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Planetary Boundaries: how we use this framework to invest with impact

We probably have some ideas by now what climate change is, and how high its stakes are. But lesser known, yet equally dire the situation, is biodiversity loss.  The documentary “Breaking Boundaries: The Science of Our Planet” released last year and narrated by Sir David Attenborough highlights the alarming loss of biodiversity throughout the world as human activities encroach on environmental boundaries. Crossing these thresholds will bring severe consequences on our economies and societies.

Addressing the issue of biodiversity is complex. When investing for impact in biodiversity, it’s important to think about our ecological system as a whole and understand how the different environmental systems interact. As highlighted in the Intergovernmental Science- Policy Platform on Biodiversity and Ecosystem Services (IPBES) report, biodiversity loss is impacted by many environmental issues that act as drivers – climate change, land-use change (e.g. deforestation), intensive agriculture (e.g. pesticides), chemical pollution, etc. To have a positive impact on biodiversity, effectively one needs to reduce the drivers of biodiversity loss.

Planetary Boundaries acts as a framework for addressing biodiversity

Developed by a team of global universities and scientists led by the Stockholm Resilience Centre (SRC), Planetary Boundaries identifies the nine most critical environmental dimensions – including carbon emissions (climate change), fresh water, land use and biodiversity – that are essential to maintain a stable biosphere required for human development and prosperity. It then demarcates the “safe operating space” within which human activities should take place. This scientific framework shares many of the same environmental dimensions as the IPBES report.

Biodiversity is also one of the Planetary Boundaries environmental dimensions, how do they all relate to each other? While being one of the nine dimensions, biodiversity is basically influenced by all the other environmental dimensions. Simply speaking, the more into the orange zone we get on other dimensions, the greater the compounding negative effects this will have on Biodiversity.

How we apply the Planetary Boundaries framework to protect biodiversity?

Backing one of the world’s largest thematic franchises, Pictet Asset Management is one of the first asset managers to use the Planetary Boundaries framework as part of our investment process.

Specifically, we quantify the environmental impact for every USD1 million of annual revenue businesses generate. If a company’s activities lie within the safe levels for each of the nine dimensions over the whole of the product value chain, then the firm, and potentially its stocks and bonds, can be viewed as being environmentally sustainable; if not, then the business is likely to be speeding up global environmental degradation. We use the Planetary Boundaries to screen out parts of the economy or industries which are causing the large drivers of biodiversity loss.

At the same time, we invest in companies that commercialize products or services that reduce the stresses or pressure on these environmental dimensions (i.e. positive impact).

Biodiversity loss is becoming an increasingly prominent issue on the national and international policy agendas. We have a lot more to worry about in addition to climate change, especially as we start to better understand the complexities and interconnected nature of the environmental systems we depend on, and how they influence one another. Therefore, understanding these issues in a holistic manner is a key part of what we do at Pictet Asset Management when it comes to environmental themes.

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