How to invest and be kind to our planet
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Just as human activity is damaging the climate, it’s destroying marine ecosystems and driving many species towards extinction. Decades of overfishing and the use of harmful large-scale fishing methods like bottom trawling, have had a pernicious effect on the world’s oceans. According to World Economic Forum research, humans have severely altered two-thirds of marine environments*. A 2019 report from the UN found that 85% of wetlands present in the year 1700 had been lost by the year 2000. In fact, loss of wetlands is currently occurring three times faster in percentage terms than forest loss**.
“Biodiversity and nature’s contributions to people are our common heritage and humanity’s most important life-supporting ‘safety net’. But our safety net is stretched almost to breaking point.” — Professor Sandra Diaz, co-chair of UN’s IPBES Global Assessment
The sustainability of our oceans is under severe threat. The aim of the UN’s Sustainable Development Goal #14 is to conserve and sustainably use the oceans, sea and marine resources for sustainable development. The ten targets include, of course, the reduction of marine pollution but also: protecting and restoring ecosystems; reducing ocean acidification; conserving coastal areas; sustainable fishing, increased research and implementing and enforcing international sea law.
Biodiversity encompasses the 8 million or so species on the planet. It relates to all the different ecosystems: coral reefs to rainforests, grasslands to tundras. The ocean produces at least 50% of the planet’s oxygen and is home to most of the Earth’s biodiversity. And diminishing biodiversity in our oceans is the single greatest threat to the survival of humanity.
Sonya Likhtman, Federated Hermes engagement and stewardship manager, explained that biodiversity isn’t quite as straightforward as some of the other ESG issues. For example, “It’s really localised, so it’s not so easy to compare between different areas and different ecosystems,” she said. “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. And so it’s just a more complex problem with more dimensions.”
Nature loss matters for most businesses – through impacts on operations, supply chains, and markets. We have the power to change this. Humanity urgently needs to rethink its relationship with nature, in order to halt and reverse the alarming degradation of the natural world.
By 2050, the total investment needs of nature will amount to over $8 trillion***, the 2020 UN Environment Programme’s state of Finance for Nature report argues. It found that by 2030, investments in nature-based solutions will need to at least triple in real terms if the world is to meet its biodiversity, climate change and land degradation goals***.
Biodiversity remains a niche area for finance and investment, however there are several secondary exposures for investors to consider. For example, there are companies that support marine ecosystems, investments that support sustainable fishing and aquaculture or those that prevent ocean pollution.
According to Noelle Cazills, co-manager of Rathbone Ethical Bond fund, “The blue economy is valued at €1.3 trillion, so protecting marine ecosystems and promoting better fishing practices will help economies to be more resilient.”
Investing in ocean-based food production can take on numerous forms, from improving fisheries and production of ocean aquaculture to more sustainable food sources. As the global population grows, investing in wild fisheries would help provide healthy diets for people while replacing carbon intensive proteins like beef.
John Bennett, manager of Janus Henderson European Focus, told us on the Investing on the go podcast about Mowi, a fish farming business in Norway. He tells us why he believes it’s the clear winner in the ‘salmon versus red meat’ debate.
Financing the protection of wetlands, coastal mangroves and seagrass meadows, via mechanisms such as “blue bonds” is another option. Noelle explained: “Protecting coastlines and ecosystems also creates a huge social impact and ensures jobs are protected, in the tourism and hospitality industries for example. Blue bonds are one way to finance such projects. The money raised is directed to specific projects, with “blue” credentials and investors get regular reporting on what the bonds have financed.”
Nick Martin, manager of Polar Capital Global Insurance fund, has also told us how insurance companies can play their part in promoting behaviour to help fight the climate and biodiversity crises. He describes how nature is becoming a ‘risk prevention’ partner, with nature-based solutions like mangroves as flood defenses.
Biodiversity loss jeopardies progress towards a number of the SDGs — the link between humans and nature has never been so significant. Just as SDG 16, peace, justice and strong institutions, requires a large attention to global policy, achieving SDG 14 requires a significant collaborative approach, as well as legal and regulatory action for the conservation and sustainable use of oceans.
Life below water and life on land (SDG 15) both directly tackle biodiversity loss. However, both goals are connected to several others including climate action (SDG 13), responsible consumption and production (SDG 12) and good health and wellbeing (SDG 3). Furthermore, with more than 3 billion people^ relying on the sea to make a living, it direct relates to decent work and economic growth (SDG 8), zero hunger (SDG 2) and poverty reduction (SDG 1).
*Source: Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy, World Economic Forum, 19 January 2020
**Source: UN Report: Nature’s Dangerous Decline ‘Unprecedented’; Species Extinction Rates ‘Accelerating’, May 2019
***Source: State of Finance for Nature, UN Report, May 2021
^Source: UN Sustainable Development Goals, 2021 Report