164. How changing our diets can help win the battle with biodiversity loss

Federated Hermes engagement and stewardship manager Sonya Likhtman talks us through the challenges of biodiversity loss and how they are intertwined with climate change. She also highlights how changing our diets and the rise of technology can help turn the tide against the pending biodiversity threat. Sonya also explains the importance of the COP 15 conference, which could hopefully pave the way for a global framework to tackle biodiversity loss, as well as explaining how financial firms and investors can raise awareness in this space.

Apple PodcastSpotify Podcast

Whether it is the air you breathe, the water you drink or the food you eat – all of them rely on biodiversity. Simply put, biodiversity means the variety of life on Earth. It includes variation at three levels: genetic, species and ecosystem. It captures the diversity of plants, animals, insects and other organisms in land, ocean and freshwater ecosystems.

Unfortunately, it is under major threat. In a 2019 UN report, scientists warned one million species – out of an estimated total of eight million – are threatened with extinction, many within decades – with changes in land use, climate change, pollution and hunting all playing a major role.

At present, we would require 1.6 Earth’s to maintain the world’s current living standard – so something has to give. We spoke to Federated Hermes engagement and stewardship manager Sonya Likhtman who explained the challenges facing us on biodiversity loss and how we can overcome them.

What’s covered in this podcast:

  • What is biodiversity and why does it matter
  • Why the challenges of biodiversity are more complex than other ESG issues
  • How both financial firms and investors can mirror the improving awareness of climate change in the biodiversity sphere
  • Why companies must make sure their supply chains are interacting with nature
  • Hopes that next years’ COP 15 meeting could be biodiversity’s version of the Paris Agreement on climate change
  • How Federated Hermes looks to communicate their expectations with companies on biodiversity and tracking how they implement them
  • Why changing our meat-based diets could play a major role in tackling the challenges of biodiversity
  • How technology could be a game-changer in finding ways to beat biodiversity concerns
  • Why we need to be asking how biodiversity fits into net zero strategies

9 December 2021 (pre-recorded 30 November 2021)

Below is a transcript of the episode, modified for your reading pleasure. Please check the corresponding audio before quoting in print, as it may contain small errors. Please remember we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at your time of listening. For more information on the people and ideas in the episode, see the links at the bottom of the post.


Ryan Lightfoot-Aminoff (RLA): I’m Ryan Lightfoot-Aminoff and today I’m joined by Sonya Likhtman, manager in the Engagement and Stewardship team at Federated Hermes. Sonya, thank you very much for your time today.

Sonya Likhtman (SL): Thanks for having me, Ryan.



RLA: Now there’s been an awful lot of attention the last few months on climate change and what we can do ourselves to hold rising temperatures. But one thing that has been a growing voice among our fund managers recently has been biodiversity. Can you just explain to us what biodiversity is and why it matters so much?

SL: Of course, so biodiversity, basically the variety of life on earth that can be at different levels. So at the genetic level, at the species level and at the ecosystem level, and really we’re talking across land, sea plants, insects, animals and what’s important with biodiversity that it’s not just those sort of differences between the species and ecosystems. It’s also what are called ecosystem services. And that’s the many benefits that we get when levels of biodiversity are high. And ecosystem services range from reliable water flow to a stable climate to ingredients themselves. And so when we think about biodiversity we really have to think of it alongside those ecosystem services that are so valuable to our economies and societies.


RLA: That’s all very important, but what are the sort of barriers and stumbling blocks to addressing some of the issues we have around biodiversity?

SL: So unfortunately biodiversity, isn’t quite as straightforward as some of the other ESG issues that we look at. Of course there isn’t a single metric, like the CO2 equivalent that we can use to compare biodiversity impacts. That’s one challenge. Another challenge is that it’s really localised. So it’s not so easy to compare between different areas and different ecosystems. I think a lot of biodiversity impacts that companies have are concentrated in the supply chain and not all companies have a good overview of their full supply chain and therefore of their biodiversity impacts. You know, biodiversity will mean very different things to different companies across different sectors. And so it’s just a more complex problem with more dimensions, but we’ll get there.


RLA: And how will we get there? How do we get biodiversity higher up the agenda with companies and with governments?

SL: I think when speaking to companies, we can be very explicitly asking you know, what are their main impacts and dependencies on biodiversity? Have they done that sort of assessment of impacts and dependencies across their operations and supply chain? I think as investors, we have an important voice and collectively when we sort of raised this issue and bring it higher on the agenda as we are doing for climate change, that can really signal to companies that it’s an important issue that needs to be addressed. 

There’s a lot of investor collaboration going on in this space, for instance as the international business of Federated Hermes, we’re signatories to the Finance for Biodiversity Pledge. And that’s a very large group of financial institutions who are working on how to engage with companies more effectively how to assess impacts and also how to influence policy in this space. 

And that was your other question, sort of how do we get it higher on the agenda with governments? COP 15 on biodiversity, which is sort of the other big COP that we’ve been following closely. The first part’s happened in October and the second part will be in April or May, and that’s when we can expect a global biodiversity framework to be agreed, which is the framework that governments and the private sector will then work on implementing. And through the finance for biodiversity foundation, we’ve been trying to influence that framework specifically calling for the alignment of financial flows with global biodiversity goals and targets and also asking for and enabling regulatory environment that will help the financial sector to better address biodiversity risks and opportunities.


RLA: How easy is it to sort of discover this information? You said obviously when you are looking at stumbling blocks and bring them up with companies, it’s easy for them to say on a simple level. This is what we’re, this is what we do. We make this and this. Obviously you go further down their supply chains, their Scope two and three, to use some of the jargon, it obviously gets a bit further away from what company X is doing and just selling something along the high streets or what is happening with their sorts of materials and things and things like that. How are you kind of getting that information? How easy is it to get and how much impact is it making when you are able to bring to this information to them?

SL: There are some publicly available rankings of companies on certain topics like food and agriculture companies or deforestation, but obviously supply chain data is not going to be publicly available necessarily. And so it is up to companies to do that impact and dependency assessment and work out where their, where their operations, their products and their supply chains are interacting with nature. And that should be the first step for how they then go about setting a strategy to address the most material inputs. So, you know, there is a challenge with data. There’s a challenge with companies not disclosing enough for investors to be able to assess this. But I think that will change for biodiversity, especially as we keep sounding the alarm about how critical this is, as an issue.


RLA: Thank you. And you mentioned sort of the COP event we’ve got next year, we’ve just come off the back of COP 26, which was for the wider climate goals. Perhaps just talk about the COP we’ve got next year and the outcomes of it, but what exactly people can do or what awareness can be raised for it.

SL: So I think the, what we’ll see come out of it is hopefully something that looks a little bit like the Paris Agreement, but for biodiversity, a sort of signal that’s we need to collectively work on this challenge. We’ve had biodiversity goals in place before that was the IHG targets from 2010 to 2020, but unfortunately most of those, or all of those targets were missed and there was quite limited involvement from the private sector. So that’s something that’s much more positive this time around. We’ve seen that the private sector and the financial sector have a more active voice in sort of in the run-up to COP 15. And I think hopefully from that, we’ll see a framework that better speaks to investors to the financial community more broadly. And of course, then the challenge will be how to translate that global framework into national policies both for the financial sector, but also across sectors so that we can work on actually implementing the framework at the national and regional levels.


RLA: Thank you. And perhaps let’s move on to your role at Federated Hermes, have you got any examples of work that you’ve been doing that have made a material impact in this area?

SL: I think engagement can have a huge impact on biodiversity specifically for the, you know, the way we started our conversation, talking about the challenges, it’s not so clear cut. So having long standing engagements with companies on the topics that are most relevant to them when it comes to biodiversity it’s a really good way to influence the dialogue and biodiversity outcomes. So a few key areas that we look at are deforestation, sustainable food systems and other industries that are having an impact on biodiversity. You know, communicating our expectations on biodiversity to these companies and then tracking through to see how they implement them.


RLA: And is there anything that we can do, going down to a lower level, anything we can do as sort of not just investors, but as people that can help with this? Or any certain foods or companies that we can use? What can we do on a personal level? 

SL: I think at the moment the food system is probably the main driver of biodiversity loss worldwide. And that’s because there are huge land requirements, it’s a major contributor to climate change, which is one of the main drivers of biodiversity loss and so diets and how we consume are really important. I think eating less meat is an obvious one that we all know, but it does really have a major impact. For the same calorie and protein inputs, you need a hundred times more land to grow beef and cattle compared to plant-based proteins. So simple changes like that can have a major impact on biodiversity.


RLA: And then maybe sort of looking forward, what’s the role that technology plays now and finding new opportunities to solutions that will meet all of these issues and help address them going forward.

SL: I think technology is really exciting in this area because as I mentioned biodiversity is quite localised. So for instance, if we look at deforestation and how we can track what’s going on there, you know, satellite technology that can show us what exactly is going on in an area can help companies to trace the commodities that they’re sourcing back to a specific area and therefore work out whether their supply chains are, or aren’t, contributing to deforestation. So I think innovations and technology like that will play a big role in this challenge.


RLA: So perhaps bringing it all together then, we’ve talked a lot about biodiversity and at the beginning I did ask about the focus on climate change. How exactly are they all, how do they interact together? What’s sort of the interconnection between those two stories?

SL: Biodiversity and climate change are really tightly intertwined. So for biodiversity, there are five main drivers of biodiversity loss and climate change is one of those five. So we’ve got climate change is one of the principle things that’s causing biodiversity loss and degradation. And on the flip side, biodiversity and nature offers some of our greatest hopes for climate change mitigation and adaptation. So both the sort of absorption of greenhouse gas emissions from the atmosphere and also adaptation to increasing physical climate risks. So they do go hand in hand. And that’s why it’s really important that when we’re speaking to companies and asking them to commit to net zero, we’re asking them to align with the goals of the Paris Agreements, we need to be asking how nature and how biodiversity fits into those net zero strategies.

RLA: Well, Sonya, that’s been really interesting. Thank you very much for your time today.

SL: Thanks very much for having me.

RLA: If you’d like to get more information on any of the topics discussed in this, including biodiversity or climate change, please visit our website fundcalibre.com where you can also find information on all the Elite Rated Federated Hermes funds. And if you’d like more from our Investing on the go podcast, please don’t forget to subscribe.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.