As we celebrated Earth Day this week, four investors share the environmental themes they're following and how they can be tackled, with the investment case for each alongside it.
Fast fashion: Esme van Herwijnen, responsible investment analyst at EdenTree Investment Management
A linear economy, one where we take materials and make and dispose of products, is no longer viable in a world with a growing population and fast depleting resources. The textile industry is the perfect example of the linear model we currently have. 97% of materials which go into the making of clothes are virgin materials, mostly a plastic and cotton mix. However, after use, 73% of clothes are landfilled or incinerated; this amounts to 500,000 tonnes or 1 billion items of clothing sent to landfill annually.
The industry is responsible for 2.1bn tonnes of waste annually and recycling rates are still very low. This is partly due to consumption patterns since global consumption of clothes doubled between 2000 and 2014. Today, the average person buys 5kg of clothes per year, but in Europe and the US, the figure is as high as 16kg per person per year.
In addition, the number of times a garment is worn continues to decline - by 36% compared to 15 years ago - and fast fashion trends only aggravate this problem. Keeping clothes in use, using renewable and safe materials and reducing fast fashion cycles are some of the options for businesses in the sector, in addition to the need for changing consumption behaviours - i.e. buying fewer clothes.
For investors, there are many opportunities to invest in companies that provide solutions to the waste problem or have adopted a circular approach to their business models. These are likely to benefit from the need to use resources more efficiently and to divert economically valuable waste streams."
Organic farming: Hilde Jenssen, fundamentals equity team product manager at Nordea Asset Management
While the market for healthy food is enormous, the percentage of organic farmland is only inching up and amounts to less than 10% of total farmland in Europe and a meagre 1% in the US. Organic farming is not a matter of simply turning off the chemical sprayers: Farmers must learn to manage soil nutrients without fertilizer and tackle weeds and insects without herbicides and insecticides. It's a steep learning curve.
Organic farming requires different equipment and other up-front investments and it requires more labour, mainly to deal with weeds.
Regulations also require crop rotation, which limits the crops produced in a given year. As a result, organic systems are generally competitive with conventional yields only after a 5-year transition period.
Once implemented, organic techniques are superior compared with conventional farming, as they use an estimated 45% less energy, produce 40% less carbon emissions, and build soil health rather than deplete it. As soil health improves, 15-20% more water percolates through the soil in organic systems, replenishing ground water and boosting performance.
To optimize production and help farmers commercially, big brands are getting involved. PureCircle produces the natural sweetener Stevia - the stevia plant is about 40 times sweeter than sugar, requires less growing space and can be harvested up to four times per year, providing a steadier income for farmers. Another example is Unilever Hindustan, which helps 8,000 Indian farmers optimize growing tomatoes on more than 11,000 acres of land.
Biodiversity: Henry Boucher, partner and deputy CIO at Sarasin & Partners
Perhaps the most significant change on earth over the last 50 years has been the increase in the human population, from 3.6 billion to 7.6 billion people today. This has required us to grow more than double the amount of food and created huge pressures to inhabit areas once the preserve of wild plants and animals. The impact has been massive biodiversity loss, that is to say ecosystem degradation and a collapse in the animal population.
The World Wildlife Fund (WWF)'s Living Planet Index measures the abundance of 3,706 vertebrate species. Its 2016 audit shows that global populations of fish, birds, mammals, amphibians and reptiles declined by 58% between 1970 and 2012 and the decline could reach 67% by 2020. This rate of species loss clearly upsets the balanced ecosystem that has evolved over millions of years and threatens earth's life support system, particularly when considered alongside the degradation of ocean health, forests, fresh water sources and the atmosphere.
The value we gain from a properly functioning ecosystem is taken for granted and the threat is very hard to see. The WWF data is therefore a very important chink of light that allows us to measure the problem. When we do put a value on nature, it is seldom aligned with sustaining biodiversity. We assign a low value to mosquitoes, slugs or red-fanged funnel spiders (a highly endangered species), but a high value to cows, wheat or sugar cane.
Clinically, we can view biodiversity loss as an economic problem containing elements of inefficient pricing and market failures, including insufficient incentives and resource misallocation. But it is a problem of such scale that it must combine educational, political, legal and economic responses.
Plastic pollution: Sawan Kumar, stewardship analyst at Evenlode Investment
Plastic pollution is acting as a key catalyst for society to transition more rapidly towards a circular economy. It is also, increasingly, becoming a focus for many of the companies we analyse and invest in our Global Income Fund. Minimising waste and increasing resource efficiency doesn't just have a positive environmental and social impact, it can help build staff and customer perceptions of a business, whilst also improving productivity and therefore profitability in the medium to long-term.
Unilever, for instance, is becoming a leader in tackling the issue of plastic pollution by finding alternatives to this incredibly versatile material. In April last year, the company became a founding member of the UK Plastic Pact which aims to eliminate unnecessary single-use plastics through re-design, innovation or finding alternative methods to packaging by 2025. Unilever, to further drive the agenda forward, held a plastic hackathon late last year where ten teams worked with leading designers, innovators and packaging experts to come up with a solution to eliminate single-use plastics from one of its products.
As a result of this, the company is investing into a low-cost alternative to single-use laundry sachets which is completely free from plastic. The new product dissolves in water and has a plant-derived coating to protect against humidity in the developed markets.
This is just one of the examples of how companies are tackling the issue. However, there remains much to do, and companies need to continue to work alongside governments and the general public to accelerate this transition away from plastic usage.