The sustainable investor for a changing world

The world’s largest organisation for the protection of nature – the International Union for the Conservation of Nature (IUCN) – holds its quadrennial gathering this week in Marseille. Rescheduled from 2020 due to the Covid-19 pandemic, the event is the biggest environmental conference involving governments, corporates and non-profit organisations.  

The Marseille conference follows the launch of the United Nations Decade on Ecosystem Restoration earlier this year, which aims to prevent, halt and reverse the degradation of ecosystems on every continent and in every ocean.

This year and next will see separate, crucial UN summits on climate, food systems and biodiversity. These will seek to shape the planet’s foreseeable future. 

A key message already from this week’s conference is the importance of recognising the links between ecosystem destruction, the climate crisis and the health and economic crises caused by the Covid-19 pandemic.

Interconnected crises

These four crises are not distinct. They – and their solutions – are closely interlinked. Covid-19 itself can be seen as a consequence of environmental degradation. Climate change is a bigger threat than anything seen before to the futures of many species and will exacerbate the social and economic problems left by the pandemic.

In a statement ahead of the conference, French President Emmanuel Macron said the goal was to “put nature at the top of international priorities.” And this “because our destinies are intrinsically linked, planet, climate, nature and human communities.”

A global biodiversity framework.  

President Macron called for the IUCN conference to lay the “initial foundations” for a global biodiversity framework that will be the focus of deliberations at the UN biodiversity summit to be held in China in April/May 2022.

This reflects efforts by the international community to frame interim goals for this decade as well as longer-term aims for 2050.

New challenges for investors

Sophisticated investors with whom we work as asset managers are comfortable with risk, but the biodiversity and climate crises demand new terminology.

Just like climate change, biodiversity loss is ongoing, not a potential event far off in the future. There is a great deal of uncertainty over how this process may play out, and how negative and far-reaching the outcomes will be. However, it is quite clear that continuing on a business-as-usual basis is driving us to disaster, and we must change course.

Ecosystem collapse is already happening, initiated and driven by human activity. It is proceeding according to biological processes and complex interactions between species, not the laws of economics or statistical analysis. Too much reliance on our old risk management models may mask the true nature of the threat we are facing and our role in driving it.

When we use the term ‘systemic risk’ in this context, we are not merely speaking about threats to financial stability; we are speaking about the harm to society when critical life-support systems are damaged, or knocked out of equilibrium. This kind of threat is particularly difficult to model, with potentially unlimited downside risk.

Nature’s unravelling – An unhedgeable risk

Biodiversity loss constitutes a risk of unprecedented size and importance. It is difficult to overstate its magnitude. All sectors of the economy face various forms of systemic risk as damaged and destabilised ecosystems result in drought, famine, disease, and the inevitable mass migrations and conflict that accompany these unexpected, but predictable, disasters.

To manage this, we are convinced that investors need to bring all of their influence to bear on the problem, including more effective corporate engagement and public policy advocacy.

But also a tremendous opportunity

Along with the shift to a low carbon economy, the transition to a global economy in harmony with nature represents the most significant investment opportunity of our lifetimes. According to the World Economic Forum, these ‘positive pathways’ are estimated to bring USD 10 trillion in business value and create 395 million jobs by 2030.”

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Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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