The Big Exchange explores how investing in biodiversity can help nature.
We all depend on the biodiversity of the natural world for vital resources, from food and materials to clean air and water. However, agricultural and urban development are causing it to decline at an alarming rate, due to deforestation, excessive consumption, and pollution.1 This is known as biodiversity loss.
The UN’s Climate Action website explains how land and the oceans act as natural carbon sinks, absorbing large amounts of greenhouse gas emissions. Biodiversity therefore plays an essential role in tackling climate change, yet at the same time it is most at risk from its effects.2
At a recent event the Big Exchange attended, hosted by UBP (Union Bancaire Privée), Tony Juniper (chair of Natural England and the UBP Biodiversity Committee) spelt out how pollination, water supply, and agriculture are all dependent on healthy ecosystems and highlighted the risks to coral reefs from burning fossil fuels.3
Another speaker, Sara Taaffe, Nature Finance Lead from the Cambridge Institute for Sustainability Leadership, warned that the amount of plastic in the oceans is expected to double in the next 15 years and by 2050 there could be more plastic (by weight) than fish. In fact, it’s estimated that 90% of seabirds have plastic in their stomachs and half of marine turtles have ingested it.4
Clearly, the potential benefits from protecting and restoring biodiversity are significant and the United Nations has called for a ‘Decade on Ecosystem Restoration’.5 Indeed, the World Economic Forum estimates that 395 million jobs could be generated by 2030 through nature-positive development that helps limit future damage. This could also present a $10 trillion investment opportunity.6
COP16 will take place in Columbia in October 2024, and will cover biodiversity at all levels, including ecosystems, species, genetic resources, and biotechnology. It will be the first convention since the signing of Global Biodiversity Framework agreement and will see the first submissions of National Biodiversity Strategies and Action Plans from founding members of the framework.
Some funds may look for companies actively protecting or restoring nature through their products and services, such as planet friendly farming solutions like vertical farming which uses less water and space than traditional farming.
Others may focus on improving operational practices to protect biodiversity. This could involve setting goals and targets or engaging with management to improve supply chain management. For example, encouraging a consumer goods company to advance the pace and scale of efforts to eliminate deforestation in its supply chain.
Biodiversity is often one of the key themes adopted by impact and sustainable funds, particularly those with a focus on environmental issues.
The UBAM Biodiversity Restoration Fund offers a dedicated thematic approach, aiming to protect biodiversity from human activities and restore it through innovative production and consumption. The themes addressed are: sustainable management of natural resources (e.g. responsible forestry); circular economy (limiting use and promoting recycling); green cities (sustainable buildings & infrastructure); planet-compatible utilities; sustainable food production; planet friendly diets; and enablers of change, (e.g. environmental testing).
Some single strategy funds target themes linked to biodiversity, including Pictet Timber and Pictet Nutrition. Such thematic funds are very specialised so are often held as a satellite holding rather than as a core holding in a portfolio to ensure adequate diversification. There are also funds with a wider remit which offer some? exposure to biodiversity themes including Jupiter Ecology, Pictet Global Environmental Opportunities, and Regnan Global Equity Impact Solutions.
Jupiter Ecology is one of the longest established environmental strategies and follows several biodiversity themes: Green Buildings and Industry - enabling a low-carbon transition; Sustainable Agriculture and Land Ecosystems - solutions to protect natural resources; Sustainable Oceans and Freshwater Systems - conservation and management; and Circular Economy - solutions for sustainable materials and resource stewardship.
The managers of Pictet Global Environmental Opportunities look for companies enabling or providing solutions to the environmental challenges that society is facing to capture the financial and non-financial opportunities presented. To this end, they have several areas of focus, including pollution control, waste management, recycling, and energy efficiency. This includes the provision of clean energy and water, sustainable agriculture and forestry.
Regnan Global Equity Impact Solutions is a high conviction, diversified, global portfolio which seeks mission-driven companies that provide solutions for the unmet sustainability needs of society and the environment. Three of the eight themes followed relate to biodiversity: Circular Economy (efficiency, reusability and recyclability); Food Security (sustainable food supply and productive farmlands); and Water (preservation of and access to water).
There are more funds than the ones mentioned in this article available on The Big Exchange. Fund information is taken from factsheets and the 3D impact assessment. Please conduct your own research before investing.
Please remember that when investing, making money is not guaranteed and your capital is at risk. The value of your fund can go down as well as up. Tax treatment depends on an individual’s circumstances and may be subject to change.
This article does not constitute investment advice. If you are unsure whether an investment is suitable for your circumstances, you should contact an independent financial advisor.
References:
1 https://livingplanet.panda.org/en-GB/
2 https://www.un.org/en/climatechange/science/climate-issues/biodiversity
3 https://www.independent.co.uk/news/ap-thomson-greece-athens-scientists-b2529767.html
4 World Economic Forum, Ellen MacArthur Foundation and McKinsey & Company, The New Plastics Economy: Rethinking the future of plastics (2016).
5 https://www.decadeonrestoration.org/
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