Biodiversity solutions offer rich opportunities for investors

Tom Atkinson, Portfolio Manager, AXA Investment Managers

Companies at the vanguard of providing solutions to biodiversity loss offer attractive opportunities to investors, says Tom Atkinson, portfolio manager at AXA Investment Managers.

Atkinson believes that investors looking to make a positive impact on biodiversity preservation should consider directing capital towards companies providing solutions to the crisis.

Over half the value of the global economy – some $44 trillion – is potentially threatened to some extent by the loss of nature, according to the World Economic Forum,¹ and current investment in nature-based solutions will need to at least triple by 2030 if the world is to meet its climate targets, according to the United Nations.²

“Rather than purely favouring companies which have a limited biodiversity footprint, but perhaps a restricted reach beyond their own operations, we believe there is value in identifying firms that are producing goods and services which can have a positive benefit on biodiversity preservation on a wider scale.

“There are a myriad of innovative technologies, processes and approaches being developed across sectors which help companies lessen their impact on the environment and biodiversity in particular,” Atkinson said.

He identified sectors such as agriculture, water treatment and sustainable materials as three areas providing particular opportunities for investors.

Tech-driven agriculture

“New technologies are helping food producers to reduce their biodiversity impact while improving productivity – such as John Deere’s precision agriculture systems that can plant, fertilise and treat crops more efficiently than conventional planters and sprayers.³ This reduces the amount of fertiliser needed and the risk of run-off and eutrophication – where the increased nutrients in water deplete oxygen, harming biodiversity – while also lowering costs.”

Atkinson said that companies operating in this space will need to align with new regulations – such as the European Union’s target for a 50% reduction in the use of chemical pesticides by 2030⁴ – creating more potential opportunities for investors.

“Alongside agriculture is aquaculture – essentially, breeding fish as food, which is increasingly recognised as a key part of global food supplies and nutrition. But more than a third (35.4%) of the world’s fish stocks are over-fished, which has an impact both on food security and biodiversity.⁵

“Companies such as Corbion are providing a solution to diminishing stocks by creating plant-based omega-3, offering a sustainable alternative that reduces pressure on marine resources.⁶ ”

Smart water use and treatment

He also pointed to companies focusing on water treatment, including filtration and purification, as playing a crucial role in addressing water scarcity.

“Innovative companies are harnessing artificial intelligence and digitalisation to provide solutions for their customers, helping them to reduce their biodiversity impact. For example, Evoqua’s smart water system allows for remote monitoring and analytics, while biogas produced from wastewater treatment cycles creates enough renewable energy to power approximately 5,000 homes a day.⁷

“Companies such as Xylem also offer opportunities around advancements in water meter systems. As the sector undergoes a digital transformation, its software and analytics will help water and wastewater companies tackle challenges in a more sustainable way.⁸ ”

Innovations in sustainable packaging

Another key area identified was sustainable materials, such as aluminium cans.

While the process of mining for the metal does, of course, have an impact on biodiversity, almost 70% of all aluminium cans produced globally are recycled, with the metal infinitely recyclable. The market leader for aluminium cans, Ball, says the timeframe from a customer purchasing a canned drink to the aluminium in that same can being back on the retailer’s shelf can be as little as 60 days.⁹

Atkinson also pointed to companies seeking to use more recycled materials to produce packaging solutions that can replace less sustainable alternatives.

“Finnish packaging company Stora Enso, which uses sustainably managed forests which are a net carbon sink, makes products such as wood-based trays that can be used for microwave meals instead of plastic, reducing carbon dioxide emissions by up to two-thirds.¹⁰

“The fashion industry, responsible for as much as 10% of global carbon emissions, is seeing a raft of innovations driving greater sustainability.¹¹ Companies such as Lenzing are developing more efficient textile production methods that have a lower impact on the environment and help to protect biodiversity, for example by using unconventional raw materials such as orange pulp to make fibres.

“Another example is the sustainable fibre company Tencel, which is developing new methods for embedding colour pigment during fibre production. Its materials do not need to be dyed – a process that normally contributes significantly to water pollution.¹² ”