on the right side of future legislation. But, to help these companies scale up and innovate, we need dedicated biodiversity strategies to channel capital into them.
Around US$133 billion is invested annually in nature-based solutions – including US$18 billion from private-sector finance – but this needs to at least triple by 2030 if the world is to meet its climate targets.
Chris Iggo is chair of AXA Investment Managers Investment Institute and chief investment officer of AXA IM Core
