Stockholm (NordSIP) – Investment firm Federated Hermes Limited is known for its commitment to nature. The asset manager has been running an Article 9 Biodiversity Equity Fund since 2022 and is one of the early adopters of the Taskforce on Nature-related Financial Disclosures (TNFD). Taking advantage of a visit to Stockholm, we caught up with Ingrid Kukuljan, Head of Impact and Sustainable Investing at Federated Hermes Limited, to hear more about the firm’s pioneering biodiversity efforts.
These days, after the Kunming-Montreal Global Biodiversity Framework (GBF) was officially adopted at the 15th Conference of the Parties to the Convention on Biological Diversity (COP15) about a year ago, Federated Hermes is hardly alone in recognising the importance of the natural world and nature-based solutions. It wasn’t always the case, however. “To think that a couple of years ago, there was just a handful of us talking about biodiversity,” recalls Kukuljan. “Then, when we came to Montreal there were 15 000 people! It was such a positive shock.”
Climate tunnel vision persists
Kukuljan is pleased that nature preservation is finally on the map of institutional investors. Yet, she observes that many are struggling as to how they can make this theme investable. “Everyone is still fixated on climate,” she laments. “Investors need to realise that climate change is only one of the drivers of biodiversity loss. Pollution, invasive species, exploitation of organisms and change in land and sea use are just as important to consider,” she explains. “All of these drivers are interconnected, and we need to solve them in tandem.”
An issue that Kukuljan is very passionate about is the food system. “Half of all the inhabitable land is already being used for agriculture, with 70% of it for animal grazing,” she points out. “The grazing land becomes arid after three to five years, though, so there is a constant need to expand. It is also the biggest cause of deforestation. To feed our glut for meat, we kill 80 billion animals, excluding birds, annually. Let alone that they are full of antibiotics and hormones; they are also sentient beings. And, on top of this, 40% of all the food we produce ends up as waste.”
“So, we are destroying the planet through deforestation, thus ruining natural carbon sinks, to produce meat that is not good for our health and releases enormous amounts of pollution. Then we throw away almost half of it,” sums up Kukuljan. “The fact I find the saddest is that if you take all the mammals on planet earth today, humans are 36%, the wildlife is only 4%, the rest is livestock.”
How to invest in nature
What can a responsible investor do about it all, though? “After researching the major regional and global threats to biodiversity, we have defined six investable themes: land pollution, marine pollution and exploitation, unsustainable living, climate change, unsustainable farming, and deforestation,” says Kukuljan. “Within each of these themes, we look to identify the champions – quality businesses that have a sustainable competitive advantage through their positive action towards biodiversity.”
The manager believes that such ‘biodiversity champions’ are well-positioned to benefit from several structural tailwinds. “With increasing awareness and regulation around biodiversity, companies that are leading the way and helping protect and replenish biodiversity through their operations, products or services should exhibit superior rates of growth. We are delighted to have started early and to have built our strategy at this point when this ‘green’ dividend is yet to be fully realised.”
Measurable impact
Good intentions aside, most investors need an assurance that their efforts are paying off. Tracking the impact of nature-related investments, meanwhile, can be quite challenging. “Using our new proprietary Federated Hermes Biodiversity Impact Database, we are able to present our impact data on an aggregated, cross-company basis,” assures Kukuljan. “We can estimate, for instance, how many hectares of land area has been preserved, or the amount of water saved, and food waste avoided by the companies we have invested in.”
Kukuljan sounds particularly excited about the Biodiversity Intactness Index (BII)[1] developed by the scientists at London’s Natural History Museum that Federated Hermes cooperates with. BII offers a comprehensive analysis of terrestrial ecosystem health and as a model-based index, it enables biodiversity projections across spatial scales, aggregation of benefits, and forward-looking predictions of biodiversity change. It is underpinned by the PREDICTS biodiversity database which contains 5 million data observations, 50,000 sites across 100+ countries and 58,000 unique species.
Using data from ecological studies conducted around the world, the scientists can track over time the BII of every single country and region. “It is the only statistical model out there to let you do forecasts,” she says. “Luckily, it is no longer a secret hidden in the scientific community.”
According to Kukuljan, TNFD has been a big boost to tackling biodiversity loss. “It is a great tool for companies to start thinking about their nature-related impacts and dependencies in a systematic way,” she says. “Essentially, there is neither a lack of data, nor of metrics. If every company were made to report on water, waste, pollution, and deforestation and introduced proper reduction targets for each of these areas, we would come a long way towards limiting biodiversity loss. My impression is that companies want to change their practices and incorporate biodiversity, they just need to figure out how to do it,” concludes Kukuljan.
[1] BII is an estimated percentage of the original number of species that remain and their abundance in any given area, despite human impacts
