Climate change, biodiversity loss & impact investing

Date: 21 Feb 2024

Citywealth

In this edition of From our fund manager’s desk, managers from Melville Douglas’s Global Impact Fund discuss the mutually reinforcing link between climate change and biodiversity loss and how impact investing can help break this vicious cycle.

This report is co-authored by Rob Stewart, who will be speaking at the Citywealth Forum on the panel Ethical investments in a geopolitical environment – as ESG moves on who is winning and why? alongside H.S.H Prince Michael of Leichtenstein. Secure your tickets here.

Citywealth is also delighted to announce Melville Douglas as the newest sponsors of the Forum. We thank them for sponsoring the networking drinks portion of the evening. For information about becoming a sponsor, contact Calin Lapuste.

The report

Rob Stewart and Diane Laas, Co-managers of the Melville Douglas Global Impact Fund, explore how climate change and biodiversity loss affect each other, what the consequences for human well-being and the planet are, and how impact investing in the listed equity universe can provide potential solutions to address these intertwined crises.

On the link between climate change and biodiversity: “Climate change affects biodiversity by altering the habitats, distributions, and interactions of species. For example, rising temperatures have caused coral bleaching, melting of polar ice caps, shifts in flowering and migration patterns, and increased risks of wildfires. These changes reduce the abundance, resilience, and functioning of ecosystems, leading to the loss or extinction of many species and natural habitats. Simultaneously, Biodiversity loss affects climate change by weakening the capacity of nature to regulate the climate and store carbon. Forests, wetlands, and oceans are natural carbon sinks that absorb and store large amounts of greenhouse gas emissions, and when these ecosystems are degraded or destroyed by human activities, they release carbon into the atmosphere, contributing to global warming. And so the cycle perpetuates.”

Where does impact investing come in? Stewart and Laas say: “Tracking cumulative GHG emissions data since 1751 shows that just four developed regions, being North America, the European Union, Japan, and Australia, have contributed >53% of global CO2 emissions. Africa in its entirety has contributed only 3%, with South Africa having contributed approximately 1.3%. As we contemplate the ‘just transition’ of the global economy towards a low carbon environment, it is essential that developed countries take
the lead in delivering on the climate change agenda, whilst supporting developing countries in their transition efforts as their economies are often dependent on fossil fuels. In addition, given that governmental pledges are unlikely to result in the world meeting the Paris Agreement targets, the onus rests largely on companies domiciled in developed countries to take up the challenge. It is encouraging to see more and more listed companies in developed markets, particularly in the US, UK and Europe, adopt progressive strategies to achieve net zero or Paris Aligned emissions targets, and improve efficiencies in areas such as energy and water utilization. In the investment world, developed market listed equities provide the most viable way to identify, and mobilize significant amounts of capital into, progressive companies that are intent on generating positive, tangible impact. Through the mobilization of such
capital, the market should reward impactful companies with superior share price appreciation.”

The article concludes: “Because of this inextricable linkage of climate change and biodiversity loss, the effort of trying to solve for one of these challenges in isolation is futile. They both require equal attention and financial investment if we are to avert the very worst scenario of global warming, and the exponential pressure this will place on adaptation and survival mechanisms for humanity. Solving for these crises presents a golden opportunity for listed equity impact investors to generate positive social and environmental impact alongside financial returns by investing in companies providing such solutions for a sustainable future.”

“At Melville Douglas, we understand this, which is why the themes of Climate Change and Biodiversity
Preservation feature prominently in the Global Impact Fund. Through our detailed approach to impact
investing, we are identifying the best quality, most progressive companies that are contributing to the
transition to a low carbon economy and helping protect ecosystems by integrating nature-based solutions into their operational activities. Join us in delivering on a shared objective of growing your wealth while making a positive impact, the Melville Douglas way.”

Read more from this series on the Melville Douglas website here.

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