The sustainable investor for a changing world
BNP PARIBAS ASSET MANAGEMENT - PV Global environment 1440x300
  • Home
  • Ecosystem restoration: Why should investors be interested?

Ecosystem restoration: Why should investors be interested?

Responsible Investing

BNP Paribas Asset Management
 

Addressing ecosystem restoration is just as pressing as tackling CO2 emissions and can generate billions of dollars of investment opportunities, as Ulrik Fugmann and Edward Lees, co-heads of the Environmental Strategies Group, explain.

Much of the focus in the debate on climate change and the environmental challenges has been on dealing with carbon emissions, but we believe there is much more at stake: Our natural capital, in the form of ecosystem services – the benefits humans derive from ecosystems – is under threat. The strains on the oceans, the soil and our urban areas are building with the world population estimated to grow by two billion between now and 2035.

Exhibit 1: The four categories of ecosystem services – Provisioning services; Regulating services; Supporting services, and Cultural services

Source: The Millennium Ecosystem Assessment defined these four categories of ecosystem services that contribute to human well-being, each underpinned by biodiversity

The United Nations forecasts that 68% of the world’s population will live in urban areas by 2050 (versus 55% today). This will create greater demand for power generation as well as waste and pollution management.

When the footprint of consumption worldwide exceeds biocapacity, humans are overshooting, or exceeding, the regenerative capacity of the Earth’s ecosystems. Currently, it is estimated that mankind is using natural resources 1.75 times faster than ecosystems can regenerate – or, put another way, consuming 1.75 Earths/year.

Policymakers are now recognising that restoring, protecting and preserving ecosystem services is critical. At the same time, technology is enabling new solutions, ranging from smarter agriculture to flood protection, that safeguard livelihoods and prosperity.

DON’T UNDERESTIMATE OUR ECOSYSTEM DEPENDENCE

This is underscored by the fact that some of 50% of the world’s GDP – worth USD 44 trillion – depends highly or moderately on nature or its services. Key systemic risks are very much around natural capital. Examples include climate change, but also biodiversity loss and pandemics.

Ecosystem restoration across oceans; land, food & agriculture; and sustainable communities entails significant opportunities. It is estimated that more than USD 2 trillion a year in investment is needed to restore marine, land and urban ecosystems between 2020 and 2030 and that this will create USD 6 trillion in annual business opportunities.

Encouragingly, the risks and threats – which include around a million species facing extinction – have gained more and more attention from policymakers and market regulators and solutions are being included in stimulus bills such as the latest trillion-dollar spending plans by the Biden administration.

ECOSYSTEM RESTORATION: A CLOSER LOOK 

Looking at solutions in more detail, there are conservation areas – where work is done on slowing the rate of degradation – and development areas where problems are solved and work is done to support regeneration. There are three broad restoration categories:

  • Aquatic ecosystems – sustaining the lives of billions of people, regulating the climate, producing oxygen, fuelling the water cycle
  • Terrestrial ecosystems – providing the basis for life through food supply, water, habitats for organisms and biodiversity
  • Urban ecosystems – supporting all life on Earth, but also the source of pollution responsible for 6.5 million deaths a year.

Interesting developments include improving the biodegradability of plastics and forms of recycling plastics chemically. One effect of such an approach is to reduce the use of oil in plastics production.

A further area is the development of new ways of feeding ourselves using less water and fewer pesticides, reducing our water footprint and spillage of nitrogen into waterways. This matters in the context of the increasing water stress resulting from climate change, but also population growth.

A BROAD RANGE OF OPPORTUNITIES

Ecosystem restoration represents a very broad range of opportunities spanning pollution control and treatment; ways to improve resource efficiency; the search for alternatives to pesticides, but also transportation; recycling; and consultancy and testing. This breadth requires in-depth investment research, also because typically there are no individual companies focusing just on one aspect.

Often, the solutions are part of a product range going beyond ecosystem restoration. To underscore the point, there are no listed biodiversity loss companies. As a result, stock selection requires deep expertise across multiple environmental technologies. Opportunities can be found across market capitalisations, sectors and geographies and outside of mainstream indices.

EARNING RETURNS WHILE BEING PART OF THE SOLUTION

At BNP Paribas Asset Management, investing in ecosystem restoration is part of a range of environmental strategies including an energy transition strategy focused on renewable energy production, energy technology & efficiency, and energy electrification and infrastructure.

The broadest of our three equity strategies combines an environmentally themed approach around the energy transition and ecosystem restoration with a focus on absolute returns including holding long and short positions. Short positions are in companies facing transition risks and companies with inferior technologies and business models.

We believe our environmental strategies can help address climate change, assigning capital to a growth market that for decades will require trillions of dollars to achieve the size needed to restore, protect and preserve Earth’s resources and achieve the transition to a sustainable, net-zero and inclusive economy. For investors, they represent a profitable way to be part of the solution.


 

This material is issued by BNP PARIBAS ASSET MANAGEMENT UK Limited (“BNPPAM UK”). Registered in England No: 02474627, registered office: 5 Aldermanbury Square, London, England, EC2V 7BP, United Kingdom. BNPPAM UK is regulated by the FCA under UK laws, which differ from Australian laws. In Australia, BNPPAM UK is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 in respect of the financial services. This document is distributed in Australia by BNP PARIBAS ASSET MANAGEMENT Australia Limited ABN 78 008 576 449, AFSL 223418.

This material is produced for information purposes only and does not constitute:

  1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or
  2. investment advice.

Opinions included in this material constitute the judgement of BNPP AMAU at the time specified and may be subject to change without notice. BNPP AMAU is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the financial instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for an investor’s investment portfolio.

Given the economic and market risks, there can be no assurance that the financial instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the financial instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to the financial instruments may have a significant effect on the results portrayed in this material.

All information referred to in the present document is available on www.bnpparibas-am.com

On the same subject: