Miranda Beacham, head of ESG – equities and multi-asset at Aegon Asset Management, looks at why biodiversity has often been the forgotten environmental sibling to climate change, and Malcolm McPartlin, co-manager of the Aegon Global Sustainable Equity Fund, highlights companies investors looking at the theme should consider.
Beacham says biodiversity is a highly valuable lens to look at ESG-driven investments through. But she believes it is often forgotten in favor of climate change because its effects and implications are less tangible.
“Biodiversity is the other side of the same environmental coin as climate change. Climate change has garnered most of the environmental attention – mostly because of its ease of quantification. It is easy to measure emissions and there are models to calculate scenario analyses”.
“Looking back at how climate change investment engagement has evolved over the years, it started with the sectors where this has the most material impact. For instance, oil majors and industrials led the way in disclosure and other sectors have followed suit, fostering the development of formal frameworks”.
“We are near the beginning of the biodiversity journey, so it is not as easily quantified – and of the data that is around, coverage is poor. High-impact sectors are again the ones leading in disclosure terms. This includes companies involved in coffee growing and other agriculture or mining among others”.
Short of investing in forestry companies, who may have their own issues with monoculture damage to the environment, Beacham acknowledges that biodiversity is a hard theme to invest in directly – however, there are other routes to ensure that the natural environment is protected, such as ensuring water usage is more efficient and wastewater treatment less fossil fuel -intensive.
Opportunities for investment
McPartlin believes that whilst finding pureplay exposure to the biodiversity theme can be more difficult than climate change, we can find compelling exposure and activities within many of our sustainable investments that are making a positive impact on biodiversity.
“Energy Recovery* is involved in improving biodiversity in several ways but primarily focused on desalination, which is not a clean process but essential in parts of the world with insufficient surface-level water like the UAE. Energy Recovery plays a role in reducing the energy burden of treating wastewater, and are adapting their technology to help replace environmentally damaged refrigeration systems in our supermarkets with more energy efficient alternatives.”
“Valmont* has a leading irrigation business that uses smart tech to help customers maximize water usage and boost crop yields. Meanwhile, in gene sequencing, Oxford Nanopore products are used in the field (literally) to help select plant varieties that produce more abundant and nutritious food with reduced input and environmental impact.
“Elsewhere, Tomra’s* food division uses advanced sorting technology to help accurately sort and grade food while Advanced Drainage Systems* provide subsurface drainage to farms, both of these companies are helping farmers maximize agriculture output.
Beacham concludes: “It’s easy to see the positive investment implications from such activities. When we talk about long-term fundamental opportunities that can cut through uncertainty, this is a theme that clearly offers the potential for multi-decade growth, as we need to find ways to better manage the world’s most precious resources.”
*Companies are held in the Aegon Global Sustainable Equity Fund