Sustainability. We mean it.

The Circular: Edition 2, 2022

19 July 2022 |

The Circular

Diversity is an essential ingredient of both investment and life but, sadly, the Earth’s living asset base narrows by the day. Can investors help keep the diversified planetary portfolio alive? 
The Circular goes back to nature looking for uncorrelated solutions…

Life as we (used to) know it: how to stop the living end

Shifting the dial on the flowers meadow

What’s it all about?

While life is all around, there’s less of it to go around, according to Sonya Likhtman, engager at Federated Hermes EOS. In this five-minute video, Likhtman explains why biodiversity is crucial for the health of the planet, how species are vanishing at alarming speed and what investors can do to give life a chance.

What’s new?

In March this year Federated Hermes partnered with the Natural History Museum to launch a pioneering investment vehicle targeting a concentrated portfolio of global companies focused on biodiversity challenges.

The new Biodiversity Equity Fund hinges on six underlying themes framed on the UN Sustainable Development Goals (SDGs) – land pollution, marine pollution and exploitation, unsustainable living, climate change, unsustainable farming, and deforestation.

Working with scientists from the Natural History Museum, the Federated Hermes team will implement a unique data-based approach that links the products and services of portfolio companies with activities known to have a positive impact on biodiversity.

What’s the impact on investors?

According to the International Union for Conservation of Nature (ICUN), approximately 40,000 species – or almost a third of the total on Earth – are bordering on extinction as at 2022.

ICUN’s ‘Red List of Threatened Species’, published annually since 1964, highlights an existential challenge that many companies and investors now realise requires a massive financial effort – as well as opening up important business opportunities. The Biodiversity Equity Fund was established to capture those potential long-term capital returns while offering investors the chance to make a truly life-changing impact.

“The negative impacts of biodiversity loss pose a systemic risk to the global economy and we must stop taking nature’s permanence for granted.”

Ingrid Kukuljan, Federated Hermes head of impact and sustainable investing

More animal and plant-based messages from the eco-sphere

The sun's rays breaking through the tree

What’s it all about?

Less well-known than its climate-change sibling, COP26, biodiversity has also been the subject of a global initiative spearheaded by the UN.

Originally due to take place in China in late April/early May, part two of the COP15 biodiversity global conference has been postponed to the fourth quarter of this year.

But with investors already digesting COP15 part one and the overarching plan to update the Convention on Biological Diversity during the next decade, the topic is joining climate-change (which, as Ingrid Kukuljan, Federated Hermes head of impact and sustainable investing shows here, is a linked factor) high on the agenda.

What’s new?

As the COP15 effort illustrates, biodiversity is an issue that spills well beyond a single investment strategy and into wider financial, political and social spheres.

Given the broad audience demand and growing thirst for information on the fast-developing cross-species threat, Federated Hermes has assembled a cache of content in this new Biodiversity Hub. The online bio-info centre will provide up-to-date research, insights and news on the sector with the aim of highlighting the “vital role investors play in limiting biodiversity loss”.

What’s the impact for investors?

The slated COP15 rewrite of the Convention on Biodiversity represents an “ambitious plan to implement broad-based action to bring about a transformation in society’s relationship with biodiversity and to ensure that, by 2050, the shared vision of living in harmony with nature is fulfilled”, the UN states.

With so much at stake, investors need to stay on top of the high-level policy developments – that will drive corporate risks and opportunities – in addition to on-the-ground issues such as food security.

To be successful, the Global Biodiversity Framework must highlight the necessary actions to be taken by all stakeholders, including the financial sector, to urgently halt and reverse biodiversity loss.

Sonya Likhtman, manager, engagement at Federated Hermes EOS

The bio-pod series: six degrees of diversity

Busy street in the middle of the city

What’s it all about?

Anchoring the Biodiversity Hub launch, Federated Hermes has produced a suite of six podcasts exploring the issue in detail with subject-matter experts. Kicking off the show, Dr Emma Berntman, part of the EOS stewardship team, and guest Gillian Rutherford-Liske, head of Reinsurance Sustainability at Swiss Re, define the biodiversity challenge – and why it matters to business as much as humanity itself.

What’s new?

Biodiversity degradation is a planet-wide issue with clear threats already evident from the depths of the ocean – as detailed in part two of the podcast series – to the highest canopy of the Amazon rainforest (see the deforestation episode, hosted by Nick Spencer from responsible investment advisory firm, Gordian Advice). Spencer continues the land-based theme in part four in a debate about the future of agriculture amid environmental risks and changing consumer food demands.

What’s the impact on investors?

Not a fun fact: the world is enduring another mass extinction event on a dinosaur-level scale with species from bees to birds and beyond slipping into genetic history. In the fifth podcast, Professor Jill Atkins, chair in Financial Management at Sheffield University Management School, holds talks with several specialists on the scope of the problem and how the financial services sector can help fight the life crisis.

But it’s not all doom, or gloom. Wrapping up the series, Nick Spencer returns to put the spotlight on businesses offering answers to biodiversity questions, flagging investment opportunities of the future and for the future.

The ocean has an amazing propensity to recover, to come back to life, and when the fish stocks come back to life, they have a positive impact on biodiversity, on improving the coral and then you see an area replenish. But we need to do it now.

Chris Gorell Barnes, founder of the Blue Marine Foundation and founding partner of Ocean 14 Capital

Engaging higher gears: EOS puts four (and more) on the floor

Flowers at the meadow

What’s it all about?

EOS, the Federated Hermes corporate engagement and stewardship arm, set down its priorities for the next two years in a new action plan published this March.

While the top four EOS engagement topics for the 2022-2024 period – climate change action, human and labour rights, human capital, and board effectiveness and ethical culture – are hardly surprising, the updated schedule provides detail on 12 main themes and 37 related sub-themes, as the group accelerates its commitment to pursuing corporate issues that offer the “greatest potential to deliver long-term sustainable wealth for investors and positive societal outcomes”.

What’s new?

Meshing with the broader Federated Hermes push on biodiversity, EOS engager, Sarah Swartz, lays out the power and possibilities of the nascent ‘regenerative agriculture’ movement in a paper released this April.

Swartz notes that regenerative agriculture practices such as “no till, cover cropping, diversified cropping, silvopasture, and ally cropping” have proven effective in improving biodiversity, soil health, water quality and ecosystem sustainability.

“Although regenerative agriculture practices are executed at the farm level, food manufacturers, retailers and investors can also play a role by helping to implement and promote regenerative agriculture practices,” she says.
EOS is playing its part by engaging with companies – including Pepsi and Danone – to seed regenerative agriculture preferences in the corporate supply chain process.

What’s the impact on investors?

Engagement plans are all very well but implementation of those high-level concepts is just as important. At the beginning of May, EOS released an activity report for the first quarter of 2022, detailing the results of engagements with 438 companies and covering 1,524 issues.

“Over the last quarter we made voting recommendations at 2,069 meetings (18,267 resolutions). At 1,050 meetings we recommended opposing one or more resolutions,” the report says.

The EOS quarterly overview, however, goes much deeper: analysing sector-by-sector engagements and some of the hard-won successes that show investors can be a powerful force for corporate – and planet-wide – improvement.

We engage with some of the world’s largest chemical companies on their decarbonisation pathways and ambitions. We co-lead collaborative engagement with LyondellBasell and Air Liquide as part of Climate Action 100+ and have participated in ShareAction’s recent campaign to accelerate climate action for European chemical companies. We also engage with companies on end-market demand.

Joanne Beatty, Federated Hermes EOS engager

Round the corner - what’s coming up?

As a fast-evolving sector, sustainable investing requires a constant flow of new information and analysis. Here’s what’s coming up:

Decarbonising the auto sector: This paper will be the first in a series of insights from the European Equities team on decarbonising the auto sector. Including an assessment of how much greener an electric car is than its petrol equivalent. slider-icon
Global Equity ESG half year report: Our 2021 H1 report will explain the strategy’s investment philosophy, examine engagement highlights and ESG outcomes, and provides case studies illustrating how the team integrate ESG and engagement into their investment process. slider-icon
Japanese employment: engaging for greater equality: An update from the SDG Engagement Equity team, exploring the long-standing issues around the under-representation of women within the Japanese labour force. slider-icon

Federated Hermes has one of the largest teams of Engagers in the industry.

In this edition, we quiz Lisa Lange, Engager, EOS at Federated Hermes

Lisa lange portfolio image
Which engagement themes are you focusing on for the rest of 2022?
What are the challenges of engaging on circularity?
Where do you see the biggest opportunity for positive change in pollution, waste and the circular economy?
What is one small change each individual can make to have the biggest impact on climate change?

Federated Hermes in the news

Tall blocks in the city

Full Circle

That's a wrap for this issue of The Circular.

We hope you found this quarterly round up of insights and analysis from our sustainability experts useful. To receive the next edition of The Circular in your inbox, subscribe below.

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