Addressing biodiversity loss is a crucial component in the fight against climate change, serving both mitigation and adaptation efforts. The context is particularly pressing in Asia, a region known for its exceptional biodiversity. However, private finance involvement in this critical endeavor is still in its nascent stages, according to Federated Hermes’ Ingrid Kukuljan (pictured, left) and Sonya Likhtman (pictured, right), as shared with ESG Clarity Asia.
The World Resources Institute has revealed a concerning statistic – the illegal conversion of forests contributes a staggering 2.7 gigatonnes of carbon dioxide annually, with 81% of this activity occurring in Asia.
A primary obstacle identified is the lack of awareness and commitment in the Asian region. Ingrid Kukuljan, Head of Impact and Sustainable Investing at Federated Hermes Limited, pointed out that Asian companies are lagging behind their Western counterparts in terms of target setting and proactive initiatives. She emphasized the disconcerting trends, including the prevalence of industrial farming practices and the increase in animal protein consumption in Asia, which contrasts with declining rates in the Western world. This shift has led to an unsettling distribution: livestock accounting for 60% of mammals, humans for 36%, and wildlife for a mere 4%. This trend is attributed to industrial livestock farming, a major contributor to global animal cruelty, according to data from Ecowatch.
In light of these challenges, Federated Hermes launched its inaugural biodiversity fund in collaboration with the Natural History Museum in London. This unique fund avoids exposure to Asia due to the difficulty in identifying publicly-quoted companies that meet stringent biodiversity criteria. The fund’s genesis revolves around the strategic allocation of capital to entities actively contributing to biodiversity preservation or restoration.
While strides have been made in data collection and species mapping, Sonya Likhtman, Associate Director within the Engagement and Stewardship team at Federated Hermes, highlighted the persistent challenge of measuring biodiversity. Likhtman underscored the estimated value of natural capital and ecosystem services, ranging between $125-145 trillion per year. This valuation encompasses various contributions of nature, including food production, raw materials, clean water, and other ecosystem services. Some countries and companies are venturing into natural capital accounting, a nuanced approach to understanding the multi-faceted value derived from nature.
The Federated Hermes biodiversity fund is structured around six themes: land pollution, marine pollution, sustainable living, climate change, farming, and deforestation. It operates without style constraints, seeking companies that prioritize biodiversity preservation through solutions and operations. The fund’s portfolio comprises 150 stocks, with a focus on industrials and materials. Notable holdings include Tetra Tech, AECOM, Tomra Systems, Kerry, and Brambles.
This biodiversity-focused fund is part of a growing trend, as awareness and emphasis on preserving biodiversity increase. Historically, this realm was dominated by government funding and philanthropy. However, the Global Biodiversity Framework outlined in COP15 has paved the way for expanded private sector involvement and innovative financing methods. Sonya Likhtman stressed the importance of aligning public and private financial flows with biodiversity goals, noting that both sides of the financial coin must work together to create meaningful change.
Addressing biodiversity loss is a critical and multifaceted endeavor that holds immense significance in the global fight against climate change. As a pivotal aspect of both mitigation and adaptation strategies, biodiversity conservation takes on heightened importance, particularly in regions of exceptional biodiversity like Asia. Federated Hermes’ Ingrid Kukuljan (pictured, left) and Sonya Likhtman (pictured, right) shared illuminating insights with ESG Clarity Asia, shedding light on the challenges and opportunities associated with investing in nature.
Asia, a region renowned for its rich and diverse ecosystems, faces an acute need for biodiversity preservation. The alarming data from the World Resources Institute reveals the magnitude of the issue, with illegal forest conversion contributing a staggering 2.7 gigatonnes of carbon dioxide annually. Astonishingly, a substantial 81% of this environmental degradation is concentrated in Asia. This underscores the urgency of private finance involvement in the region’s efforts to safeguard its natural heritage.
One of the foremost challenges outlined by Ingrid Kukuljan, Head of Impact and Sustainable Investing at Federated Hermes Limited, is the current lack of awareness and commitment in Asia compared to more developed Western counterparts. This is particularly evident in the target-setting and proactive measures taken by companies. The disheartening reality becomes apparent when examining industrial farming practices and the consumption of animal protein. In contrast to declining trends in the Western world, Asia has witnessed a surge in these activities, leading to a disturbing imbalance where livestock now represents 60% of mammals, humans account for 36%, and wildlife is relegated to a mere 4%. This skewed distribution is attributed to industrial livestock farming, a practice also identified as a key contributor to global animal cruelty, as revealed by data from Ecowatch.
In response to these pressing challenges, Federated Hermes launched an innovative biodiversity fund in collaboration with the esteemed Natural History Museum in London. This groundbreaking fund, however, currently avoids exposure to Asia due to the scarcity of publicly-quoted companies that align with stringent biodiversity criteria. The fund’s primary objective is to channel capital exclusively into initiatives and organizations dedicated to the preservation and restoration of biodiversity, underscoring a resolute commitment to environmental stewardship.
While the field of biodiversity conservation has made remarkable progress in terms of data collection and species mapping, Sonya Likhtman, Associate Director within the Engagement and Stewardship team at Federated Hermes, emphasized the persistent complexity of accurately measuring biodiversity. Despite the growing wealth of data, Likhtman highlighted the intricate nature of assigning value to natural capital and ecosystem services, which encompasses a wide spectrum of contributions such as food production, raw materials, and clean water. This valuation, estimated between $125-145 trillion per year, reflects the profound significance of nature in sustaining various aspects of human life. The emergence of natural capital accounting represents a nascent yet promising avenue to comprehensively quantify and understand the value derived from nature’s myriad offerings.
The Federated Hermes biodiversity fund encompasses six pivotal themes: land pollution, marine pollution, sustainable living, climate change, farming, and deforestation. Uniquely, the fund operates without a specific style bias, seeking out companies that actively champion biodiversity preservation through their operations and solutions. Boasting a portfolio of 150 stocks, the fund maintains an emphasis on industrials and materials, aligning its investments with sectors that hold potential for meaningful impact. Key holdings include Tetra Tech, AECOM, Tomra Systems, Kerry, and Brambles, exemplifying the fund’s strategic focus on entities actively contributing to biodiversity preservation.
The rise of biodiversity-focused funds, exemplified by Federated Hermes’ initiative, signifies a notable shift in conservation financing. Historically, biodiversity preservation predominantly relied on government funding and philanthropic support. However, the Global Biodiversity Framework, established in COP15, has catalyzed a transformative change, encouraging increased private sector engagement and innovative financing methodologies. Sonya Likhtman stressed the paramount importance of aligning public and private financial flows with the objectives of biodiversity preservation, emphasizing the indispensability of synergy between these facets to drive meaningful change.
Federated Hermes’ unwavering commitment to biodiversity preservation is vividly illustrated through its pioneering fund and collaborative endeavors with esteemed institutions like the Natural History Museum. The evolving landscape of private sector involvement in biodiversity conservation, particularly in regions like Asia, underscores the potential for harmonizing financial interests with ecological imperatives. As the momentum for private sector engagement continues to swell, a harmonious synergy between financial initiatives and biodiversity preservation goals emerges as a beacon of hope for a more sustainable and resilient future.
