Business & Biodiversity, interlinked challenges?

Luc Olivier, Fund Manager for Echiquier Climate & Biodiversity Impact Europe

Biodiversity issues are beginning to take their place at the centre of the conversation, but are not yet being heard fully. A simple but striking example is that the COP 28 summit on climate change was held at the end of 2023, while the COP on biodiversity to be held in Bogota in autumn 2024 will be only the 16th in the series. The gap between these international conferences, both born in 1992 at the Rio Earth Summit, now stands at 12 editions. Is this due to a difference in interest in the issues? That is only part of the reason. Quantifying life is complex. Innovative companies and bold impact investors have taken up this key challenge, which affects the entire economy. The convergence of the challenges means that all economic sectors are deserving of support on the road to transition.

Measuring for action

Whether individuals, businesses or financial markets, our dependence on biodiversity is considerable. For example, nearly a million animal and plant species will disappear in the near future.[1] The additional funding needed to achieve the objectives set out at COP 15 on biodiversity – the protection of 30% of the world’s lands and oceans by 2030 – amounts to $830 billion per year until 2030. This is five times the amount pledged to date, and private investment accounts for less than a quarter of the total.[2] As impact investors, we believe that businesses are essential links in the biodiversity protection chain, and can help meet the challenge.

Biodiversity is a cross-cutting issue, so collecting data from companies is complex – and the findings vary widely. To measure a company’s impact on a range of pressures on biodiversity, the quantitative models available to investors provide useful data, notably the MSA (Mean Species Abundance) model derived from the Global Biodiversity Score (GBS) developed by CDC Biodiversité, but they are still insufficient. But the lack of global data should not be an excuse for inaction. To make up for the lack of precise indicators and common benchmarks, some impact investors are developing ground-breaking qualitative methodologies. A pioneer in this field, LFDE developed a proprietary methodology to assess companies’ climate and biodiversity maturity in 2021. We focus on four pillars – Climate & Biodiversity Governance, Climate, Biodiversity and Just Transition – to assess companies’ impact on biodiversity and assign them a maturity score on these issues. A minimum score of 40% is required to be included in the portfolio of our dedicated strategy. This score, which is assessed by management teams under the supervision of the Responsible Investment team, allows them to better understand companies, their impacts and dependencies, and in turn identify levers for shareholder engagement to help them embrace better practices.

Innovative companies

Biodiversity loss is a strategic challenge for companies. Some are developing practical solutions to protect it and adapt their business model to make it sustainable. Aware of the need to measure biodiversity, Veolia has designed an innovative solution, the LEKO sensor. Developed for local authorities, this device identifies and counts the diversity of species present in an environment. It provides local authorities with a tool to become active players in the protection of natural areas and to ensure that environmental objectives are met.

Swiss group SIG, a supplier of sustainable food packaging solutions, has made its commitment to sustainability a central part of its strategy. Its technology and innovation capabilities enable it to offer solutions adapted to all categories and sales channels, in 100 countries. To date, SIG is the only company in the world able to replace aluminium foil in its packaging, making it more recyclable and reducing the potential impact of waste on marine and terrestrial biodiversity. Its sustainability strategy is based on four priorities, one of which, Forêt+, aims to protect 100% of the forests from which the cardboard used in its packaging is sourced through FSC® certification, and to support the creation, restoration and protection of a further 650,000 hectares of sustainable forest.

In a completely different sector, the future of luxury goods depends on agriculture, one of the main causes of biodiversity loss. Aware of this link, Hermès is rolling out an ambitious biodiversity strategy, one objective of which is to measure the footprint of its sourcing subsidiaries with WWF France and CDC Biodiversité. Another sector brings another example of commitment: Finland’s Kemira, a specialist in drinking water treatment solutions and the efficiency of water-intensive industrial processes, is conducting studies to measure the temperature of the water leaving its plants in order to limit its impact on biodiversity. This breakthrough is the result of a fruitful two-year pre-investment engagement with LFDE teams.

The stakes are high. More than 50% of global GDP depends on biodiversity.[3] We believe the role of listed impact investing is critical in attracting capital to companies committed to protecting or restoring biodiversity. As a long-term investor, LFDE engages companies in close shareholder dialogue to encourage them to change their practices and business models for the good of biodiversity. [4]

Disclaimer: The fund is exposed to the risk of capital loss, equity risk, small and mid-cap investment risk, currency risk and discretionary management risk. For more information on its features, risks and costs, please read the regulatory documents available at www.lfde.com. Investors are reminded that the units/shares presented may not be marketed in their country of residence. The stocks referred to are given by way of example. No guarantee is offered that they will be in the portfolio at any particular time. Investors’ attention is drawn to the fact that the fund’s investments generate no direct impact on the environment and society but it does seek to invest in companies meeting precise criteria in their investment strategies. The opinions expressed in this document are the fund manager’s own. LFDE shall not be held liable for these opinions in any way.

[1] IPBES

[2] BloombergNEF

[3] World Economic Forum

[4] With the Sursauts podcast, LFDE gives a voice to companies developing innovative solutions. The Sursauts podcast is available on all listening platforms.