Ingrid Kukuljan, Head of Impact & Sustainable Investing, Federated Hermes Limited.
Background
Ingrid is the Head of Impact and Sustainable Investing at Federated Hermes Limited and has 25 years’ experience, spanning asset management as well as Capital and Private Markets. She joined Federated Hermes from PDM Capital where she was a principal and previously spent a decade at Jupiter Asset Management as Fund Management Director where she co-managed the Global Managed Fund and the flagship EMEA fund. She started her career at Lazard & Co as a European equities analyst. Ingrid was included in Citywire’s first ever global compilation of the 1,000 top fund managers in the world. Ingrid is a Non-Executive Director of Fair4All Finance, founded with UK dormant asset money to create positive impact by promoting financial inclusion in UK. Ingrid holds a degree in Italian and Business Studies from University College London and is fluent in four languages.
To provide insights into biodiversity and why it is important for business and investors, Tim Langdon, publisher of Eco Voice, had the pleasure of facilitating a Q & A with Ingrid Kukuljan, Head of Impact & Sustainable Investing, Federated Hermes Limited.
Q1. What does biodiversity mean in terms of business and investors?
Australian businesses, and by extension investors, have a high dependency on biodiversity and natural capital. Australia is home to over 10% of the world’s biodiversity but it also ranks second, globally, for biodiversity loss and has posted the highest decline among developed nations. Globally, more than one million plants, animals and other living things face extinction because of our impact on the world’s ecosystems.
There are five main drivers of biodiversity loss, including change in land and sea use, direct exploitation of organisms, invasive alien species, climate change, and pollution. Without action, this biodiversity loss is set to cost the global economy $2.7 trillion USD by 2030.
As responsible investors, we believe the best way to address this rising challenge is to identify biodiversity champions, that is, companies around the world that are best placed to mitigate biodiversity decline.
Q2. Why is biodiversity important for business and investors?
To put it simply, we depend on nature for everything – air, water, food, and our livelihoods. Every business has a certain degree of dependence on nature and biodiversity loss poses one of the biggest systemic risks to our planet. Research further suggests over 50% of global GDP is highly or moderately dependent on nature, and a failure to reverse biodiversity decline could result in collapsing food systems, loss of livelihoods, and pose a systemic risk to the global economy.
So, investors should care about biodiversity from a fiduciary point of view and ensure they analyse impact and dependencies on nature to prevent owning sub-optimal business models or even stranded assets.
Furthermore, protecting and restoring our ecosystems is considered to be the second most effective solution to climate change after switching from fossil fuels. It is estimated that almost 40% of climate mitigation and adaptation has to come from nature-based solutions.
While companies and investors have largely ignored this problem thus far, the financial industry can play a key role through capital allocation and stewardship as we face a global biodiversity funding gap of close to 1 trillion dollars per annum.
Q3. Federated Hermes looks to invest in ‘Biodiversity Champions’. How do you identify these leaders?
To be included as a biodiversity champion in our strategy we look for two key performance indicators. Firstly, the company needs to map to at least one of the UN Sustainable Development Goals (SDGs), as 80% of these goals depend on biodiversity. If we fail to address biodiversity loss, we are unlikely to reach our 2030 targets.
Secondly, and crucially, the company must help restore, reverse loss of, or preserve biodiversity. At Federated Hermes, we invest in companies that provide products and services which have the highest positive impact on preventing loss of or restoring biodiversity.
Biodiversity loss very rarely occurs as a single, self-contained instance. That’s why our biodiversity champions are often companies that have the potential or ability to prevent biodiversity loss across multiple habitats – whether on land or in water – in multiple geographies. For example, one of our investments is a manufacturer of home decking made of 95% recycled and reclaimed polyethylene, displacing the use of timber and plastic and preventing land and ocean pollution as well as deforestation.
Q4. What are the benefits and risks of investing in businesses that support biodiversity?
Biodiversity and nature-based strategies present a compelling investment opportunity. Currently, valuations for biodiversity champions are extremely attractive, and the green dividend is yet to be fully realised. Over the long-term, a valuation premium will arise for ‘biodiversity champions’ and investing early will generate long-term performance for investors. The time for action is now.
At Federated Hermes, we deliver ‘growth at a reasonable price’. We look for companies with attractive returns versus cost, cash flow yield, a track record of organic growth, and sustainable or improving profitability. We also actively manage risks, such as liquidity, stock correlation, and keep thematic exposure to a maximum of 25% of the overall strategy, which improves diversification.
Q5. How do you avoid greenwashing and ensure you are working with true ‘Biodiversity Champions’?
To invest in transition, the investable universe for biodiversity encompasses every company, as every organisation needs to transition to a biodiversity-positive business model or at least reduce negative impacts. However, this grand-scale opportunity can create real greenwashing risks.
There are many instances where biodiversity is only a part of a more complex narrative and that’s why it’s key to have full traceability and accountability on company activities. As active investors, with expertise in biodiversity and nature-based strategies, Federated Hermes has invested heavily in research, data, and proprietary tools to avoid greenwashing. For example, our Biodiversity Impacts Database provides insight into areas such as carbon emissions, waste generated, and water usage – both for individual companies and across our portfolio. It’s also where can understand clean energy usage, recycling levels, and how much land has been protected from change of use or encroachment of human activity. It’s a really granular tool and is a differentiator when we look to understand how our portfolio companies are performing from a biodiversity point of view.
Developing robust, proprietary tools means we only invest in stocks where we can demonstrate that a company helps to restore, reverse loss of, or preserve biodiversity – true corporate biodiversity champions.
Q6. How can publications, such as Eco Voice, play their part in promoting ‘Biodiversity Champions’?
When we look at the impact of biodiversity loss it’s clear we’ve reached a tipping point. Human activity has severely altered 75% of the planet’s land surface and 66% of the marine environment. Average species population sizes fell by 68% between 1970 and 2016.
Platforms, like Eco Voice, play an important role in raising awareness about the risks of biodiversity loss and the incredible opportunity for corporates and governments who invest in change. Australia has an unrivalled opportunity to be global agents of change and true biodiversity champions. Education and trusted content will be key to enabling this movement.
ABOUT ECO VOICE
First published in 2003, Eco Voice is your go-to publication for sustainability news in Australia. Eco Voice prides itself as an independent news platform with a clear focus on sustainability, with articles coming from a diverse range of contributors – all levels of government, corporations, not-for-profits, community groups, small to medium sized businesses, universities, research organisations, together with input from international sources. Eco Voice values community, conservation and commerce. Eco Voice is a media partner of the prestigious Australian Banksia Sustainability Awards – The Peak Sustainability Awards.
ABOUT FEDERATED HERMES
Federated Hermes is a global leader in active, responsible investment management, with $757.6 billion in assets under management as of Dec. 31, 2023. It delivers solutions that help investors target a broad range of outcomes and provides equity, fixed income, alternative/private markets, multi-asset and liquidity management strategies to more than 10,000 institutions and intermediaries worldwide. Federated Hermes’ clients include corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Headquartered in Pittsburgh, Federated Hermes has more than 2,000 employees in London, New York, Boston and offices worldwide.
https://www.hermes-investment.com/
