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Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

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Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

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Biodiversity

Biodiversity

Why is it important to us?

Although the world’s 7.6 billion people represent only 0.01% of all living things by weight, humanity has already caused the loss of 83% of all wild mammals and half of all plants1. The current rate of extinction is tens to hundreds of times higher than the average over the past 10 million years – and it is accelerating. Current production and consumption patterns, land use and urbanization, population dynamics, trade, industry and governance models underpin this loss.

As investors, we know that biodiversity loss creates risks for the companies we invest in together with the broader economy, and that we need to do more to both understand and mitigate those risks.

As we increase our focus on climate change, we must also increase our focus on biodiversity.

What is First Sentier Investors doing?

To date the work of individual investment teams and our RI Team on biodiversity has been focused on:

  • Key issues: including deforestation in the Amazon, improving plastic packaging and the circular economy in India, and engaging with commercial and domestic washing machine manufacturers on the issue of plastic microfibre pollution (see feature on the following page)2.
  • Specific companies: for example, engaging with companies on their environmental permit processes to ensure that vulnerable species are not impacted by the development work they are undertaking3.

The key Sustainable Development Goal (SDG) targets we are looking to contribute to through our activities are SDG Target 12.6; to encourage companies to adopt sustainable practices and to integrate sustainability information into their reporting cycle and SDG Target 14.1; to prevent and significantly reduce marine pollution of all kinds.

 

SDG Targets encourage companies to adopt sustainable practices and sustainability information into their reporting cycles.

Reporting on progress

As we try to take a more holistic approach to biodiversity risks across our portfolios, we have prioritised companies with a high nature dependency (both direct and within the supply chain) according to the WEF New Nature Economy report1. These include companies involved in the forestry, agriculture, fishery and aquaculture and utilities industries.

We have mapped this to sectors that Sustainalytics identifies as having Land Use and Biodiversity as a Material ESG Issue in their operations or supply chain. The charts on this page show Sustainalytics’ assessment of how exposed our portfolio companies* are to these risks, and how they are managing this exposure.

While Sustainalytics assesses the overall exposure (measured in terms of the potential impact on the economic value of the company) of these companies as low compared to other issues, for the reasons outlined in this report, we feel that it is an issue which will become more material over time. Accordingly we need to remain vigilant in our understanding of the issues, particularly as management of the issue is assessed as weak for a large number of companies.

Over the course of 2021, we will be working to understand these risks better, and ways in which to manage them.

 

1 http://www3.weforum.org/docs/WEF_New_Nature_Economy_Report_2020.pdf

* companies in the Paper & Forestry, Food Products and Utilities Peer Groups as classified by Sustainalytics have been represented on this chart.

Graph source: First Sentier Investors, Powered by Sustainalytics

Challenges

While biodiversity is only recently emerging as an ESG issue on investors’ radars, COVID-19 has heightened its urgency. Investors must better understand the connection between people, companies, wildlife and biodiversity, to better assess the impact of biodiversity loss on the companies they invest in and their contribution to the problem.

The lack of awareness of the issue and its importance among the investment industry is compounded by a lack of information. First Sentier Investors believes more information is needed on the impact of biodiversity issues on different industries, and investors need the guidance of clear frameworks for identifying and addressing these risks and opportunities.

Future plans

We understand that we need to move from an issue-driven and company-specific approach to a more holistic understanding of the business implications of biodiversity loss. We have started to map these risks (as outlined in the reporting on progress section) but there is much more work to be done to understand the extent of these issues beyond high risk industries.

In 2021, we will be setting up a working group to learn from experts and each other, and we will develop a strategy for addressing biodiversity risks in the investment process. We will explore options for collaborating and knowledge sharing with the investment community including by signing the Pledge for Finance and Biodiversity, and report on our progress.

We welcome the launch of the Task Force on Nature-related Financial Disclosures and look forward to contributing to this work through relevant forums including the Australian Sustainable Finance Initiative.

Responsible investment reports

Read our latest annual Responsible Investment Report

Download full report

1 Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy WEF January 2020

2 https://www.nature.com/articles/s41598-019-43023-x

3 https://www.nature.com/articles/s41598-019-43023-x

4https://www.nature.com/articles/s41598-019-43023-x

https://www.thewi.org.uk/__data/assets/pdf_file/0007/327418/ WI_EndPlasticSoup_Report_Stakeholders.pdf

Source: First Sentier Investors, MSCI Data as at 31 December 2020.