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How do your investments impact biodiversity?
Investors beware: biodiversity loss is as serious a threat as climate change. Our model reveals the rate at which different industries are driving species to extinction.
About 250 million years ago, some 96 per cent of animal and plant species perished in what is considered to be the largest of the five mass extinction events on Earth.
Known as “the Great Dying”, the catastrophe was caused by a series of natural disasters – among them, huge volcanic eruptions in Siberia that blasted billions of tonnes of carbon dioxide into the atmosphere and raised global temperatures by 10 degrees centigrade.
Worryingly, scientists believe we are now living through the sixth extinction wave. And unlike the previous five, this one is being caused almost exclusively by humans.
A landmark UN report found human activities such as resource extraction and intensive agriculture are responsible for a catastrophic and unprecedented loss of biological diversity. The report warned a third of all amphibian species and reef-forming corals, 1,000 domesticated breeds of mammals used for food and agriculture and around 10 per cent of insects are in jeopardy.
All in all, one million species are at imminent risk of extinction, endangering ecosystems that are critical to sustaining human life on earth.
The problem is that protecting biodiversity isn't top of the list when it comes to big industry's environmental priorities. Such has been the focus on reducing carbon emissions that most companies would not even consider species loss a corporate responsibility.
That’s dangerously short-sighted. As our research shows, corporations – and their investors – need to pay as much attention to biodiversity as they do to their carbon footprint.
In our analysis, which is described in detail below, we deploy two globally-recognised environmental impact measurement tools – the Planetary Boundaries framework (PB) and Life Cycle Analysis (LCA) – to quantify the corporate world's contribution to species loss.
For changes in biodiversity to remain at natural levels, the model states that the annual extinction rate must be less than 0.13 per million species for every USD1 trillion of revenue generated. Applying this framework to the constituents of MSCI All-Country World Index – which together made more than USD30 trillion in revenue last year – we find that the world's biggest corporations are killing off animal and plant species at a rate that is 22 times greater than the threshold level.
Our analysis showed some of the worst offending industries include leather, hide tan and finishing as well as biofuels.
Investing to limit biodiversity loss
The PB-LCA framework is used in the construction of our Global Environmental Opportunities (GEO) portfolio.
Stocks in GEO have a significantly lower biodiversity footprint than those represented in the MSCI All-Country World equity index.
Rate of extinctions per million species a year per USD trillion of annual revenue
Source: Pictet Asset Management
Here's how Pictet-Global Environmental Opportunities strategy works:
- The strategy invests in the shares of companies that are making an active contribution to safeguarding the world’s natural resources.
- Investments are chosen from a broader universe consisting of the world’s 3,500 most environmentally-responsible publicly-held firms – companies that meet the criteria of our proprietary PB-LCA framework.
- The strategy is a concentrated portfolio of 50 to 60 stocks, operating in fields such as pollution control, water supply, renewable energy, waste management and sustainable agriculture.
- With a risk-return profile similar to that of a growth-oriented investment strategy, Pictet AM's Global Environmental Opportunities can be used to complement an equity allocation within a global portfolio.
more from thematic equities
Global Environmental Opportunities: transforming sustainable investment
Luciano Diana, Senior Investment Manager, Global Environmental Opportunities Strategy, Marc-Olivier Buffle, Senior Product Specialist
January 2020
Demystifying thematic equities
February 2018
Important legal information
This marketing document is issued by Pictet Asset Management. It is neither directed to, nor intended for distribution or use by any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, the KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet.
This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or for any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.
EU countries: the relevant entity is Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg
Switzerland: the relevant entity is Pictet Asset Management SA , 60 Route des Acacias – 1211 Geneva 73
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For Australian investors, Pictet Asset Management Limited (ARBN 121 228 957) is exempt from the requirement to hold an Australian financial services license, under the Corporations Act 2001.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc. is registered as Portfolio Manager authorised to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.