Art by Klaus Kremmerz
More than half of the world’s total gross domestic product—$44 trillion—is moderately or highly dependent on nature, yet humanity has caused the loss of 83% of all wild mammals and half of all plants on earth.
Biodiversity loss is accelerating due to climate change and land-use impacts. Based on the GDP impact, in 2020, the World Economic Forum named ecosystem collapse as a top-five global economic risk in terms of both likelihood and level of impact through 2030.
Following a December 2022 meeting of 188 governmental representatives in Montreal to create the Global Biodiversity Framework, which aims to conserve and manage 30% of the world’s lands and water, especially areas of particular importance for biodiversity and ecosystem functions, by 2030. The European Union in 2024 adopted a law to restore at least 20% of the region’s vulnerable areas by 2030.
With sudden urgency to consider biodiversity as a new environmental metric and stave off continued nature-based loss, asset owners and managers are seeking ways to incorporate the metric into their investments. It is not easy to do, however. Compared to other responsible investing topics such as corporate governance and climate change, biodiversity is still in its infancy, says Asha Khoenkhoen, a spokesperson for the $545 billion Dutch pension fund Stichting Pensioenfonds ABP.
Long-time sustainable investors say approaching biodiversity as an investment theme is complex, nuanced, and its specific impact is difficult to measure. Instead, they suggest looking at outcomes as one way to measure impact and results.
Challenges to Incorporating Natural Capital Investments
Earlier this year, ABP announced 30 billion euros ($32.67 billion) in impact investment goals, allocating about 1 billion euros to natural capital and biodiversity. The pension fund is exploring potential opportunities in public and private land-based investments focused on agricultural technology but has not announced anything specifically, she says.
“Investable opportunities that contribute to nature and biodiversity are more difficult to find,” Khoenkhoen says.
Robert-Alexandre Poujade, an ESG analyst and the biodiversity lead at BNP Paribas Asset Management, concurs. The 2022 biodiversity framework set the scene, but “there is a lot of interpretation to do on the business side to see how we can really embed those (frameworks) into our decision making,” he says.
Making Agriculture and Food Production More Biodiverse
Agriculture contributes 30% of greenhouse gas emissions due to chemical inputs and animal waste, according to the Food and Agriculture Organization of the United Nations. According to the World Bank, cultivating crops uses 70% of global freshwater. Reducing both emissions and water use can make food production more sustainable and lower biodiversity loss.
Colin Butterfield, managing partner and CEO of investment advisory firm Solum Partners, which focuses on agriculture and food production, is excited to see institutional investors learning about the asset class, but says they are too focused on hard data metrics to justify whether something is sustainable and by how much.
“Unfortunately, the equation is not that simple,” Butterfield says. Agriculture projects vary by geographies and every project is different. “You’re dealing with nature.”
Instead, he says institutional investors should start by focusing on specific projects and looking closely at what people are doing, such as improving soil health to encourage microorganisms to thrive and using modern irrigation techniques.
Institutions must think for the long term when investing in sustainable agricultural themes and reconsider how to review results. Since there are no standard biodiversity metrics, it is easier to measure other outcomes, such as reduced pesticide use, reduced water usage and higher crop yields.
Butterfield says Solum invests in themes that shape how humans eat. One theme is super foods, and the firm invests in avocadoes, berries and olive-oil producers. He gets his ideas at the grocer.
“Nothing makes me happier than being in a supermarket fresh produce area and understanding what are the trends, what are the dynamics,” he says.
Clare Wood, a portfolio specialist at sustainable asset manager Stewart Investors, says some Indian companies are making strides to help farmers improve biodiversity, pointing to Indian health and wellness company Marico Ltd. as an example. It is the largest buyer of India’s coconuts and works with farmers to help mitigate the impact of coconut monocropping by encouraging farmers to use intercropping and other sustainable farming practices.
By improving yields, farmers can grow more on the same plot, and advances in agriculture technology can reduce biodiversity loss, says Beth Williamson, head of sustainable equity research and associate portfolio manager at Calamos Investments. She points to farm machinery company Deere & Co. as a leading example. Its strip-till product line reduces soil disruption and helps farmers target crop areas to lower the amount of chemicals applied to farmlands.
Sustainable Agriculture Requires Patience
Regenerative farmland and timberland investing may have portfolio benefits and similar characteristics as other land assets, such as being uncorrelated to traditional markets and a natural inflation hedge. However, asset managers say investors need to be patient, particularly in this niche.
Eric Hsueh, director of investments at Veris Wealth Partners, a financial advisory firm that invests in sustainable farming and timberland, says farmers who transition to more biodiverse practices may spend three to five years moving to organic or regenerative farming from traditional agriculture. As farm managers work on building soil health, they may not produce any income, so they may depend on money from investments that will not return anything during that time.
“That long-term capital and patient capital is absolutely critical,” he says.
Veris invests with a few managers who provide financial and technical support to farmers making the switch, such as Potlikker Capital, which serves farmers who are people of color by offering access to higher-value markets and resources to use regenerative farming practices, and Dirt Capital, which offers financial support to make farming more affordable.
Lending is an indirect way to support biodiversity. Hsueh says Veris has put clients’ cash in money-market funds in mission-oriented community banks, credit unions and community development financial institutions funds that work with farmers. “It’s a less obvious asset class that’s also interesting,” he says. “It’s low risk, but also market-rate capital that’s also very place-based.”
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Tags: Asha Khoenkhoen, Beth Williamson, Biodiversity, BNP Paribas Asset Management, Calamos Investments, Clare Wood, Colin Butterfield, Deere & Co., Dirt Capital, Eric Hsueh, Global Biodiversity Framework, natural capital investments, Potlikker Capital, Robert-Alexandre Poujade, Solum Partners, Stewart Investors, Stichting Pensioenfonds ABP, Veris Wealth Partners