The Global Environmental and Climate Crises – Challenges we Can Overcome
On July 23rd, 2021, the Rize Environmental Impact 100 UCITS ETF (LIFE) debuted on the London Stock Exchange. LIFE seeks to invest in the 100 most innovative and impactful companies that stand to benefit from developing and applying solutions that address the world’s most pressing climatic and environmental challenges. This includes leaders and innovators across clean water, EVs, renewables and hydrogen, energy efficiency, waste and the circular economy and nature-based solutions. LIFE has been designed to address the six environmental objectives set out in the EU Taxonomy for Sustainable Activities: (1) Climate Change Mitigation; (2) Climate Change Adaptation; (3) The Sustainable Use and Protection of Water and Marine Resources; (4) The Transition to A Circular Economy; (5) Pollution Prevention and Control; and (6) The Protection and Restoration of Biodiversity and Ecosystems.
Climate change is undoubtedly the biggest environmental challenge of our time. It is happening; temperatures are rising, droughts and wildfires are occurring more frequently, rainfall patterns are shifting, glaciers and sea ice cover are retreating, permafrost is thawing, deserts are advancing, and the global mean sea level is rising. And yet, climate change is not the only environmental challenge of our time. Human activity is directly responsible for the continuing destruction, fragmentation and degradation of the Earth’s remaining natural resources, habitats and biodiversity which — if allowed to continue — will have a cataclysmic impact on the quality of our air, land/soil and water and therefore our ability to feed and sustain ourselves, let alone preserve the remainder of the Earth’s wilderness and vitality.
Thankfully, in recent years, a groundswell of societal awareness has given rise to a wave of conscious consumerism and technological innovation to meet and remediate these challenges. Today, we hold the promise of a greener future — provided we invest now in promising solutions that can bring about meaningful and widespread change.
On addressing climate change, the clock is ticking faster than ever. According to the Intergovernmental Panel on Climate Change (IPCC), an intergovernmental body of the United Nations (UN) dedicated to providing the world with objective, scientific information on climate change, limiting global warming to 1.5°C would require “rapid and far-reaching” transitions in land, energy, industry, buildings, transport, and cities. To meet that target, global anthropogenic (i.e. human-made) emissions of carbon dioxide (CO2) would need to fall by about 45% from 2010 levels by 2030, reaching ‘Net Zero’ in around 2050. While science tells us that climate change is irrefutable, it also tells us that it is not too late to stem the tide. New and efficient technologies can help us reduce emissions and create a cleaner world. Readily available technological solutions already exist for more than 70% of today’s emissions and a raft of exciting new and increasingly efficient technologies are under various stages of development and rollout.
Air and Soil Pollution
Despite some regional improvements in air and soil pollution — mostly in the developed countries of the world — the issue remains a global problem that needs to be urgently addressed. For instance, air pollution caused by the emissions of particles and toxic gases from combustion engines, fossil fuel power plants, and industrial facilities, is one of the world’s leading risk factors for death, attributed to 9% of deaths globally. Soil pollution resulting from the release into the environment of the untreated by-products of industrial activities, livestock effluent, agrochemicals and municipal waste is contaminating soil and threatens food security for at least 3.2 billion people — 40% of the world’s population. However, technological solutions that can considerably reduce air and soil pollution already exist and they are increasingly being deployed around the world. Pollution control and circular economy solutions are already multi-billion dollars industries and are expected to grow substantially over the coming decades.
Water Quality and Availability
Like the air and soil pollution issue, substantial progress has been made in improving water quality and availability worldwide, especially in developed and emerging countries. However, the UN estimates that one in three people do not have access to safe drinking water. According to the Organisation for Economic Cooperation and Development (OECD), the blue economy, which also includes economic opportunities linked to the oceans, is projected to double, and reach USD 3 trillion by 2030. The investment required to make the blue economy more sustainable is indeed even larger than that required for land-based initiatives. Quantified in terms of the 17 UN Sustainable Development Goals (SDGs), water-related initiatives have attracted the lowest share of investment to date (3.5%). With greater acknowledgement that more needs to be done to ensure the sustainability of water resources and marine life and health, the growth opportunities for investors continues to look attractive over the medium to long term.
Loss of Natural Habitat and Biodiversity
Finally, the most visible challenge that even the greatest cynics of climate change cannot ignore: the loss of the earth’s natural habitat and biodiversity. The damage to some of the most biodiverse regions on earth, including some of our most celebrated forests (e.g., the Amazon, the Congo, and the Taiga) can now be viewed and tracked from space with the assistance of satellites. However, whilst the scars left in the landscape are obvious, the consequential decline in wildlife and biodiversity is less so. We are all aware of the highly publicised plight of the large “celebrity species” such as the tiger, elephant, and polar bear. But what about the millions of species of small mammals, birds, reptiles, amphibians, and fish that continue to quietly decline at unprecedented rates? Between 1970 and 2016, we witnessed a 68% decrease in the populations of monitored vertebrate species. The loss in natural habitat and wilderness is primarily caused by land-use change (i.e., the conversion of natural habitat such as forests or grassland into agricultural, urban, or industrial land). However, climate change, pollution, and the over-exploitation by humans of natural resources such as timber are also large contributors to the damage.
A recent report commissioned by the UK government estimated that, between 1992 and 2014, produced capital per person doubled but the stock of natural capital per person declined by nearly 40%. At this pace, we would require 1.6 Earths to maintain the world’s current living standards. Many scientists think a sixth mass extinction of life is under way and accelerating.
In recent years, governments, businesses, and investors have started to take notice of these environmental risks. In its 16th Global Risks Report, the World Economic Forum noted that if environmental risks are not addressed, “environmental degradation will intersect with societal fragmentation” to bring about dire consequences. Moreover, the two major international conferences in 2021 — the 15th Conference of the Parties to the Convention on Biological Diversity (COP15) and the 26th Conference of the Parties to the UN Framework Convention on Climate Change (COP26) — provide important opportunities to set a new, ambitious direction for the coming decade. Combined with the explosion in publicity and awareness driven by broadcasters such as the BBC and Netflix, we believe that environmentally friendly and nature-based solutions will be one of the most promising investment areas of the future as eco-conscious investing continues to gather pace globally. Investment opportunities relevant to this theme include nature-based habitat rehabilitation, water filtration, erosion and flood control systems, amongst many others.
LIFE: Rize Environmental Impact 100 UCITS ETF
Sustainable Market Strategies, “SMS Environmental Impact Opportunities Thematic Classification”, Pages 4, 5 and 6. Available at: https://rizeetf.com/wp-content/uploads/2021/07/SMS-Environmental-Impact-Opportunities-Thematic-Classification.pdf