In focus

Investing in nature: a Q&A with our Global Head of Sustainable Investment

Ashleigh Cowie: There's a real issue with measuring the impact of nature. Are you finding any solutions in this space when it comes to individual companies?

Andy Howard: There's certainly the case that it's improving very quickly. If I go back just a few years, nature and biodiversity were something that we could talk about in broad terms. But, frankly, measuring them or quantifying them for individual companies or individual investments was pretty much impossible. That's changed really quickly.

So we've had initiatives like TNFD, Global Canopy, CDP, which are initiatives that have been set up to really try and coordinate the information that companies provide, and therefore the materials that we as investors have to better understand companies and to better understand investments.

So it's changed very quickly in terms of the disclosure by companies. We're also seeing much more focus across our whole industry on how we use that information to make better assessments and better judgments about companies.

There are no singular answers. There's still an awful lot more work to do. And one of the areas that we've been very focused on at Schroders is how do we build the scorecards? How do we build the measurement systems that give us a better understanding of which companies are more exposed to nature risks and biodiversity risks, and which companies are managing those risks more effectively in order that we can have a clearer view of where those risks are biggest and therefore where we should be focusing our attention when we're engaging with those companies.

AC: You mentioned a couple of initiatives there. I wondered if you could give us a bit more information. What are they? What are that focuses?

AH: Absolutely. Well, so if you go back and look over the last 10, 15 years there's been a huge focus on climate change. So you've had initiatives like CDP, which was previously the Carbon Disclosure Project, the Task Force for Climate Related Financial Disclosures, all of which have really been about trying to do to drive more disclosure and more consistent disclosure by companies around climate change.

Over the last few years that focus has broadened and necessarily broadened to include other areas of nature and other areas of biodiversity. So for example, there's a CDP forest initiative very similar to their climate one. TNFD is the Task Force for Nature-related Financial Disclosures. And those are initiatives that are creating similar kinds of structure,

similar kinds of information, consistent or consistency of information for companies around nature-related or biodiversity-related disclosures.

AC: And then as more people get involved in this topic and more stakeholders are involved, there is the issue of greenwashing. So where do you stand on this? How do we avoid greenwashing?

AH: The antidote to greenwashing really is transparency and honesty. We have to be clear that the information that we have today and the analysis that we can apply is not perfect. There is an awful lot more to do.

When we're talking to our clients, when companies are reporting information, it's critical that we recognise and that we're very clear that the measures that we're able to apply today are imperfect they only tell part of the picture and that we will continue focusing on how do we make that analysis better, how do we make that more complete over time?

But it's critical, I think, that we don't let a lack of perfect information stop us from taking action.

AC: So we can hear that you're passionate about this. But for people watching at home but can you tell us why you think it's important that people invest in nature?

AH: Well, I think there's two elements to this. I think the first thing I'd say is we are all exposed to nature. You don't really have a choice about whether the investments that you have are exposed to nature or not.

The reality is that companies, economies, industries over several decades and indeed longer have been built up and have grown through an unsustainable use of natural resources and natural capital.

And the cracks in that model, in a model that relies on depleting nature's capital, are becoming much clearer. And we're seeing a response to that from governments, from societies.

That's putting real pressure on those companies whose business models and whose growth has relied on using finite natural capital. So we're all exposed.

The only real question is, do we recognise that exposure? Are we trying to measure it? And are we taking steps to manage it?

And really, that's our focus. So to my mind, actually, the question isn't so much should we be exposed or should we think about our exposure to or choose to be exposed to nature? The reality is we are all exposed to nature.

The only question is have we realised that and are we taking steps to manage that?

There is a second part to this, which is how can we as investors start allocating and investing in the solutions to nature's challenges? How can we actually look at investing into initiatives that will help regenerate forestry, will help regenerate nature in different parts of the world? And there's a whole area of our industry that I think will have to become much more important in the future, that is helping to channel capital into the solutions to many of those problems.

That will help not only help limit the loss or limit the flow, but will also help us to rebuild, in some cases, nature that has been lost in the past.