Impact investing: reconciling nature and our finances
The health of our planet is intimately linked to your pension and long-term financial goals, says Victoria Leggett, head of impact investing at Union Bancaire Privée (UBP)
My dog and I have a routine. She eats all the biscuits in her dish and then stares intently at the empty bowl, waiting for me to dutifully fill it up again and again. Her unwavering confidence that the biscuits will keep coming always reminds me of the blind faith the corporate and financial world has that nature will consistently and reliably support our activities.
We’ve all been part of this linear “take, make, waste” economy for a long time. We are conditioned to seeing nature as something separate, other – at best something beautiful to spend time in and at worst a free resource.
The asset management industry has been particularly narrow in focus, with a reluctance to attribute value to anything which isn’t associated with a monetary charge, particularly if it is invisible, as is often the case with our natural resources.
However, this is beginning to change. There is a realisation that resources aren’t infinite and climate change will lead to more volatility in ecosystems and the services they provide. As an industry, we are beginning to calculate the true contribution of natural capital to our economy. To quote Tony Juniper, Chair of Natural England and a member of UBP’s Impact Advisory Board, the economy is a wholly owned subsidiary of nature, not the other way around. The numbers are huge.
The World Economic Forum points out that more than half the world’s GDP is dependent on nature and its services, such as the provision of food, fibre and fuel. Three out of four bites of food we eat today depends on animal pollination, says the European Commission’s DG Environment communication officer Tanja Franotović (May 2021).
If we start to place a value on the services of nature, it will be truly transformational to the valuations and prospects of our investments and the quality of our retirement. There will be many winners. Companies that are contributing to a nature-positive economy will enjoy significant growth tailwinds, such as regulation and consumer demand, as well as valuation support.
These are businesses that are solving problems, for instance precision agriculture that enables far lower use of chemicals, bio-based solutions and companies using waste as an input. Such businesses can help close the loop of our economy, making it more circular and less extractive.
Then there are the big multinationals in the food, clothing and manufacturing sectors that have vast and complex supply chains. If these businesses work with their supply chains, and if they have long-term thinking and genuine commitments to local communities and habitats, they too could be winners.
But there will also be losers and this is why how we invest – the companies and funds we support – is so important. In the coming years, some sectors are going to face unmanageable risk in many forms. These range from physical risks, such as the ongoing reduction of soil quality that causes flooding or erosion and makes crops less successful, to liabilities, where communities that suffer loss increasingly demand compensation from the corporate world (think oil spills).
And then there is transition risk, where businesses of yesterday’s economy struggle to cope with the cost of moving to a nature-positive approach.
How do we navigate this as investors? It may sound simple, but what is good for nature is almost always good for us, and increasingly this applies to our investments too. Fund managers have a fiduciary duty that cannot be seen in solely monetary terms. In ignoring the natural world, asset managers put an increasing level of risk to work in a portfolio and miss opportunities to generate superior returns by viewing investors as part of nature, not separate from it.
My dog’s blind faith will, in all likelihood, continue to be rewarded. The same might not be said for our investments.
For more information on the opportunities in impact investing please visit www.ubp.com
Promoted by Union Bancaire Privée