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Seeing The Trees For The Wood – Looking Beyond Carbon In The Environmental Fight

There’s no doubt about it — climate change is one of the greatest challenges of our time. No later than this month, the Intergovernmental Panel on Climate Change (IPCC) delivered a stark and blunt report about the impact and causes of climate change. In short, climate change is here, it’s a crisis, and it’s manmade.[1]

Indeed, whether its rising temperatures or sea levels, melting glaciers, thawing permafrost, shifting rainfall patterns or increasingly frequent floods and wildfires, we are experiencing a grim sneak peek into what the future looks like if we don’t take bold action swiftly.

The science is clear and undisputable: pumping greenhouse gases into the atmosphere is causing severe and potentially irreversible damage for future generations — all while crippling our planet’s own biological support systems.

Yet as critical as the challenge of climate change may seem, it is unfortunately not the only environmental challenge of our time. Today, there are myriad issues resulting from years of natural resources exploitation — essentially for free. Nature has obliged, but it has come at a huge cost.

In the last few decades, nature has been unable to keep up with our consistently increasing needs. Degradation of our environment has happened so fast that it has rendered parts of our world uninhabitable, unfarmable and unrecognisable.

The reality is that, on top of climate change, issues like air pollution, waste disposal, water depletion, soil cover destruction, ocean acidification and biodiversity loss must be urgently addressed if we want to keep our planet breathing.

These issues are not going to be addressed by simply focusing on reducing CO2 emissions. That is only part of the problem. We need to go back to first principles. What we need are bold ideas rooted in science that are designed to find solutions to our environmental ills using technology.

While this may sound challenging — early signs of swooping change are already here.

We are in the early stages of what Al Gore calls the “sustainability revolutionThis revolution, according to Gore, will have the magnitude of the “industrial revolution” but the speed of the “digital revolution”.[2]

His powerful quote is a nod to the incredible number of companies that are now emerging to fight not just climate change but all environmental challenges using technology.

Playing an essential role in this increasingly critical fight, these companies stand out in their ability and desire to have meaningful environmental impact. Here are a few of the areas where we believe investors have the chance to ride the growth of such companies.

Air and soil pollution

Efforts to combat air and soil pollution have increased in recent years — particularly in developed nations — but both remain major issues. Just look at the stats:

  • Toxic particles and gases emitted from combustion engines, fossil fuel power plants and industrial facilities are currently responsible for 18% of deaths globally.[3]
  • Currently, the degradation of land and soils is affecting at least 3.2 billion people — 40% of the world’s population.[4]

Yet, more and more companies are developing technological solutions to address these needs worldwide. In fact, pollution control and circular economy solutions are already multi-billion-dollar industries and expected to grow even bigger in the coming decades.

One name at the vanguard of this long-term growth is Donaldson, a manufacturer of filtration and pollution control systems. Clean Air regulation around the world is getting tighter and Donaldson is at the forefront of this regime change. The firm offers state-of-the-art pollution control equipment systems for offending industries like construction and mining.

 

Clean water and sanitation

In a 2019 report from UNICEF and the World Health Organisation, it was determined that one in three people on the planet do not currently have access to safe drinking water.[5] In addition, 4.2 billion people do not have safely managed sanitation services, and 3 billion lack basic handwashing facilities.[6]

According to the OECD, investments in this space are projected to double and reach $3 trillion by as early as 2030.[7]

One firm leading the way in terms of sustainable use and protection of water is Kurita in Japan. The company develops systems that recycle water, reduce waste and convert waste into fuel in order to decrease the environmental impact of their clients’ activities.

As the water theme increasingly inhabits the minds of investors, policymakers and regulators, Kurita is incredibly well positioned to benefit from the inevitable influx of sustainably-themed capital.

Loss of natural habitats and species

Between 1970 and 2016, we saw a 68% decline in the population of monitored vertebrate species.[8]

That’s more than two-thirds — hence it’s no surprise that many scientists now believe that a sixth mass extinction event is currently under way and accelerating.

Population declines stem primarily from loss of habitats and wilderness. And this, in turn, is driven by the transformation of our forests and grasslands into agricultural, urban or industrial land (i.e., land-use change).

This too has given rise to an expanding number of companies that are working to reduce the stock of natural capital we require per capita.

Take Europe’s largest private forest owner SCA, for example, which excludes areas presenting vital habitats for sensitive flora and fauna from its forest management activities. Currently, the company has set aside a total of 400,000 hectares of habitats — that is more than 300,000 football fields.[9]

As the global spotlight increasingly shines on the protection and restoration of biodiversity and ecosystems, it will be companies like SCA that stand to benefit the most.

 

Widening the environmental investment net

The reality is, managing greenhouse gas emissions has become synonymous with “solving” climate change. Because of this, this is the area that attracts the most investor attention and shareholder capital. It is also for this reason that many “environmental” funds have become proxies for “carbon avoidance” funds.

There is no problem with that — investing in this area is a great way of giving something back to the world while getting exposure to a rapidly growing sustainable economy.

However, our environmental challenges extend far beyond climate change and carbon avoidance. And there are many areas that desperately require our environmental attention and protection. Widening the net to encompass all environmental themes, such as those listed above, offers investors the chance to build a more rounded sustainable portfolio.

After all, protecting the earth is a matter of life or death — any investment that supports this, in our view, has the potential to generate positive returns as we spend the next few decades undoing our past transgressions on nature.

 

Related ETF

LIFERize Environmental Impact 100 UCITS ETF

 

References

  1. BBC, “Climate change: IPCC report is code red for humanity”, August 2021. Available at: https://www.bbc.co.uk/news/science-environment-58130705
  2. Deutsche Bank, “Al Gore tells millennial clients that sustainability is biggest investment opportunity in history”, November 2019. Available at: https://www.db.com/newsroom_news/2019/al-gore-tells-millennial-clients-that-sustainability-is-biggest-investment-opportunity-in-history-en-11638.htm
  3. Harvard, “Deaths from fossil fuel emissions higher than previously thought”, February 2021. Available at: https://www.seas.harvard.edu/news/2021/02/deaths-fossil-fuel-emissions-higher-previously-thought
  4. UN, “Soil pollution a risk to our health and food security”, December 2020. Available at: https://www.unep.org/news-and-stories/story/soil-pollution-risk-our-health-and-food-security
  5. WHO, “1 in 3 people globally do not have access to safe drinking water – UNICEF, WHO”, June 2019. Available at: https://www.who.int/news/item/18-06-2019-1-in-3-people-globally-do-not-have-access-to-safe-drinking-water-unicef-who
  6. IBID
  7. OECD, “OECD work in support of a sustainable ocean”, June 2020. Available at: https://www.oecd.org/ocean/OECD-work-in-support-of-a-sustainable-ocean.pdf
  8. European Commission, “WWF Living Planet Report 2020 reveals 68% drop in wildlife populations”, 2020. Available at: https://ec.europa.eu/jrc/en/science-update/wwf-living-planet-report-2020-reveals-68-drop-wildlife-populations
  9. SCA, “Delivering biodiversity conservation”, March 2021. Available at: https://www.sca.com/globalassets/sca/hallbarhet/2021/delivering-biodiversity-conservation-v2021-03-16_en_rev.pdf
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