The earth has crossed numerous bio-physical tipping points over the last couple of decades, and governments are becoming increasingly concerned about biodiversity loss and its impact on their future ability to grow their nations, according to Therese Niklasson, head of sustainable investment at global investment firm Newton Investment Management.
This has direct implications for investors who are increasingly looking to quantify the potential impact on companies in their portfolios that may have to relocate supply chains away from protected areas such as UNESCO World Heritage sites, Niklasson said.
Niklasson was speaking with Julia Newbould, managing editor at Conexus Financial, on the Market Narratives podcast, in an episode focused on biodiversity and how it fits into the world of sustainable investment and ESG.
Newton Investment Management has recently joined the Taskforce on Nature-related Financial Disclosures, or TNFD, which is developing a framework to enable organisations and investors to assess and act on nature-related risks.
Biodiversity refers to the variety of life on earth in all forms, from genes and bacteria to entire ecosystems – the result of 4.5 billion years of evolution, Niklasson said. Humans depend on it for food, water, medicine, a stable climate, and a long list of other things including economic growth, with over half of global GDP estimated to be dependent on nature in one way or another.
“The oceans are really important, for example, in absorbing carbon emissions, and more than one billion people actually rely on forests for their livelihood,” Niklasson said. “So 70 to 95 per cent of the developing world rely on medical plants for primary care, which is really quite staggering.”
Other examples of the importance of the environment to business are the free pollination services bees provide to farmers, and the negative externalities that occur due to pollution, she said.
UNESCO World Heritage sites are an important way to understand protected areas around the world, and Newton looks for companies to provide a “no-go” commitment to these sites.
“This wasn’t a very transparent data point by many companies,” Niklasson said. “But working with UNESCO and other NGOs and groups, we have been able to, I think, shed more light on this and encourage companies to be clearer about what their policies are in relation to these areas.”
Conservation NGOs such as WWF have been working to provide better data to market participants to understand the overlap between their investments and protected and sensitive areas.
Engagement, rather than exclusion, is critical, particularly when investing in emerging markets, Niklasson said.
“Something we’ve been trying to advocate for a lot is ensuring that [investors] don’t just allocate to the best companies in the market or to solution providers, for example, but [also] investing into emerging markets, taking on some of the risk and actually try and engage hard with the companies.”
Engaging with governments is more difficult but Newton tries to allocate more to governments that are seen to be moving in the right direction, she said.