Biodiversity evolves from “quirky” to real opportunity

With 30 investors representing more than €6 trillion calling for concerted and transparent creation of impact measures related to biodiversity in late May, action appears imminent.

This article was first published in the Financial Times

We know about the existence of the Mount Kahuzi climbing mouse due to two specimens found on an extinct volcano in the Democratic Republic of Congo.

The fate of the little mouse — considered a critically endangered species due to the paucity of sightings and the threat from logging — may seem far removed from the concerns of asset managers.

Yet biodiversity, the desirable state of having multiple species in a natural habitat, is coming up the agenda.

“It’s not quirky — it’s a real opportunity,” says David Blood, co-founder and senior partner at Generation Investment Management, a $23bn sustainability-focused fund company. He says biodiversity touches on issues such as deforestation and soil quality — and, in turn, the sustainability of huge industries such as agriculture. “These are really critical questions [and] this is a big emerging area.”

” Biodiversity is not quirky — it’s a real opportunity. It touches on critical issues such as the sustainability of huge industries such as agriculture. ”

David Blood, Generation Investment Management

ShareAction, the UK’s biggest responsible investment group, produced its first report on biodiversity last month.

The fund management sector has got the memo on the importance of addressing climate change, says Jo Alexander, scientific adviser at the group, pointing to initiatives such as the task force on climate-related financial disclosures, which is backed by the Financial Stability Board.

The ShareAction report looked at the impact of infrastructure development on the habitats of apes in Africa and Asia.

“Apes live in carbon-rich forests,” Ms Alexander says. It focused on primates as these are an “emotionally engaging” species whose existence is threatened by the need for better infrastructure in the developing world.

“There’s the reputational risk [for asset managers], locally and more broadly,” she says. “It’s about doing proper environmental impact [assessment].”

ShareAction hosted an event with investors to discuss the report earlier this month. Attendees included Aviva Investors and Hermes.

The group has also begun to question asset managers about what they are doing on biodiversity, via its annual assessment on responsible investment activity. This includes asking whether they address the topic in their responsible investing policy. “Biodiversity should rise in focus for investors,” says Lisa Beauvilain, head of sustainability and ESG at Impax Asset Management.

She points to deciding whether or not to invest in companies that are heavily dependent on the production of raw materials and the push towards sustainable palm oil.

Impax has invested in technology companies that help farmers assess the state of their soil, partly to prevent overuse of fertiliser and pesticides.

Investors say that while biodiversity is a worthy goal in itself, it tends to be considered in conjunction with industries such as mining, as a way of assessing risk. “There are sectors where biodiversity [assessments] are part of the [ESG] assessments,” says Jonathan Bailey, head of ESG investing at Neuberger Berman, the $333 billion New York investment group. “It’s more of an adjacency [but] there are places where its very material.” Last month Planet Tracker, a financial think-tank, warned investors in Japan’s fishing industry they are at risk if they cannot tell whether their investments are sourcing fish sustainably.

Some companies are also signalling the issue is more of a priority. Emmanuel Faber, chief executive of Danone, recently told the FT about how the French food group had shifted about half Danone’s products to non-genetically modified ingredients to improve soil health and biodiversity.

” Biodiversity should rise in focus for investors ”

Lisa Beauvilain, Impax Asset Management

Others point to growing concerns on the adjacent area of animal rights as being an investment driver.

The world’s first vegan exchange traded fund, the US Vegan Climate ETF, was launched by vegan and cruelty-free investment company Beyond Investing on the New York Stock Exchange last month. It tracks an index of large US-listed companies, which excludes those that derive profits from areas including animal testing, animal-based products or the use of animals in entertainment.

Mr Bailey says not considering animal rights has become an area of risk for investment managers and points to the group’s recent engagement efforts with an eastern European supermarket chain it invests in. Some of the meat on the retailer’s shelves arrives via a slaughterhouse the retailer also owns; Neuman Berger is pushing the group to improve animal welfare standards and consider the reputational risk of not doing so.

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