Nature Action 100 tackles investment risks of natural capital depletion.
The critical importance of nature to the world economy is finally being recognized. In fact, it’s now understood to be so fundamental, the phrase “natural capital” has been introduced to the investment industry lexicon to give it the relevance it deserves.
“With more than half of the world’s GDP reliant on nature and its services, depleting natural capital creates significant operational, regulatory, litigation, and reputational risk for investors and businesses alike, and negative economic repercussions globally. Hundreds of billions of global crop outputs are at risk annually from pollinator loss, posing operational risk for companies sourcing agricultural commodities. According to some estimates, tens of billions of dollars in assets could be at risk of stranding over the next 5 to 10 years if companies continue to produce deforestation-linked commodities.”1
To help manage these risks to our clients’ capital, NEI has joined Nature Action 100, a global engagement initiative with 190 investment firms participating. The initiative was launched in December 2022, and in September this year, the list of 100 companies selected for engagement was announced.2 While NEI has expressed interest in being involved with a handful of the engagements, specifics have yet to be determined.
As of June 30, 2023, NEI’s portfolio held 44 of the names on the list for total portfolio exposure of almost half a billion dollars, or 4.8%. Many of those companies we already engage with, either on the topic of nature or on other key themes such as net zero, human rights, and inequality. Under the main theme of nature, our primary focus area for engagement to date has been deforestation. We’ve spoken with 17 companies on that topic including Lowe’s, Kraft Heinz, Home Depot, Walmart, Kellogg’s, and Unilever, all through collaborative engagements as part of the Finance Sector Deforestation Action. Those companies are also on the Nature Action 100 list.
In our May 2023 article about engaging on biodiversity,3 we explained the objective of our work:
“The objective of our corporate outreach to date has been to establish a baseline for ongoing dialogue with portfolio companies that rely heavily upon, or have a significant impact upon, the natural environment. Among other things, we are asking select companies across a range of sectors how they are assessing their impact, what their dependencies are, and what challenges they are facing. The answers will help us determine which companies are leading and which have a longer way to go.”
We continue to develop a comprehensive framework for assessing investment risks and opportunities tied to the depletion—and protection—of natural capital. With the publication of the recommendations authored by the Taskforce on Nature-related Financial Disclosures in September,4 we now have an industry standard designed to guide this project. We look forward to sharing our framework in the coming months, and to working with our sub-advisors to improve the resilience of our investment portfolio through consideration of nature-related factors.