While climate change has attracted public attention and risen up the political and corporate agenda, biodiversity has lagged behind somewhat.
However, the upcoming COP15 conference aiming to explore the level of protection to biodiversity should help shine the spotlight on this vital topic.
The third panel of the Responsible Pathway Live event brought together Jupiter Asset Management, PIMCO and Franklin Templeton, to discuss the importance of society’s relationship with the environment and nature ,and the investment opportunities therein.
Here are the five key takeaways
1. The importance of biodiversity
With the earth’s natural stocks declining at an unprecedented rate – namely earth’s water, oceans, lakes, soils and forests – Rhys Petheram, head of environmental solutions at Jupiter Asset Management, described the biodiversity challenge facing the world as being “massive”.
“Endangered species facing extinction is approaching about one million and so is one third of the world’s coral, so the challenges we face are considerable,” he said.
“These natural stocks contribute to 50% of global GDP, but in reality it could be 100%, so it is incredibly important from an economic perspective.”
“There is a wealth of data that is trying to quantify what biodiversity means for GDP and for inflation for various governments,” added Samuel Mary, senior vice-president at PIMCO.
“If we have to highlight a fragile consensus, it is that it is likely to lead to inflationary pressures if we continue on the current direction of travel.”
2. Going beyond climate change
With so much focus on climate change, Craig Cameron, portfolio manager and research analyst at Franklin Templeton, added it is easy to forget the wider impacts some companies have.
“Beyond just thinking about carbon emissions and carbon intensity, we are also trying to think about the impact a company can have on biodiversity through its supply chain or approach to natural resources,” he said.
“There is a recognition that in order to achieve the Paris Agreement we need to make more sustainable use of nature, and nature-based solutions can contribute to a third of greenhouse emission reduction,” added Mary.
3. Past the tipping point
In terms of the biodiversity challenge, Cameron conceded that on some metrics we have passed the point in which nature can be self-righting and balance itself.
“We have reached the time where we need to take real action and to stop thinking about climate change as a concept on its own, and instead link it in with biodiversity,” he said.
“There are companies out there that we would argue can have a positive impact on climate change, but a negative impact on biodiversity and vice versa,” he added.
“So it’s time to understand both and link them together and start to counteract some of these negative forces that are starting to accelerate.”
In way of an example, Petheram said the Ukraine crisis has highlighted there is a “nexus of fragilities” in the food system.
“You have a food, water and energy nexus which is inextricably interlinked,” he said.
“Agriculture consumes 70% of global fresh water supplies, while production and supply of food consumes 25% of global energy. As such, when using an investor lens, if you’re looking at a company delivering solutions to water stress, you also have to consider the implications from an energy and food perspective.”
4. The investment opportunities
Versus the climate change space, Petheram said the investment opportunity set at present within biodiversity is much smaller.
“I would say that biodiversity is where climate change funds were about eight years ago,” he said.
“We are just building the risk management frameworks to improve the transparency, reporting and engagement around these topics in order to establish long-term plans. This is when you will see more solutions start to come to play.”
Looking at the thematic landscape, Cameron added it is little surprise there are more climate change funds than biodiversity offerings.
“It is much more difficult to find investment opportunities [in biodiversity]. It is more about engaging with your companies to try and reduce their impact,” he said.
“It’s more about mitigation versus buying renewable energy or electric vehicle companies. It’s more challenging in biodiversity.”
5. The future
Looking forward, Cameron is hopeful that the attention and enthusiasm for climate change investments will start to have a positive impact on biodiversity as well.
“As one grows, so does the other, and they both have a positive impact on each other,” he said.
“I am optimistic that as this area develops we will see more companies committing to a net positive impact in the same way we are talking today about companies committing to net zero.”
Mary noted that when it comes to climate change investing, it took some time for investors to think about the difference between a portfolio and carbon change, versus actual real change in mitigating carbon emissions.
“If, for biodiversity, we have evidence of progress and positive outcomes in the real world associated with certain investment practices, in conjunction with the policy makers, that would be a real positive step,” he said.
All 5 panel discussions are available to watch on demand here: https://www.bonhillevents.com/EN/ResponsiblePathwayLive-July2022/OnDemand
