Why consider investing in biodiversity?
New nature-related policies and regulation being developed will drive new investment opportunities as corporates commit to biodiversity positive business models.
Consumers, governments and companies have realised the urgency and we are seeing:
- Consumers consumption patterns changing - deploying money into brands perceived as doing better on environmental issues such as biodiversity protection and restoration
- Corporates have clear economic opportunities to help mitigate their ecosystem damage. Companies who can deliver solutions to help in mitigating biodiversity impact via their innovations will keep investing in research and development to develop new technologies.
Opportunities and risks
Source: AXA IM. For illustrative purposes only
Biodiversity decline leads to large-scale environmental and social costs, currently costing the global economy 10% of its output each year*. Strategic investments by companies are needed to restore and protect biodiversity on a global scale. It is perhaps useful to think of awareness of the biodiversity crisis being at a similar point to climate about 10 years ago.
* Source: UNEP, 27 May 2021.
Our Biodiversity Strategy
Our Biodiversity Strategy is designed for long-term investors who wish to pursue responsible growth by identifying those listed opportunities which can achieve a measurable and effective impact on the preservation of life on land, water and air. Allocating capital in this way can help to recognise, drive, and incentivise those companies with a material and demonstrable mission to develop sustainable alternative products and services - those needed for the increasingly urgent movement to protect, preserve and support our planet’s ecosystem.
AXA IM’s impact investment expertise aims to hone the Strategy’s focus onto companies which have the strongest potential to promote the UN Sustainable Development Goals most relevant to the Biodiversity theme: UN SDG 6 – Clean Water and Sanitation for all; UN SDG 12 – Responsible Consumption & Production, UN SDG 14 – Life Below Water, UN SDG 15 – Life on land2 :
- 6 – Clean Water & Sanitation (Ensure availability and sustainable management of water and sanitation for all)
- 12 – Responsible Consumption & Production (Ensure sustainable consumption and production patterns)
- 14 – Life Below Water (Conserve and sustainably use the oceans, seas and marine resources for sustainable development)
- 15 – Life on land (Protect and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss)
The targeting of specific SDGs does not imply the endorsement of the United Nations of AXA Investment Managers, its products or services, or of its planned activities and does not constitute, explicitly or implicitly, a recommendation for an investment strategy.
The strategy invests in a diversified opportunity set across the areas of sustainable materials, land and animal preservation, water ecosystems, recycling and recirculation. We achieve this by investing across four key areas:
- Sustainable materials
- Land and animal preservation
- Water ecosystems
- Recycling and recirculation
Data driven, reliable Biodiversity impact targets
Investing for material positive impact has previously been hampered by lack of tangible and credible data points. The increasing urgency of systemic biodiversity risk is now driving the creation and development of sophisticated metrics which enable AXA IM investment expertise to select companies that show evidence of having the strongest potential to contribute to achieving our target SDGs.
AXA IM’s partnership with Iceberg Data Lab (IDL) reports the kind of information that can inform portfolio construction and allow clear comparisons. The key datapoint known as Corporate Biodiversity Footprint (CBF) uses as a metric ‘mean species abundance’, or MSA. This employs a life-cycle analysis model to track product flows through the value chain from sourcing to end user and examines four specific pressure points that may be a factor in biodiversity loss: land use; climate change; water pollution; and air pollution. Other inputs may be missing, such as invasive species, but we believe MSA still gives a useful estimate of the square kilometres of pristine forest that would be lost each year given the nature and impact of a company’s activities.
Corporate biodiversity action is at an early stage – the initial focus is driving preservation and mitigation. Our engagement is therefore focused on helping management to understand how to measure their impact and find the key performance indicators that will allow them to monitor their actions in term of biodiversity loss mitigation, and to meet regulatory demands in the future.
Counterparty Risk: Risk of bankruptcy, insolvency, or payment or delivery failure of any of the Strategy's counterparties, leading to a payment or delivery default.
Geopolitical Risk: investments in securities issued or listed in different countries may imply the application of different standards and regulations.
Investments may be affected by movements of foreign exchange rates, changes in laws or restrictions applicable to such investments, changes in exchange control regulations or price volatility.
Impact of any techniques such as derivatives: Certain management strategies involve specific risks, such as liquidity risk, credit risk, counterparty risk, legal risk, valuation risk, operational risk and risks related to the underlying assets.
The use of such strategies may also involve leverage, which may increase the effect of market movements on the Strategy and may result in significant risk of losses.