Dr Sarah Chapman, Global Chief Sustainability Officer at Canadian insurer and investor Manulife, says investments in people and planet can be mutually reinforcing.
Longevity is rapidly becoming a global phenomenon. By 2050, 80% of older people will be residing in low- and middle-income countries. By 2030, even Thailand will be a ‘super-ageing society, with more than 20% of its population predicted to be older than 65 by then.These longer lifespans may be hard to bear. The average person can now expect to spend almost a decade in ill health.
Despite decades of warnings, mature Western democracies have not yet come to terms with longevity’s many challenges. Served considerably less notice, many developing economies have neither the resources nor the policies to cope.
Though gradual, a growing appreciation of the risks and opportunities arising from these demographic changes is taking place, alongside an increasing awareness of the value of natural capital to human wellbeing. An understanding of the intersection between the two, however, has been slower to emerge.
Experts argue that this nexus could potentially help policymakers address seemingly intractable problems, offering financial institutions new long-term business streams, and – most importantly – deliver better outcomes to people and the planet.
Investment is already flowing into research that aims to better understand ageing, including DNA sequencing, and support healthy and fulfilling longer lifespans. In the field of life science, innovations in autophagy are literally rejuvenating bodies.
Asset owners, particularly pension providers and insurance firms, are monitoring these developments closely, aware of their potential impact on the needs and expectations of end-beneficiaries. As they increase both quality and quantity of life, innovations that are expensive and inaccessible today could well alter business models and service propositions of financial service providers tomorrow.
Some are also identifying synergies with the natural capital investments they are making as part of their sustainable investment strategies. In short, they are looking to support the financial, physical and mental wellbeing of customers through investments that also preserve and protect natural resources – such as soil, air, water, and the biodiversity of living things.
Impact on the agenda
For Dr Sarah Chapman, Global Chief Sustainability Officer at Canadian insurer and investor Manulife (AUM US$800 billion), these efforts are rooted in the firm’s commercial strategy, but extend well beyond.
“We have a role to play not just on the operational side, but also thought leadership and public policy,” she says. “It’s also about investing in entrepreneurs who are trying to figure out solutions to these shared challenges at earlier stages than might yet be commercially viable.”
Manulife’s approach to exploring and leveraging the nexus between longevity and natural capital also incorporates a third element: inclusive economic opportunity. Put together, these three themes form the basis of the firm’s Impact Agenda, informed by a consideration of where it has “the credibility and legitimacy to play a role”, Chapman explains.
The inclusive opportunity pillar reflects Manulife’s business incentives to deliver accessible and affordable insurance and retirement solutions both in developed and emerging markets – notably in Asia. One example of the strategy’s mutual benefit ethos is the firm’s involvement in financial literacy. “As that next generation comes through, particularly in emerging markets, it’s our biggest opportunity to sell insurance,” Chapman notes.
The rationale for Manulife’s focus on environmental sustainability stems, in part, from the investment portfolio of its wealth and asset management business. The firm is the world’s largest institutional manager of timberland and the second largest of agricultural assets, which means it has strong expertise in areas such as certification of major soft commodities.
“If you look at the intersectionality, we’re talking about the health of people and planet, but there’s a massive equity component,” says Chapman. “Those most at risk are in lower socio-economic groups and locations.”
Chapman, whose doctorate was in Sustainability and Corporate Governance, with a focus on shared value, insists on retaining a focus on business imperatives. “As a life and health insurance company, the healthier our customers are, the better it is for us as a business,” she adds. “Less claims for them, less money out the door for us.”
Sustainability in practice
Advocates in the sector – many of whom will have attended the sustainability stream this week at Davos – generally argue that investments in the planet offer direct and indirect benefits to the growing population.
The question, however, is what this means in practice. If real estate is a key area where sustainable investments can bring wellbeing benefits through proximity to natural capital, agriculture and timber investments might have the widest and deepest overall impact.
Around 80% of Manulife’s real estate portfolio globally is accredited as meeting green building certification standards. The firm is now also looking for its properties to gain Fitwel certifications, which evaluate how buildings contribute their tenants’ health. Factors can include surrounding green space or natural light and airflow, and for office space, the impact of the building overall appearance on workers’ mental health.
“Increasingly, an asset class like real estate that has been so focused on environmental health is now factoring in a human health component,” says Chapman. “Looking at real estate through the concept of longevity can lead to opportunities for green roofs and walls, or even bee-keeping.”
Investments in sustainable agriculture and timber have the capacity to contribute to human well-being through carbon sequestration, biodiversity preservation, water protection and climate regulation. But they also support economic stability, boosting wealth and health, while reducing exposure to damaging chemicals and increasing exposure to green space, which also holds mental health benefits.
Separately, sustainable – and particularly regenerative – agriculture can improve food security through support of local food systems, while investments in soil health deliver more nutrient-rich crops and enhance soil fertility and biodiversity. They can also lead to more nutrient-dense foods and reduce anti-microbial resistance.
Sustainable timber, for its part, improves air quality, and thus respiratory health, while reducing soil erosion, which supports food security and human nutrition. As a renewable resource, timber can supply sustainable building materials, limiting reliance on harmful substances. In addition, sustainable timber practices protect health by ensuring long-term availability of wood, and boost well-being and longevity through the cultural and recreational benefits of forested landscapes.
Manulife has sought to maximise the carbon sequestration impact of timberland investments by choosing to invest in forests with slightly lower overall productivity. Chapman argues that while sustainable investments do not entail accepting a trade-off in terms of returns, they do involve a shift in the way one achieves and accounts for them.
“What you’re potentially sacrificing in terms of ability to harvest the forest, you are more than making up in carbon sequestration, using those carbon removals either by selling credits on the open market or setting them against net zero commitments,” she says. “It’s more attractive for an asset owner to use offsets embedded in their investments than having to buy them.”
The consideration of social impacts – both positive and negative – is also integral to investments in sustainable agriculture and forestry. One element of the intense scrutiny facing carbon sequestration projects in recent years has been the lack of benefits to local communities.
Chapman expects standards and certification to emerge for the tracking, measuring and reporting of investments’ social elements, with likely issues arising both in terms of risk mitigation and value creation.
“In a lot of rural areas and communities, if done well and appropriately there is a real opportunity for job creation, while preserving and leveraging local indigenous practices for better management of the forest,” she adds.
An enabling environment
Chapman’s focus on shared value and sustainability has led her to become a faculty member of the Competent Boards programme, which provides ESG, climate and biodiversity training for business leaders. As part of this role, discussions on natural capital and longevity with former Invesco executive Henning Stein, holder of the Global Competent Boards Designation, led to a joint project in preparation for this week’s World Economic Forum (WEF).
In parallel, Manulife announced this week a partnership with the WEF’s open innovation platform, UpLink, to support longevity-related innovation. The three-year partnership will drive investment in the sector via annual global longevity innovation challenges, which will support firms working to improve finance, health and well-being for older generations. These follow similar innovation challenges last year, one of which focused on the sustainable forestry value chain, the other on synergies between planetary and human health.
According to WEF Managing Director Olivier Schwab, that collaboration should also generate policy recommendations for a resilient, equitable, and sustainable extended life.
These various initiatives reflect Chapman’s focus on the importance of creating an enabling environment that addresses longevity, equity and sustainability challenges, shared with Stein. “The task for policymakers is to reframe this transition as investment, not expenditure,” he says. “They need to stimulate institutional capital flows into community well-being through investments in natural capital.”
Stein holds Denmark’s plant-based roadmap as an example of cross-cutting vision for the future. Other initiatives abound, including the UK Financial Conduct Authority allowing pension funds to invest up to 35% in a range of illiquid assets, including those related to natural capital and infrastructure. Similarly, the EU’s Occupational Pensions (IORP) II and the US’s Employee Retirement Income Security Act provide frameworks that offer some flexibility for investment in illiquid assets, such as sustainable timberland or agricultural management.
“To bridge these gaps effectively, we need progressive policies that not only address financial stability, but also encourage sustainable investment in natural capital and longevity,” Stein adds.
Reflecting on the dialogue between business and policy leaders at Davos this week, Chapman sees progress in terms of ‘carrots and sticks’ – i.e., incentives and minimum standards that can be introduced to achieve behavioural changes and action. This, she says, will enable policymakers to pull different levers in different contexts.
“In the US, we’ve seen the power of the Inflation Reduction Act,” she adds. “We need to learn from recent policy interventions around the world, and consider how to leverage that in the more complicated and nebulous space of biodiversity. We’re not there yet on climate, but this is a whole new layer of complexity.”