Blue Chip Issue 89
Blue Chip Journal – The official publication of FPI. Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.
Blue Chip Journal – The official publication of FPI. Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.
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BLUE<br />
CHIP<br />
INVESTMENT | Responsible investment<br />
Nature’s Dividend: investing with impact to<br />
tackle the dual climate and biodiversity crises<br />
Climate change and biodiversity loss are closely linked<br />
and mutually reinforcing. As climate change alters<br />
the habitats and ecosystems that support life<br />
on Earth, biodiversity loss reduces the resilience<br />
and adaptability of nature to cope with climate impacts,<br />
perpetuating a vicious cycle that is having an increasingly<br />
detrimental effect on the planet.<br />
Biodiversity loss affects climate change by weakening the<br />
capacity of nature to regulate the climate and store carbon. Forests,<br />
wetlands and oceans are natural carbon sinks that absorb and<br />
store large amounts of greenhouse gas emissions; however, when<br />
these ecosystems are destroyed by human activities, as they are<br />
currently, they release carbon into the atmosphere, contributing<br />
to global warming.<br />
The dual climate and biodiversity crises:<br />
What it means for our future<br />
The loss of biodiversity, be it through climate change and/or<br />
human interference, poses very real threats to the health and<br />
well-being of humanity. The World Economic Forum estimates<br />
that more than half of the world’s GDP depends upon nature and<br />
its services (including for water quality and disease control).. And<br />
consider that more than a quarter of the global population already<br />
experiences food insecurity. By 2025, half of the global population<br />
will face water insecurity – and South Africa will not be exempt.<br />
We will also have to deal with the increased spread of diseases as<br />
population migration and density increases. Not to mention that<br />
global heat records are being broken with alarming frequency. The<br />
year 2023 is on track to become the hottest year ever recorded.<br />
Globally, more than five-million people die each year because of<br />
excessive temperatures. These are just some of what these crises<br />
mean for everyday life<br />
Investing for impact<br />
Climate change is also influencing the financial world as asset<br />
managers struggle to assess the impact of physical climate risks<br />
on their investment portfolios. S&P Global Sustainable research<br />
estimates that over 90% of the world’s largest companies have at<br />
least one asset which is financially exposed to climate risks.<br />
Business is taking action though. Currently, over 4,000<br />
companies, covering over a third of the global economy’s market<br />
capitalisation, having either set, or committed to setting, Paris<br />
Agreement-aligned or Net Zero emissions targets via the SBTi<br />
(Science Based Targets initiative). A very high proportion (of<br />
these targets) are from listed companies in the developed world<br />
including Europe, North America and Japan. This is impressive,<br />
but we should also recognise that companies from these nations<br />
should be doing this (and more) when you consider their<br />
disproportionate national emissions. Four developed regions<br />
– North America, Europe, Japan and Australia – are responsible<br />
for around 53% of cumulative global CO2 emissions. Africa in its<br />
entirety has contributed only 4.8%, with South Africa accounting<br />
for approximately 1.5%.<br />
The responsibility of remedying our biodiversity and climate<br />
crises doesn’t rest entirely with companies. Investors have a key part<br />
to play, too, by directing resources to where they’ll be managed<br />
responsibly. Cue impact investing in the listed equity universe.<br />
Developed market-listed equities provide the most viable way to<br />
identify and mobilise significant amounts of capital into progressive<br />
companies that are intent on generating positive impacts and<br />
providing relevant solutions for a sustainable, more resilient future.<br />
Through the mobilisation of such<br />
capital, the market should reward<br />
impactful companies with superior<br />
share price appreciation. That is the<br />
essence of impact investing.<br />
There’s a perception around<br />
impact investing that one must<br />
sacrifice financial returns and<br />
forego performance to do good.<br />
This is not true. Impact investing<br />
is a strategy that aims to generate<br />
positive, intentional impacts in the<br />
real economy alongside positive<br />
financial returns by investing in the<br />
best quality and most forwardthinking<br />
companies that contribute<br />
to solving social and environmental<br />
challenges. This shared approach<br />
to growing wealth while leaving<br />
a positive footprint is one that<br />
investors need to determinedly<br />
champion if we are to avert the very<br />
worst scenario of global warming<br />
and its related impacts.<br />
Considering how detrimental<br />
both climate change and the loss<br />
of biodiversity are to the economy<br />
and our collective future, it’s time<br />
we got serious about this. <br />
Diane Laas, Global<br />
Impact Fund Manager,<br />
Melville Douglas<br />
Rob Stewart, Global<br />
Impact Fund Manager,<br />
Melville Douglas<br />
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