The Birds and Bees of Portfolio Management - Biodiversity Part Two

Natural Resource Exploitation: Almonds and Bees – A Case Study

The almond industry provides an example of how intensive natural resource exploitation can lead to unintended economic and environmental consequences. California, responsible for up to 80% of the world's almond production, relies heavily on bee pollination. The state's almond groves require about 1.8 million bee colonies annually, making it the largest managed pollination event in the world.

However, bee populations are in decline, attributed at large to the exploitation of their natural habitats, leading to increased costs for almond growers as they pay premiums for bee rental. This situation underscores the interconnectedness of natural systems and the need for sustainable practices that ensure the long-term viability of both agriculture and pollinator populations.

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Pollution: A Silent Killer

Pollution is the leading environmental cause of disease and premature death in the world today. Recent studies highlight the massive impact of air, water, and soil pollution:

• Air Pollution: According to the World Health Organisation (WHO), air pollution is responsible for an estimated 7 million premature deaths yearly worldwide, making it the most significant environmental health risk. Fine particulate matter in polluted air contributes to heart disease, stroke, lung cancer, and respiratory infections.
• Water Pollution: Excessive nitrogen use, for example, leads to nutrient runoff, eutrophication of water bodies, and significant ecological imbalances. In coastal areas, this runoff can devastate marine ecosystems, contributing to dead zones where aquatic life cannot survive. Investors should be wary of the long-term risks associated with companies and sectors reliant on high levels of chemical inputs, as regulatory pressures and remediation costs are likely to increase.
• Soil Pollution: Contaminated soil affects food safety and security, with pollutants being absorbed by crops and entering the food chain. This can lead to a host of health issues, including cancer, kidney failure, and skeletal system damage. The United Nations Environment Programme (UNEP) estimates that soil pollution poses a risk to 3.2 billion people.

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Invasive Alien Species: The Zebra Mussel Invasion

Invasive alien species, such as the zebra mussel in North America, showcase the ecological and economic impacts of species translocation. Zebra mussels, originally from Russia, were first detected in the Great Lakes in 1988 and have since spread to various water bodies, causing significant damage to local ecosystems and infrastructure. Their presence has led to increased maintenance costs for power plants and municipal water facilities, congressional researchers have estimated that the zebra mussel has cost businesses and communities over $5 billion since their initial invasion. Zebra mussels have cost power companies alone over $3 billion.

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So, What Does This Mean for My Investments?

The challenges posed by natural resource exploitation, pollution, and invasive alien species are profound, yet offer pathways for innovation and progress. By strategically supporting companies and initiatives that proactively address these issues, investors not only contribute to a more sustainable and resilient global economy but also position their portfolios to benefit from the transition towards sustainability. Some examples may include:

Natural Resource Exploitation

• Risk Mitigation: Investing in companies that employ sustainable resource management practices can significantly reduce the risk of regulatory penalties and supply chain disruptions. For instance, water-efficient irrigation systems in agriculture can ensure long-term water availability, securing the agricultural supply chain against future water scarcity.
• Market Opportunities: Companies developing sustainable alternatives to traditional resource-intensive processes are capturing emerging market opportunities. For example, materials science companies creating sustainable packaging solutions offer investors exposure to growing demand in circular economy markets.

Pollution

• Regulatory Compliance and Cost Savings: Businesses leading in pollution control and waste management are better positioned to comply with tightening environmental regulations, potentially avoiding fines and reducing operational costs through efficient resource use.
• Health and Wellness Sector Growth: Investment in companies focusing on reducing air and water pollution taps into the growing market for health and wellness, as cleaner environments contribute to better public health outcomes and reduce healthcare costs.

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Invasive Alien Species

• Protecting Economic Value: By supporting sectors working on biosecurity measures and habitat restoration, investors can play a role in protecting industries that are vulnerable to the impacts of invasive species, such as agriculture, forestry, and fisheries, thereby preserving economic value and ensuring stability in these critical sectors.
• Innovation and Technology: Companies specializing in biological control methods and habitat restoration technologies are at the forefront of addressing the challenges posed by invasive species. Investing in these innovators opens doors to unique market opportunities in ecological management and conservation services.

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Conclusion

Strategic investment holds the key to a sustainable future. Grasping the nuances of how natural resource exploitation, pollution, and invasive alien species impact both the environment and the economy enables investors to align their portfolios with sustainability and conservation principles effectively.

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