Finance and biodiversity: Can they coexist?
By Luc Olivier, Impact Investing Fund Manager at La Financière de l’Echiquier
We think they can. Finance has a crucial role to play in protecting biodiversity by driving capital toward companies that are developing solutions and by helping others to optimally manage their reliance or their impact over the long term. While awareness is growing of the financial risk of biodiversity loss, it can be a tough issue to tackle. That’s why La Financière de l’Echiquier (LFDE) surrounds itself with experts, trains its employees, and has committed, under the Finance for Biodiversity Pledge, to including biodiversity criteria in its analyses and publishing the impact of its investments by 2024.
This is a sizeable challenge. Many industries rely on ecosystem services, from agriculture to transport. In sum, according to the World Economic Forum[1], 50% of global GDP is dependent on biodiversity. We have been publishing the biodiversity footprint of our main funds since 2021. This first step is giving asset managers a reading on climate risk, which is still relatively unknown but has a substantial medium-long-term financial impact.
Balance and pragmatism
After working with our stakeholders from the academic, scientific, and financial world, we have added to the biodiversity criteria in our climate-dedicated investment strategy. Furthermore, we have adopted two biodiversity-related Sustainable Development Goals (SDGs): SDG 14 Life Below Water and SDG 15 Life On Land. These join the already included SDGs for the Climate: SDG 7 Affordable and Clean Energy and SDG 11 Sustainable Cities and Communities.
We use our proprietary matrix to identify whether the company is reliant on and/or impacting biodiversity. If so, we assess the company’s roadmap and analyse the four pressures on biodiversity: invasive species; soil, ocean, and air pollution; destruction of natural habitats; and overuse of resources, e.g. deforestation. The fifth pressure, climate change, is already being analysed in the climate section.
We cannot become a carbon-neutral, biodiversity-protective world overnight. As such, it is important to support solutions that meet the needs of the real economy. That is why we invest in companies that are providing concrete solutions, like Aker Carbon Capture, Norway’s leader in CO2 capture; which is working to eliminate plastic pollution, with alternative technologies like Polylactic Acid, a biodegradable plastic made from sugar (Corbion); and advancing waste management, vertical agriculture, and onboard or ballast water treatment (Alfa Laval).
We also invest in pioneering companies that are taking action to embed their ecosystem, and companies in transition that need to improve their practices.
Guidance
With long-term shareholding, managers can deploy their strategy with the advantage of time. That is why we don’t automatically exclude companies that use controversial commodities like palm oil, if it is independently (RSPO) certified. Instead, we support the company in finding a substitute. On the other hand, palm oil producers are strictly excluded from our investments, and must stop those operations if they intend to make a transition. Nor do we exclude logging, especially since the equivalent of 27 football fields of forest are disappearing every minute around the world[2]. That is why we’re invested in and committed to Svenska Cellulosa, the top forest owner in Europe. Its forests are certified under the two global standards, PEFC and FSC. It replants at least two trees for every tree felled. And it is reducing its logging in areas inhabited by endangered species.
This commitment to companies is the core of LFDE’s Climate & Biodiversity Meetings, a unique initiative in the financial community. In late November, this group of LFDE’s impact investment team, companies, clients, and experts met to spark discussions on the best possible practices. A first in Europe! Stay tuned for an action review and follow-up in the second session.
[1] Global Risks Report, 2021.
[2] Global Forest Watch NGO