Get the right experience for you. Please select your location and investor type.
Biodiversity and our approach to it
It is 2012 and we are hosting a company representative from an Indonesian mining company. A red flag has already been raised, the CEO has Susilo Bambang Yudhoyono’s1 ministers in his Rolodex. Our research highlights another investment risk – one of biodiversity. One would struggle to mine in a worse place from a biodiversity perspective. This area is one of a handful of Megadiverse sites (areas which make up a majority of the earth’s flora and fauna) internationally, twice as old as the Amazon rainforest. Needless to say we moved on.
We have been managers of dedicated sustainable investment funds for almost 20 years. Key to our approach is that economies should develop along a path enabling the world’s population to live longer, better and healthier lives without undermining the planet’s ability to provide the resources that humans and other species rely upon. Biodiversity is one component necessary for that path, along with climate stability, air and water quality, human rights and others. That’s why we have been researching and engaging companies on a wide range of topics related to biodiversity for nearly two decades.
What is biodiversity?
Biodiversity is the term commonly used to refer to the variety of living species on Earth, including plants, animals, bacteria and fungi. It is not a marketable good or product, nor a service; it is the living web that connects the tangible and intangible elements of healthy ecosystems.
The many contributors to biodiversity loss include changes in land and sea use, direct exploitation of organisms, climate change, pollution and invasive species. And there are different regulatory regimes governing different contributors for example forest management, water, waste etc. There are many challenges to assessing the biodiversity risks and impacts of companies as they are location specific, dependent on how each company interacts with nature across its value chain, and they are often cumulative. Add in a huge amount of intermediation through supply chains which in turn makes it very difficult to source useful data and it’s clear that addressing biodiversity loss in investment is not straightforward.
Given the growing realisation of the importance of biodiversity to economic activity, an increasing number of financial industry initiatives, targets and commitments have been created. There are many large scale issues that need to be tackled by multiple actors including companies, financial institutions, governments and non-governmental organisations (NGOs). With that in mind, we support the efforts of the finance industry to improve company disclosures on nature-related dependencies, impacts, risks and opportunities
However as bottom-up long-term investors, what makes us different is our focus on targeted, company relevant topics and real world change. This allows us to address practical issues which often impact on multiple areas of concern. Our investment approach is committed to identifying high quality companies that contribute to, and benefit from, sustainable development. Rather than considering “biodiversity” as a stand-alone theme we focus on specific, tangible factors such as pollution, supply chains and plastic packaging. These issues feed into biodiversity outcomes and are more in control of company management than broad measures of natural capital or biodiversity loss.
We don’t have strategy or portfolio level targets for stemming biodiversity loss. Solving the problems leading to biodiversity loss requires deep collaboration among many stakeholders and so it’s hard to see how individual investor targets make sense. Targets can also lead to unintended consequences, for example when investors divest to meet targets rather than holding a company and engaging for change. Not to mention that tracking progress towards targets requires data and metrics which are not yet widely available for biodiversity. Action today is more important than targets set for the future and so we focus on what every company we invest in can do in the here and now as well as their direction of travel.
Biodiversity and our investment process
The importance of ethical stewardship in addressing the interconnected problems of biodiversity loss, climate change and human development is a common thread that runs through all our investment decisions. For example, we wrote about the challenges of sustainable food production in this article from 2020, including how it gave rise to a number of excellent investment opportunities. We have been considering the impacts of human activity on biodiversity loss for many years; how we incorporate that in our investment process can be summarised as follows:
- Avoiding companies that we believe have a significant negative impact on the environment,
- Investing in companies that we believe are working to reduce their environmental footprint and so reduce pressure on biodiversity,
- Investing in companies that we believe are actively providing solutions to some of the interrelated challenges listed above,
- Engaging with companies to encourage them to improve their operations and disclose more information
Given all the challenges of analysing biodiversity impacts and the need for location and company specific information, we consider that a bottom-up detailed analysis is what really makes the difference in assessing company efforts in reducing impacts and driving solutions. As an example of how the very small can contribute positively to biodiversity, consider the wonderful world of microbes as used by company Novonesis
Novonesis
Novonesis is a global bioscience company based in Denmark. It uses its understanding of microbiology, fermentation and enzymes to create products for food and agricultural companies. Microbes include bacteria and fungi, so tiny that they can’t be seen without a microscope, but exist in all ecological niches on the planet. They are also the oldest forms of life on the planet having existed for 3.5 billion years.
Novonesis take advantage of the fact that all plants and animals evolved in a world of microbes to create solutions to current challenges including:
- Food preservation: Approximately 30% of food that is produced is wasted at some point along the supply chain, with a resulting waste of the energy, water and raw materials, not to mention the land that was used to produce it.2
- Plant health: Although plants evolved to interact with microbes for better health and growth, the agricultural boom of the last 50 years has seen us favour using chemical fertilizers and pesticides instead.3
- Animal health: The wide spread use of antibiotics and the resulting contribution to anti-microbial resistance.
The Chief Financial Officer (CFO) of an agricultural machinery company remarked that the world needs to produce as much food in the next 50 years as it has in the last 10,000 years. Considering the impact of agriculture on soil health, water use and biodiversity, solving these challenges can be a huge positive for the natural world.
Subscribe to our updates
To get regular updates and content from Stewart Investors, please register here.
Important Information
This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.
We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.
To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.
To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.
About First Sentier Investors
References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.
We communicate and conduct business through different legal entities in different locations. This material is communicated in:
- Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)
- European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)
- Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors, FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners are the business names of First Sentier Investors (Hong Kong) Limited.
- Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).
- Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)
- United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)
- United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)
- other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).
To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested
© First Sentier Investors Group
Copyright © 2024 Stewart Investors.
Material on this website is intended to provide general information only. Such material does not into account your objectives, financial situation or needs. You should consider these matters before acting on the information and consider the relevant Product Disclosure Statement for any product named on this website before making an investment decision. Any opinions expressed in videos are the opinions of the individual participant and are subject to change without notice. Such opinions are not a recommendation to hold, purchase or sell a particular financial product and may not include all of the information required to make such a decision. Before making any such decision you should consult a financial adviser.