Peter van der Werf, Senior Engagement Manager at Robeco, says post-GBF engagement efforts around nature require a “crystal clear” set of targets to optimise portfolios.
A major outcome from the UN Biodiversity Conference (COP15) held in December was the adoption of the Global Biodiversity Framework (GBF). It set out four overarching global goals and 23 targets to address ongoing biodiversity loss.
Reaction to GBF adoption was mixed, with some commentators noting the final text was pushed through by the Chinese COP15 President Huang Runqiu despite objections from the Democratic Republic of Congo (DRC) environment minister, Ève Bazaiba, amid reluctance to establish a new fund for biodiversity separate to the existing UN fund – the Global Environment Facility (GEF).
For asset managers and owners, however, the adoption of the new framework represents a major milestone and is seen as a critical instrument for nature-related engagement, according to Peter van der Werf, Senior Engagement Manager at Dutch asset management firm Robeco.
“Over the past few years, we have seen an exponential level of growth in the number of companies that we engage with specifically on biodiversity,” he says. “Engagement is typically one of the first instruments that you have as a responsible investor, to manage your assets sustainably and start talking with companies that you see that have a high exposure to a particular issue.”
From that vantage point, he says, institutional investors can start to think about how they begin optimising portfolios on an individual investment case perspective, as well as building knowledge with in-house investment analysts on why biodiversity matters and what can be done to stem its decline.
The adoption of the GBF also aligned with the launch of Robeco’s Biodiversity Equities Fund, with the asset manager incorporating engagement as an integral part of that portfolio. The fund is focused on companies that have a positive contribution to reducing the drivers of biodiversity loss in freshwater and marine terrestrial ecosystems, as well as organisations with a significant footprint that are taking meaningful action to reduce its size.
“When we look at the large, global systemic environmental issues, we have identified biodiversity and climate change on the environmental side, and then human rights as a social challenge, which we want to incorporate across all of our investments in all of our different asset classes and strategies […] because they are defining issues for the coming decade which our clients will expect us to integrate in how we manage money on their behalf.”
When asked how firms within its fund have responded to deeper engagement around biodiversity, van der Werf admits that, while conversations on the whole have been constructive, there are certain sectors and jurisdictions whose narrative is politically sensitive.
Two years ago, the Bolsonaro administration abandoned its enhanced Amazon commitment in favour of agricultural expansion and further deforestation, which led to a shift in tone from companies the Dutch asset manager was engaging with in Brazil at the time. Thankfully, dialogue has improved with the election of Luiz Inácio Lula da Silva who, on his first day in office, issued six decrees revoking anti-environment and anti-indigenous peoples measures from his predecessor.
“The Lula administration is stepping up and being much more ambitious in terms of how they see the reduction of deforestation as a priority, but that wasn’t there in the past,” says van der Werf. “And so for companies, for instance, in soy production in Brazil […] it was politically very sensitive.”
Robeco is hopeful that the new administration will lead to a turning point at a time when investors are beginning to set clearer deforestation commitments and are no longer accepting traders and others that are purchasing commodities like soy, palm oil, timber, paper or pulp from recently deforested land in the Amazon or other parts of the world.
The recent passing of a tough anti-deforestation law in Europe is expected to only add to investors’ focus on how investee firms manage their exposure to deforestation risks.
The value of nature
The financial benefits we all get from nature are monumental. Analysis by the World Economic Forum, found that over half of the world’s GDP – US$44 trillion – is moderately or highly dependent on nature and its services. As nature loses its capacity to provide such services, industries and supply chains could be significantly disrupted, particularly in sectors like food production, pharmaceuticals and timber.
This is requiring asset owners and managers to elevate their engagement with portfolio companies in high-risk sectors such as mining, fisheries, agriculture and food production. However, van der Werf concedes that setting targets for protecting and restoring nature poses unique challenges and requires investors to think on a more granular, sector level before setting investor expectations for companies operating in high-risk industries.
It is inherently different to climate, he says, where there are clearer standards for measuring and reporting companies greenhouse gas (GHG) emissions and for investors to identify opportunities for transition, he says.
“For nature, we’re still a bit further out before we have a crystal clear set of targets that we can set for our investment policy by 2024 as committed with the Finance for Biodiversity Pledge,” he says, noting that without a yard stick to accurately measure and compare performance ESG accountability is hard to ensure.
This is the ultimate “end game” that Robeco and other asset managers with a focus on biodiversity are working towards in the coming years, with engagement an essential element in driving meaningful change, and the GBF and initiatives such as Nature Action 100 representing the starting blocks for facilitating a constructive dialogue with corporates to tackle nature loss and biodiversity decline.
The ESG fund shakeout
Van der Werf was involved in Climate Action 100 – the forerunner to its nature-focused counterpart – an investor-led initiative to ensure the world’s largest corporate GHG emitters take necessary action on reducing their carbon output and explains how those involved in Nature Action 100 are applying their learnings from that project to this new initiative.
“As with the last one, where [Robeco] was a member, we’re very actively involved in shaping the commitments and the outputs of Nature Action 100.”
The initiative seeks to engage with companies in key sectors that are deemed to be systemically important in reversing nature and biodiversity loss by 2030. Its secretariat and Corporate Engagement Working Group is co-led by Ceres and the Institutional Investors Group on Climate Change (IIGCC), and the initiative’s Technical Advisory Group is co-led by the Finance for Biodiversity Foundation and Planet Tracker.
According to van der Werf, by the end of the quarter, the initiative aims to have mapped sector pathways and identified a list of 100 focus companies, as well as a common agenda for investor engagement to achieve clear corporate commitments and actions to reduce nature loss and accelerate the adoption of nature-smart practices and public policies.
Running parallel to this, he also expects the GBF to motivate national policymakers to translate the framework and use it to evolve existing legislation related to preserving biodiversity.
Some policymakers will act quicker than others in doing so, but van der Werf asserts that over time stronger standards and tighter rules will lead to a shakeout of ESG funds – where those that have taken the most proactive approach to addressing biodiversity decline and nature loss coming out on top.