‘I would really love to see fund groups making commitments on deforestation’

In ESG Clarity Intelligence‘s September e-zine: ESG evolution explained: Unpacking the biggest developments in ESG and sustainable investing, ESG Clarity global editor Natasha Turner talks to Emma Wall, Hargreaves Lansdown’s head of investment analysis and research, about biodiversity and the investment industry.

Watch the full video interview above and read the transcript below.

Natasha Turner: Can you explain what biodiversity means in the context of the investment industry?

Emma Wall: Absolutely. So biodiversity simply is nature. Are ecosystems working well? What does that mean for the investment industry? Well, sort of the same thing it means for all of us. And that is that over half of global GDP is directly impacted by biodiversity.

If you think about it indirectly, we’re all impacted by biodiversity. If there aren’t enough trees, we’re not producing enough oxygen, we won’t be able to breathe. So, to quote, misquote someone at COP15 last year, to ignore biodiversity is basically to commit slow suicide.

So the investment industry, we’ve got to think of it very much like we have been thinking about climate now for a couple of years, and that it’s both a risk and an opportunity for investors.

NT: You mentioned COP15 there, and one of the announcements there was the Global Biodiversity Framework. What other developments have there been in the investment industry space?

EW: As we talk, we are eagerly awaiting TNFD, and that’s the Taskforce for Nature-related Financial Disclosures, very similar to the TCFD but, to be fair, more complex.

And that’s because biodiversity impacts far more areas. I think TCFD has done a really good job to hone it down to a single metric and a sort of single target for us all to work towards. TCFD, or rather TNFD, will be similar but more complex because, of course, nature is everything from freshwater to marine ecosystems to agriculture to soil loss.

And so there’ll be a number of metrics on which companies will have to report, and then the investment industry can use those measures and those targets to make, as I said, investment decisions based on where they think the nature investment opportunities and risks lie.

NT: And have we seen that happening already? Are there any examples you can point to? And what other things could selectors be looking out for when they’re looking to see if asset managers are considering this topic?

EW: Absolutely. It’s like most environmental, social and governance factors and that the specialists have been doing this for quite some time and we routinely call these types of funds impact funds.

And when we expect the framework to come out from the FCA immediately in the fourth quarter of 2023 to have those disclosures, it’ll be that sort of the impact bucket where we’ll see the types of funds that have been considering these risks and opportunities.

Where I think the really exciting opportunity is, is that with TNFD you’ll be able to apply that decision-making to the entire universe of underlying companies and then you’ll be able, in turn, to measure how funds are taking those risks and opportunities into consideration. It’s also worth pointing out the two things are not mutually exclusive. Without nature, there is no net zero. Trees and oceans are two of the most effective carbon capture tools that we have available to us. So these two things are very much interlinked.

NT: Finally then, you mentioned TNFD is imminent, but if we were having this conversation this time next year, what would be one thing you would liked to have seen happen?

EW: Well, first and foremost, I’m going to wear the hat of my clients. And our clients have told us their number one concern within this space is deforestation. So, I would selfishly, on behalf of my clients, really love to see fund groups making commitments on deforestation.

It’s one of the areas that the TNFD will be focused on, but it’s also singular in a way that asset managers can get behind this issue and make declarations about what they’re doing against deforestation.

Now, the problem at the moment is the data availability. So it’s quite clear when companies have a direct impact on deforestation, and these tend to be companies within natural resources or agricultural spaces. But what I would love to see is great data that shows down the value chain, down the supply chain, so how companies are indirectly impacting deforestation, and then for asset managers to have a clear stance on that.

NT: Right, so like a scope system for deforestation.

EW: Absolutely.

NT: Great. Well, hopefully we can have that conversation next year.