The importance of biodiversity in investment decisions
- Monday 22 May is the International Day for Biodiversity
- The connection between healthy levels of biodiversity and a strong economy is increasingly clear
- It’s more important than ever to consider the impact biodiversity loss could have on your investments
Dominic Rowles, Lead ESG Analyst, Hargreaves Lansdown:
“Biodiversity is all the different kinds of living organisms in one area. From the variety of animals to plants, fungi, and even micro-organisms like bacteria that make up our natural world. It’s vital to the survival of life on planet Earth, and the International Day for Biodiversity was established by the United Nations to raise awareness of its importance.
The World Wildlife Fund’s 2022 Living Planet Index revealed that mammal, bird, amphibian, reptile, and fish populations have declined by an average of 69% since 1970. The report identifies several key reasons for this biodiversity decline including habitat loss, species overexploitation, invasive species, pollution, climate change and disease.
Biodiversity is quickly rising up the agenda for investors. Half of the world’s GDP depends on nature and 75% of the world’s poor rely on agriculture for their livelihood. That means the loss of biodiversity could have serious economic impacts.
Biodiversity is becoming a new frontier in sustainable investment, and it’s more important than ever to consider the impact of biodiversity loss on the companies you invest in, and what plans those companies have to avert the worst effects. If you invest in funds, you should make sure they’re run by managers that consider the impact biodiversity loss could have on the funds’ investments.
Two funds with biodiversity considerations at their core
1) Ninety One UK Sustainable Equity
The Ninety One UK Sustainable Equity fund invests in companies making a positive impact on society or the environment. Matt Evans has managed the fund since launch in December 2018 but has more than 24 years of investment experience overall, having previously managed funds at Colombia Threadneedle and Legal & General.
Natural capital is one of the manager’s core pillars of analysis, and within natural capital, carbon, water and biodiversity are his key areas of focus. Each company’s impacts on these areas, both positive and negative, are assessed, and may affect the manager’s view of the company’s growth and return potential.
Some of the fund’s investments directly help slow biodiversity loss. Cellular agriculture specialist Agronomics, for instance, creates cultivated meat from cell cultures rather than via traditional agriculture methods. The business aims to address, and benefit from, the need to produce 50% more food to support the world’s growing population and address the 18% of emissions caused by livestock and its by-products. Their methods also require less land, pesticide and fertiliser use.
2) Legal & General Future World ESG Developed Index
The Legal & General Future World ESG Developed Index fund aims to track the performance of the Solactive L&G ESG Developed Markets Index. It’s made up of almost 1,500 companies based across global developed markets, like the US, the UK and Japan. It’s also diversified across lots of different sectors, including technology, healthcare and financials.
The index invests more in companies that score well on a variety of ESG criteria – from the strength of its biodiversity programme and deforestation policies, to the number of women on the board and the quality of disclosure on executive pay. It also invests less in companies that score poorly on these measures.
Legal & General Investment Management is a loud champion of biodiversity. The firm’s biodiversity policy outlines its belief that companies should proactively consider and address biodiversity issues to generate sustainable outcomes and value for all stakeholders. It’s also led numerous biodiversity-related engagements, both with the companies it invests in and governments around the world.”
