Biodiversity is the number 1 issue raised by investors on The Big Exchange. This blog aims to tell you what you need to know about investing to solve issues facing the environment and Biodiversity.
More and more investment strategies are launched every year focusing on new themes, issues and industries. Launches happen because of new ideas and innovative ways to try and get investors more attractive returns and to make Asset Management companies stand out from the crowd. More recently though, we are seeing funds launch, not only on the grounds of innovative ways to try and grow investors’ pots BUT ALSO to try and make a positive contribution to bettering our world. Funds that look to grow your investments and align to your values sound great – and we think so too – as long as they actually do what it says on the tin!
Which leads us on to Biodiversity; the latest in a long line of important issues, or themes, that have entered into the names of funds we can see in lists and on investment platforms. So, seeing that The Big Exchange is all about telling people what’s under the bonnet, we wanted to check it out - what’s the hype, why are we seeing it and how is it investable?
Biodiversity is the variety of life on Earth. From bacteria to blue whales and all the animals, plants, fungi and micro-organisms in between. These species and organisms make up our natural world and work together in ecosystems to maintain balance and support all life that we depend on.
The UN’s Climate Action site states:
“The Earth’s land and the ocean serve as natural carbon sinks, absorbing large amounts of greenhouse gas emissions. Conserving and restoring natural spaces, and the biodiversity they contain, is essential for limiting emissions and adapting to climate impacts”.
So, to put it really bluntly and without going deep into the stats, the health of the world’s biodiversity is inextricably linked to climate change. It is both essential for limiting climate change and also the most at risk from its effects.
Biodiversity loss along with pollution and climate change form a part of the triple planetary crisis that we are facing. There are scientists, advocates and activists who know much more about this than we do and we would encourage you to seek out their work to form your own opinion, but to us the crisis is clear.
The planet’s biodiversity is being seriously depleted, threating the viability of human existence. That may sound alarmist to some of you but - do you know what? We think you should be alarmed! Since 1970 the Earth’s wildlife populations have fallen by around 70% – mainly caused by deforestation, excessive human consumption and industrial scale pollution amongst other things. The consequences of our own actions and (importantly) the actions of the companies we engage with, invest in and buy from have had a near irreversible effect on the ecosystems that support life on our planet.
The Big Exchange was set up to allow people to direct their investments into funds where you can see the extent of what the fund manager is trying to do, and what they are actually doing. Some funds have environmental objectives, others social and some try to avoid harmful activities all while trying to get positive financial returns.
So, when we ask our customers what issues they are most concerned about (and therefore where we see they want investments to focus most on making a difference), The Big Exchange customers are overwhelmingly clear. Over 75% of investors want investable and legitimate solutions to the biodiversity and ecosystem crisis that we are facing. It’s consistently the top issue worrying people in our community – even above ending fossil fuels and financial inclusion. [1]
And impact investment managers are seeing the same, Victoria Legget, the fund manager of the UBAM Biodiversity Restoration fund available on The Big Exchange [2] said:
“It’s time to broaden the focus from ‘carbon-neutral’ to include ‘nature-positive’. The level of awareness of the biodiversity crisis is where climate change was 5–10 years ago, and there is now a huge amount of momentum behind it, including the UN’s ‘Decade on Ecosystem Restoration’ and COP15 on biodiversity”. [3]
So, it’s clear biodiversity solutions are in demand. BUT, and it’s a big but… The asset management industry has not always covered itself in glory when faced with clear demand. Some could say that solutions have often been rushed to market to capitalise on a growing demand or in strategy speak - “trends” (or even “mega-trends”). Just think ESG, illiquid property, alternatives, Crypto… not all these launches have always hit the mark – in fact, in the face of what the FT have called the “next mis-selling scandal”, the FCA is proposing a piece of regulation to clamp down on fund managers being able to use words like ESG, Sustainable, Green etc. if their funds don’t actually meet an expected level.
But, we digress. To us (and hopefully to you), issues like ecosystem degradation and climate change are not “trends” – they are crises which affect us and future generations. We want to invest in a way that contributes solutions to these crises and we don’t want to invest in a fund with biodiversity in its name if it’s not got: a clear plan, objectives to achieve change and try grow capital, and a way of measuring success!
It’s one of the reasons why we created The Big Exchange in the first place – to cut through the marketing and people taking advantage of “trends” to only show you the funds where we believe the team are actually “walking the talk”.
Many fund managers will take different strategies around biodiversity – some will have it as the sole focus of the fund, others may have it as a theme built into their overall strategy. Those funds that are focusing on this issue will use various ways to look at companies in which they might invest.
Some funds may look at companies actively protecting or restoring nature through their products and services. Perhaps they may invest in companies who are already producing or manufacturing solutions to the causes of biodiversity loss we are seeing today. An example of this might be a planet friendly farming solution like vertical farming which uses less water and space than traditional farming. These funds believe that these companies fixing the results of biodiversity loss could benefit from superior growth and success as their solutions become more in demand.
The negative impacts of biodiversity loss pose a systemic risk to the global economy so funds may look at working with companies to improve practices relating to restoring and protecting biodiversity. This could be through setting goals and targets for companies to achieve or lobbying management to improve supply chain management. An example of this might be engaging with a multinational consumer goods company on increasing the pace and scale of effort to eliminate deforestation in its supply chain. Changing the behaviour of existing companies is also a strategy to achieving impact as long as change actually comes.
Some strategies will seek to avoid companies deemed to be overexposed to biodiversity loss risks and look to invest in ways that will help mitigate biodiversity risk within the portfolio. This translates to: avoiding investing in companies whose profits and/or revenues may be hit by biodiversity loss and thus will likely not provide financial growth. Biodiversity loss could impact businesses in many ways: potential transition and physical risks of adapting businesses, as well as litigation and regulatory risks. Those risks can affect investment value because they could result in more costs and less growth – ultimately, through understanding the risks of biodiversity loss, these strategies look to mitigate any risks on their portfolio.
The most important part of all this is ensuring that a fund is being transparent about what it is doing with your money. What does it say it is doing and how does it prove it? It can often be difficult to find this information which is why we assess every fund on The Big Exchange and write up all the details on its objective, strategy, reporting and more so you can find all the information you need to find the comfort you need to invest in funds that meet your values.
It’s great that you’re looking at investing. We’ve seen the documentaries, we understand that it is a crisis but often it can be difficult to know what else to do. There are many things you can do on an individual basis: consume less; walk or cycle instead of driving; recycle; use less water, and importantly contact your MPs and Councillors. Ask them what they are doing to combat Biodiversity loss – if it is important to you, tell them. For more ideas, explore the UN’s Act Now site.
Sources:
[1] As at customer survey results 10 February 2023 (856 responses)
[2] There are more funds available on The Big Exchange and this is not intended to be financial advice. UBAM have not paid for this publication. When investing your capital is at risk
[3] https://www.funds-europe.com/news/union-bancaire-priv-e-launches-biodiversity-restoration-strategy
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