Why investing in biodiversity means looking at the solutions, not just the problems
- Investors looking to make a positive impact on biodiversity preservation should consider directing capital towards companies providing solutions to the crisis
- There are a myriad of innovative technologies, processes and approaches being developed across sectors, that help companies lessen their impact on the environment and biodiversity in particular
- We see potential opportunities in several sectors including agriculture, water treatment and sustainable materials
Over half the value of the global economy – some $44trn – is potentially threatened to some extent by the loss of nature, according to the World Economic Forum. 1 However, there is a significant shortfall in the value of current investments targeted at protecting the Earth’s biodiversity.
Some $133bn is invested annually in nature-based solutions – including $18bn from private sector finance – but this needs to at least triple by 2030 if the world is to meet its climate targets, according to the United Nations.2
So, it’s unsurprising that protecting the Earth’s ecosystems and the natural world is increasingly part of investors’ objectives as they look to leverage their financial capabilities to address this environmental crisis.
As well as investing with an environmental, social and governance (ESG) lens - with biodiversity particularly in mind - we believe there are ways in which investors can make a positive impact on biodiversity preservation. One way they can potentially achieve this is by directing capital towards companies providing the solutions to this crisis.
Rather than purely favouring companies which have a limited biodiversity footprint, but perhaps a limited reach beyond their own operations, we believe there is value in identifying firms producing goods and services which can have a positive benefit on biodiversity preservation on a wider scale.
Here, we focus on three areas – agriculture and aquaculture, water treatment, and sustainable materials – where we believe there are companies playing a role in biodiversity preservation, providing potential opportunities for investors.
Climate change, the COVID-19 pandemic and the Ukraine war have contributed to a growing food crisis. Global food supplies are expected to fall to a three-year low in 2022-2023, while 349 million people across 79 countries are classed as “acutely food insecure”.3 The world needs to find ways to increase crop yield and protect harvests from diseases, but without increasing pollution or the use of pesticides with potentially harmful effects.
New technologies are helping food producers to reduce their biodiversity impact while improving productivity – such as Deere’s precision agriculture systems that can plant, fertilise and treat crops more efficiently than conventional planters and sprayers. 4 This reduces the amount of fertiliser needed and the risk of run-off and eutrophication – where the increased nutrients in water deplete oxygen, harming biodiversity - while also lowering costs.
Companies operating in this space will need to align with new regulations – such as the European Union’s target for a 50% reduction in the use of chemical pesticides by 20305 – creating more potential opportunities for investors.
Alongside agriculture is aquaculture – essentially, breeding fish as food, which is increasingly recognised as a key part of global food supplies and nutrition. But more than a third – at 35.4% - of the world’s fish stocks are over-fished, which has an impact both on food security and biodiversity.6
Fish is a key source of omega-3, an important nutrient for people, and one which is also used in fish farming, as a food for bigger fish such as salmon. One solution to diminishing stocks is creating plant-based omega-3 – from algae rather than from fish – which companies like Corbion are doing as a sustainable alternative that reduces pressure on marine resources.7
Smart water use and treatment
When it comes to water, there is no substitute for this life-sustaining commodity. It is often viewed as an infinite resource – but it’s actually salt water that covers most of our planet. Just 3% of the Earth’s water is fresh water, and two-thirds of that is unavailable for human use – for example some of it in the form of frozen glaciers. Some 2.7 billion people face water scarcity at least some of the year, and 2.4 billion lack adequate sanitation. 8
Water treatment, including filtration and purification, is a crucial aspect of this. Companies which we believe are at the forefront of this industry harness artificial intelligence and digitalisation to provide solutions for their customers, helping them to reduce their biodiversity impact. For example, innovations include Evoqua’s smart water system which allows for remote monitoring and analytics, while the biogas produced during one of its wastewater treatment methods creates enough renewable energy to power approximately 5,000 homes a day.9
There are also growing opportunities in water meter systems, which can help optimise and reduce usage. Investors can potentially find opportunities in new technologies as the water sector is undergoing a digital transformation – as demonstrated by solutions such as Xylem’s software and analytics to help water and wastewater companies tackle challenges in a more sustainable way.10
Innovations in sustainable packaging
The third area where we see companies contribute to biodiversity preservation through their products and solutions is sustainable materials, for example in food and drink packaging – such as aluminium cans.
While the process of mining for the metal does, of course, have an impact on biodiversity, almost 70% of all aluminium cans produced globally are recycled, with the metal infinitely recyclable. A market leader for aluminium cans, Ball, says the timeframe from a customer purchasing a canned drink, to the aluminium in that same can being back on the retailer’s shelf, can be as little as 60 days.11
Paper and packaging companies are also seeking to use more recycled materials to produce packaging solutions to replace less sustainable alternatives. Of course, trees must be felled to provide the input for paper manufacturing, but this can come from sustainably managed forests where more trees are grown than are harvested each year. Companies can also use land with low biodiversity value, such as former pastureland – which is one approach taken by Finnish packaging company Stora Enso, whose forests are a net carbon sink. Its products include wood-based trays that can be used for microwave meals instead of plastic, reducing carbon dioxide emissions by up to two-thirds.12
Sustainable materials are not just all about packaging of course. The fashion industry is responsible for as much as 10% of global carbon emissions and we are already seeing a raft of innovations here that are driving greater sustainability.13 Companies such as Lenzing are developing more efficient textile production methods which have a lower impact on the environment and help to protect biodiversity, for example by using unconventional raw materials such as orange pulp to make fibres. Another example is the development of new methods for embedding colour pigment during fibre production, meaning materials do not need to be dyed – a process that normally contributes significantly to water pollution.14
Investing for a more sustainable future
There is no doubt that society places a significant strain on the world’s ecosystems, and this will likely continue as the population continues to grow and living standards increase. But to protect biodiversity and slow its decline, we believe we need to identify, and invest in, the solutions that can be leveraged to lower our biodiversity footprint in a more efficient, more sustainable way.
There are a plethora of innovative technologies, processes and approaches being developed across sectors, which enable companies to lessen their impact on the environment and protect against biodiversity loss. We have highlighted just a small number of these, but we see potential opportunities across the equity spectrum for investors wanting to build a biodiversity-focused portfolio.
References to companies are for illustrative purposes only and should not be viewed as investment recommendations.
Read more on Biodiversity
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Shifting the natural cost curve: The role of investors in protecting biodiversity
Why, and how, investors should integrate biodiversity into fixed income portfolios
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