Investors can contribute by making sure that the companies in which they invest help to reduce or reverse the drivers of biodiversity loss.
And as part of its biodiversity roadmap, Robeco is developing a wider investment framework to assess companies’ contributions to biodiversity – both positive and negative – across all investment portfolios.
It’s an urgent task. “We're consuming the Earth’s resources at a rate at which the Earth cannot replenish itself. Since we depend on nature for everything we do, that's a big problem for us. It’s becoming a systemic investment risk,” Peppelenbos says.
“Our economy and society is entirely dependent on the biosphere, on ecosystems and ecosystem services. If those ecosystem services degrade, then economic activity is also at risk. It’s a much more urgent problem than people realize, and it’s having direct effects on the economy right now.”
Look at the bees, for example. Bees are critical for pollination; there's now a market in California to hire beehives at elevated prices because you need the bees for lots of crops, particularly high-value crops like almonds. It’s an ecosystem service that has become a market.”
“One of the drivers of biodiversity loss is invasive species, where a parasite enters an ecological system and then spreads like crazy. They have found this out to their cost in Australia, where the Varroa mite has entered the hives and started feeding on the honeybees. In order to contain the spread of it, they had to have a lockdown.”
“So, after the lockdown for humans for Covid, they are now having a lockdown for honeybees. The beehives can't be moved. This means that billions of dollars worth of crops in Australia are now at risk because they can't be pollinated.”
“That’s an example of biodiversity risk, and how it affects the real economy. It shows the disastrous impacts that failing to protect biodiversity can have.”
Another vital ecosystem service is water. The recent droughts such as those seen this year across all continents raise the risk of crop failure and, in parts of Africa, food insecurity. But the effects don’t stop there – water is also vital for industry and commerce on rivers that are drying up.
“Ground water and surface water is one of our largest dependencies,” he says. “Can you imagine industry without cooling water? Cargo transport without waterways? Germany’s industry suffered supply issues due to the low water levels in the Rhine.”
“Car manufacturers in China shut down for weeks due to power shortages. The same thing happened in Italy. Water scarcity implies immediate economic damage across the multiple sectors in the economy.”
This example points to the link between biodiversity and climate change. It may seem an obvious one – both are part of the biosphere on which our well-being depends – but there is more to it than that. Ironically, well-intentioned efforts to tackle global warming can come at a cost to biodiversity.
“A climate plan that does not consider nature at large is an incomplete plan,” Peppelenbos says. “I’ve seen solar panel parks being built on land that used to be primary forest. That's not the sort of thing we should want.”
“I’m also concerned about all the offshore windmills that we’re building everywhere. It solves one problem, but if not properly planned, it may come as a risk to marine biodiversity.”
But isn’t it simpler to just stop doing bad? Why won’t countries stop deforestation, when they have the governmental and judicial power to do so?
“Certainly regulation is essential,” Peppelenbos says. “We need strict industry standards to limit the adverse impacts from production, trade and consumption. Until the 1970s it was normal to dump chemical waste in open waterways. The problem stopped when it was made illegal.”
While chemical waste dumping is now illegal, similar destructive practices continue until today. “Fishing is also one of the most destructive industries. Trawlers emit as much CO2 as the airline industry. And the trawling process destroys all the biodiversity on the sea bottom. Why do we still allow trawling fishing? Why can’t we fish like we’ve fished for centuries?”
But who’s going to press the button and say no? Who’s going to say, “no more trawling”? “Well, the EU now has its Green Deal – a pretty tough plan which is also pretty cool,” says Peppelenbos. “Recently they announced a few laws that are part of the Green Deal which will cut pesticide use by 50%, and protect 20% of all the nature in Europe.”
“I expect that in the coming years we will see much more of this: strict real limits to economic activity. Because the cost of inaction is starting to outweigh the cost of these limiting measures.”
But we need more than just bans. “We need policy incentives that reward nature-positive activity,” Peppelenbos says. “Market action won't progress fast enough as long as the wrong kind of incentives are in place. That goes as much for climate as for biodiversity.”
“There are USD 1.8 trillion of subsidies a year on activities that lead to nature destruction, including extracting fossil fuels, and for agriculture. And carbon prices are too low to make a difference.”
“Take deforestation in Brazil. Frankly it is unnecessary. Brazil has 200 million hectares of pasture land for cattle where, with existing technology, you can easily increase yields with 10% or more. This would liberate 10% of the land, or 20 million hectares – an area the size of Saudi Arabia – to increase production for soy, corn and other crops.”
“So, there’s no need at all to deforest anything to expand production of crops nor cattle. All it requires are the right policy incentives.”
“We can criticize Brazil for having the highest deforestation rates in the world, but let's face it, they still have a forest, and we don't,” Peppelenbos says. “More than half of the country is still covered with forest and they should be applauded for that. In the Netherlands, all of the original forest has gone.”
“The historic responsibility of industrialized countries is huge – just like with climate change. Two thirds of all emissions historically are from industrialized countries. So it's logical that the poorer countries say: ‘Hey, we can talk about mitigation, but let's first talk about the money. Who's going to pay for this?’”
“This is the single biggest obstacle in the international negotiations on climate and biodiversity. Who pays for the incentives that are required for a net-zero nature-positive economy?”
A nature-positive economy is essentially a circular economy, in which natural resources are used and re-used instead of the current linear economic model of take-make-dispose. The circular economy not only helps climate and biodiversity; it would open up a USD 4.5 trillion market for reusing, redesigning, repairing and recycling.
“The circular economy is facing a number of challenges due to the inadequate policy incentives,” Peppelenbos says. “First of all, externalities are not properly priced – it’s too cheap to just make a new product rather than recycle an old one.”
“Secondly, in the design of products, durability is not one of the priority principles, when it used to be before. Now we like to use something and throw it away after a while.”
“Thirdly, you shouldn't underestimate what a massive logistical nightmare recycling is. Take, for example, the building sector and the built environment. Construction is one of the most impactful industries. It's fairly easy to think you can build houses and buildings in modular ways. The moment you're done with the building, you demolish it, and then have walls, windows and doors that you can re-use.”
“But the problem is there is no organized marketplace for it. A building is designed three to five years beforehand, and you would need to have the exact design and definitions of the windows you're going to use. How would you know that in three years’ time, a recycled window is going to be available from the building that's going to be demolished today? How do you organize that? It's a logistical puzzle of exceptional complexity.”
“This differs greatly from the energy transition, which just means substituting one form of energy for another. The energy process itself doesn't need to be changed – you just plug it into another source. The circular economy is inherently much more complex because you need to change production and consumption processes.”
Changing consumption processes also means changing human habits. It takes six grams of vegetable protein in farmland and feed to produce only one gram of beef. Meanwhile, cattle are a major source of methane emissions that contribute as much as 14.5% of global greenhouse gases.1
“The amount of meat consumption in industrialized countries is unsustainable at the global level ,” Peppelenbos says. “But it’s not only meat. The food system at large is massively inefficient: one third of every calorie that is produced gets lost in the food production process from farm to fork.”
“Some of its gets lost at the farm and is not harvested or not bought. Wheat can be left in the field and go moldy; there are losses in the supply chain and at every point of sales. Then there is wastage at consumers’ homes.”
There are also relative inefficiencies; it takes five times as many cows in Mexico to produce the same amount of milk as one US cow across the border, while in India, it takes up to 20 cows. As a compensating factor, while India has a population of 1.4 billion, 40% of Indians are vegetarian.2
So, what can investors do to help move the needle? Asset owners and managers don’t possess the power of governments, but they do possess the power of capital allocation – along with active ownership such as engagement – to make a difference.
“We can use engagement with companies, and direct capital towards the solutions, as we’ll do with the new Biodiversity Equities strategy,” Peppelenbos says.
“Another thing we can do is to systematically tilt our portfolios to companies that are not necessarily biodiversity solutions in their own right, but are helping to reverse biodiversity loss. Some companies are doing relatively better than others on this: the biodiversity leaders and laggards, so to speak.”
For that, we need data and analysis – particularly locational information. “That has been our focus with our academic partnerships for the last two years – building our knowledge and scrutinizing the data providers.”
“Based on this, we’re now building an investment framework so that we can apply it across our portfolios and really link issuers to biodiversity impacts, identifying those companies that do better than the others.”
“The challenge with biodiversity is that it is very locational; much more so than with greenhouse gases. If you want to link specific economic activities or company supply chains to their biodiversity impact, you actually would need to do a locational analysis.”
Such locational analysis forms a key part of the Task force for Nature-related Financial Disclosures (TNFD) framework, the biodiversity equivalent of the Task force for Climate-related Financial Disclosures (TCFD). Many asset managers, including Robeco, have already signed up to it for corporate disclosures in portfolios.
“If you fast forward two years, I think a lot of this kind of data will become available,” Peppelenbos says.
“In the meantime, we need to think more conceptually. Take for example, the pulp and paper industry. This has a negative impact on biodiversity through land use conversion. But if you consider how companies could mitigate that impact, then you can imagine sourcing from certified sustainably managed forests.”
“Recycling rates is another important issue. Now that is data that we can measure. We can measure the revenue that a company accrues from recycled sources and from certified sustainable sources.”
“And that’s how we can differentiate between companies when choosing them for portfolios. We don’t need to do the full locational analysis to already know that to already start to make distinctions, and tilt towards a biodiversity impact.”
But what we need, above all, is real action to tackle the urgency.
“For me, the most important thing is that we avoid ‘analysis-paralysis’ and instead act now,” Peppelenbos says. “Three quarters of the biodiversity problem is in changes to land and sea use, and in overexploitation of natural resources. These are things that can be relatively well identified and assessed.”
“So let’s not wait for the perfect data. With a focus on the key impacts we can already make good progress now.”
This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation.
The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license.
An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.
Warning/Important note: This website contains information which is only available to qualified investors as defined below. If you are not a qualified investor, please click “I Disagree” to leave the website.
By clicking on "I agree", I declare that:
1 - This website may only be accessed directly or indirectly by the following persons in Singapore:
1) “institutional investor” under section 304 of the Securities and Futures Act (Cap.289)(“SFA”), which means:
(i) the Government; (ii) a statutory board as may be prescribed by regulations made under section 341 of the SFA; (iii) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is (A) to manage its own funds; (B) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or (C) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country; (iv) any entity (A) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and (B) whose funds are managed by an entity mentioned in sub-paragraph (iii); (v) a central bank in a jurisdiction other than Singapore; (vi) a central government in a country other than Singapore; (vii) an agency (of a central government in a country other than Singapore) that is incorporated or established in a country other than Singapore; (viii) a multilateral agency, international organisation or supranational agency as may be prescribed by regulations made under section 341 of the SFA; (ix) a bank that is licensed under the Banking Act (Cap.19); (x) a merchant bank that is approved as a financial institution under section 28 of the Monetary Authority of Singapore Act (Cap.186); (xi) a finance company that is licensed under the Finance Companies Act (Cap.108); (xii) a company or co-operative society that is licensed under the Insurance Act (Cap.142) to carry on insurance business in Singapore; (xiii) a company licensed under the Trust Companies Act (Cap.336); (xiv) a holder of a capital markets services licence; (xv) an approved exchange; (xvi) a recognised market operator; (xvii) an approved clearing house; (xviii) a recognised clearing house; (xix) a licensed trade repository; (xx) a licensed foreign trade repository; (xxi) an approved holding company; (xxii) a Depository as defined in section 81SF of the SFA; (xxiii) an entity or a trust formed or incorporated in a jurisdiction other than Singapore, which is regulated for the carrying on of any financial activity in that jurisdiction by a public authority of that jurisdiction that exercises a function that corresponds to a regulatory function of the Authority under this Act, the Banking Act (Cap.19), the Finance Companies Act (Cap.108), the Monetary Authority of Singapore Act (Cap.186), the Insurance Act (Cap.142), the Trust Companies Act (Cap.336) or such other Act as may be prescribed by regulations made under section 341 of the SFA; (xxiv) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere; (xxv) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors; (xxvi) the trustee of such trust as the Authority may prescribe, when acting in that capacity; or; (xxvii) such other person as the Authority may prescribe.
2) “relevant person” under section 305(1) of the SFA, which means:
(i) An accredited investor; (ii) a corporation the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; (iii) a trustee of a trust the sole purpose of which is to hold investments and each beneficiary of which is an individual who is an accredited investor; (iv) an officer or equivalent person of the person making the offer (such person being an entity) or a spouse, parent, brother, sister, son or daughter of that officer or equivalent person; or (v) a spouse, parent, brother, sister, son or daughter of the person making the offer (such person being an individual).
3) any person who acquires the units [in a collective investment scheme] as principal if the offer is on terms that the units may only be required at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of units in a collective investment scheme, securities, securities-based derivatives contracts or other assets, and if the following condition is satisfied: (i) the offer is not accompanied by an advertisement making an offer or calling attention to the offer or intended offer; (ii) no selling or promotional expenses are paid or incurred in connection with the offer other than those incurred for administrative or professional services, or by way of commission or fee for services rendered by any of the persons specified in section 302B(1)(d)(i) to (vi) of the SFA; and (iii) no prospectus in respect of the offer has been registered by the Authority or, where a prospectus has been registered (A) the prospectus has eAccxpired pursuant to section 299 of the SFA; or (B) the person making the offer has before making the offer 1. informed the Authority by notice in writing of its intent to make the offer in reliance on the exemption under this subsection; and 2. taken reasonable steps to inform in writing the person to whom the offer is made that the offer is made in reliance on the exemption under this subsection.
4) Or otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
If you are not any of the types of persons described above, you are not authorized to enter this website and you should leave this website immediately.
2 Terms and Conditions
You acknowledge that you have read these Terms and Conditions (“Terms”) prior to accessing the website located at www.robeco.com/sg (“Website”) and you agree to be bound by the Terms. If you do not agree to all of the Terms, you are not an authorised user and you should not use the Website. The Website is owned by Robeco Singapore Private Limited (company registration number: UEN. 201541306Z), which is licensed by the Monetary Authority of Singapore (“MAS”) pursuant to the Securities and Futures Act (Cap.289) (“SFA”) of Singapore, and is managed by Robeco Singapore Private Limited and/or its affiliates (collectively, as “Robeco”). The Website is intended for and should be accessed by institutional investors or accredited investors (as defined under Section 4A of the SFA) of Singapore. The Website is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the Robeco to any registration or licensing requirement within such jurisdiction. It is your responsibility to observe all applicable laws, rules and regulations of any relevant jurisdiction. The content contained in the Website is owned by Robeco and/or its information providers and is protected by applicable copyrights, trademarks, service marks, and/or other intellectual property rights. You may not copy, distribute, modify, post, frame or link the Website, including any text, graphics, video, audio, software code, user interface, design or logos. You may not distribute, modify, transmit, reuse, repost, or use the content of the Website for public or commercial use, including all text, images, audio and/or video. Robeco may terminate your access to the Website for any reason, without prior notice. Neither Robeco, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from the access of the Website. You agree to indemnity and hold Robeco, its associates, directors, officers or employees harmless against any and all claims, losses, liability, costs and expenses arising from your use of the Website due to violation of the Terms. Robeco reserves the right to change, modify, add or remove any parts of the Terms at any time and for any reason. The Terms shall deemed to be effective immediately upon posting. The Terms shall be governed by, and shall be construed in accordance with, the law of Singapore.
The Website has not been reviewed by the MAS. Accordingly, the Website may not be accessed directly or indirectly to persons in Singapore other than (i) to an institutional investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to Section 305(2), and in accordance with the conditions specified in Section 305, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Nothing in the Website constitutes tax, accounting, regulatory, legal or investment advice. The Website is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation or for the purpose of soliciting any action in relation to Robeco’s businesses, or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer and solicitation. Any reproduction or distribution of information from the Website, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accessing to the Website, you agree to the foregoing.
The funds referred to in the Website are for information only. It is not a recommendation or investment advice, nor does it mean the funds is suitable for all investors. The contents of the website is not reviewed by the MAS. Any decision to participate in the funds should be made only after reviewing the sections regarding investment considerations, conflicts of interest, risk factors and the relevant Singapore selling restrictions. You should consult your professional adviser if you are in doubt about the stringent restrictions applicable to the use of the Website, regulatory status of the funds, applicable regulatory protection, associated risks and suitability of the funds to your objectives.
Any decisions made based on the information contained in the Website are the sole responsibility of yours. Any investments made or to be made shall be with your independent analyses based on your financial situation and objectives. The investments and strategies contained in the Website may not be suitable for all investors and are not guaranteed by Robeco.
Investment involves risks and may lose value. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance. The Website may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies and such projection or forecast is not indicative of the future. The information contained in the Website, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available on an “as is” basis and without warranties of any kind, whether express or implied, and reflects prevailing conditions and Robeco’s views as of the date published or indicated, and maybe superseded by subsequent events or for other reasons. The information contained in the Website are accordingly subject to change at any time without notice and Robeco are under no obligation to notify you of any of these changes. Robeco expressly disclaims all liability for errors and omissions in the information presented in the Website and for the use or interpretation by others of information contained in the Website.
Robeco Singapore Private Limited holds a capital markets services licence for fund management issued by the MAS and is subject to certain clientele restrictions under such licence. An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.