Nature is increasingly factored in investment decisions. An emerging realm in relation to natural resources is biodiversity. To wrap up Autumn Term, LSESU Green Finance “The GreenHouse” is back with our final podcast episode for the term. In this episode, we invited Sumati Semavoine-Jain, who works in sustainability research at BNP Paribas. As the go-to analyst for biodiversity and freshwater in Markets360, join us in this episode to explore investment trends and current issues in the biodiversity space!
Follow us on Instagram @lsesugreenfinance for updates on our podcast and view the transcript of the episode here: https://www.lsesugreenfinance.com/podcast! For further enquiries, please contact us at greenfinance@lsesu.org
Listen to the episode here and see the transcript below!
Kareena
Hello everyone and welcome back to season 2 of The Greenhouse! We are Kareena and Chloe and we will be your host for today's episode.
Chloe
Today we’ve brought on a guest from BNP Paribas who is well-versed in sustainability research as an analyst who frequently covers global ESG themes such as biodiversity and freshwater through a macro and cross-asset lens. Hello Sumati! Could you give a short introduction of yourself including your background and your career in sustainable finance? Maybe, describe a typical day as a sustainability research analyst?
Sumati
Well, thank you very much. It's a real pleasure to be back at the LSE. I'm Sumati and I'm a sustainability research analyst at BNP Paribas and a lot of my work has focused on biodiversity and water teams on my background.
So I graduated from the LSE in 2018 with the Bachelor in Economics and Politics, and I joined the BNP Paribas Graduate program straight after finishing my studies in their research stream and the research division is called Markets 360 and it includes economists and market strategists specialised across different regions of the world and asset classes. And with that, so I did 3 rotations over one year and benefited from a lot of training and exposure across a wide range of specializations, and that led me to, after the program, joining Markets 360 full time and I worked three years in the rate strategy team specialised on European government bond strategy, and during that time I got the chance to work extensively on sustainable bonds.
So these are bonds where the proceeds are dedicated to environmental or social projects exclusively and now actually they occupy quite a good share of the bond market and that allowed me to work on joint reports with the sustainability research team, which I'm now part of.
I found our joint work so interesting that I decided to join their team full time.
They weren't covering biodiversity teams then, and so I kind of saw an opportunity to flag my interest and that's how we got to write our first report on the topic and we got a lot of traction since then and I'd say really the biggest enabling factor was the amazing support I got from the management level to explore and really pursue those newer topics and make it an area of expertise. And this sustainability team I'm part of has since expanded further and we're really looking at sustainability from a global and cross asset perspective.
Now your question as well was what does a typical day look like? Well, we usually start our day is quite early with catching up with news and articles and emails.
And as we have a global mandate, we need to keep on top of developments across the world. Then it's a bit of a cliche to say, but every day is really different. But the common structure to our days is the research and analysis we conduct in the teams we cover, and our output is the papers we write that vary in length from long, deep dives, we call them to market strategy pieces, how to, for example, invest in biodiversity areas. And once we've published a paper, we'll speak to our client base, so investors such as insurers, pension funds, asset managers, and then we can be invited to conferences, webinars or really LSE podcasts.
Kareena
Thank you so much for that Sumati. And I'm sure that's an incredible array of experiences that you have with the firm, BNP Paribas. So maybe delving a little bit more into your specialization as the go to analyst for biodiversity. Could you give us a brief introduction to one of the challenges you see with biodiversity loss?
Sumati
Yeah, sure. So, just a reminder, biodiversity relates to the four major realms of land, ocean, freshwater and atmosphere. And it really kind of refers to the variability and interactions of old parts within ecosystems. And the natural elements that compose those ecosystems can essentially be seen as assets i.e.: natural assets. And this is because nature provides essential regulating provisioning and cultural services. For example, nature provides us with food and medicine, helps control the spread of diseases, helps regulate our climate, protects our shorelines and supports our well-being and more. But this stock of natural assets is not priced nor quantified in our traditional measures of wealth. So GDP or accounting frameworks, yet 50% of our global GDP is said to depend on biodiversity. So big discrepancy. And an assumption that nature is abundant has caused market failures and fast depletion. In fact, ecosystem services are non substitutable. And scientists have been ringing the alarm bell for a number of years. So, tackling biodiversity loss is an essential piece of the clean transition, but often neglected, due to the assumption that it has no clear commercial angle. In reality, nature based solutions could contribute to a third of the cuts in greenhouse gas emissions needed to meet the Paris agreements aims. And they prove essential to also protect us from rising physical climate risk and can come to complement some of our great infrastructure as well.
Chloe
Yeah, I think that’s extremely true. I think its nature is really important. And as you mentioned, it makes up so much part of our lives, like it provides food, medicine and controls the spread of diseases. I think that's really, really interesting. We would like to ask also, why do you think maybe biodiversity is emerging as a new focus area for investors? Like maybe what are the key current trends in the realm of biodiversity investing?
Sumati
Yeah, sure. So here, I see that the goal is really to shift from a purely extractive perception of nature to that of regeneration, and give value to all the cool benefits that a healthy ecosystem provides. So there was a good momentum, I'd say, in the past two years on the investor side, and on the finance side. And let me mention a few drivers.
The first one is a narrative change, we went from a species count perspective, which can perhaps be slow and difficult to track to looking at the wider function of ecosystems, which can be modelled and impacted much faster. So as I mentioned before, nature plays a number of essential roles for us. And there are frameworks as well that help like such as the planetary boundaries, the Sustainable Development Goals framework, the ecosystem services, kind of accounting frameworks. And these have all helped frame the issue at hand, there is not just saying that, we need to stay within our carbon budget at all cost that matters. But because we can't do it at the expense of nature, and a well functioning kind of water cycle, for example. So this brought up the number of new areas to focus on such as land use, freshwater use, chemical use, etc. And I'd say that with this shift in narrative, biodiversity investing, widening scope from just restoration and preservation projects to also sustainable supply chain. So light will shed on some of the widespread dependencies that corporates have on nature, and now increasingly perceived as having, you know, a financial kind of materiality, financial impact. And some of these interdependencies are indirect, such as through the supply chain. So to give you an example, apparel companies, they might rely on cotton farming, leathers, a byproduct of meat production, plastics, or other materials. And, you know, a big part of their impact is actually away from their direct kind of operations and throughout the spread throughout the world.
And, you know, moving on what also has contributed to that momentum is that we've also gone from, you know, beyond just risk mitigation, but also investors are looking for more positive impact. Investors are getting more sophisticated and turning to thematic investing. And even within biodiversity, there's a number of sub themes. Water is quite a popular one at the moment, too. And just to finish here, I think, you know, biodiversity also is an investable topic, and it's still early stage, but with scope to grow massively. And in my team, where we look for companies that are aligned with sustainability topics, and in our biodiversity focus work. We look for kind of providers of solutions, innovators across a number of areas, such as sustainable agriculture, waste management, and more. And in agriculture, just to give you a bit of ideas of some of these specific activities we look for it could be like, you know, companies that developed bi-fertilizers or that developed tech around precision farming or have developed enzymes for food preservation nutrition enhancement solutions so much for plant based food. So, so many others.
Kareena
I definitely agree with that. And it's I think it's just incredibly great to hear that there is so much scope and possibilities for growth in terms of biodiversity in terms of the examples that you brought up, like sustainable agriculture and biofertilizers. But because I think biodiversity is still very much, you know, and it's sort of early stage, do you think there is a present funding gap in biodiversity? And could you tell us more about that?
Sumati
Absolutely. So when we look at the balance between nature, negative expenditures, and kind of positive ones, it's not it shows, you know, an imbalance. So they far outweigh some of the investments that we see in nature based solutions. And dedicated finance for biodiversity is running today at about only a third of the level needed. And most of it is public sector led, actually, you know, the private sector is absolutely key to scale nature based solutions funding. Another challenge we see is the difference between risk in risk exposures between developed countries and developing countries, because most of the planet's remaining biodiversity hotspots are actually in developing countries. And you know, these same countries face higher overall risks of natural catastrophes, then developed countries, and they tend to have a higher share of GDP generated by nature dependent sectors, such as agriculture, forestry, and fishing, and also trade balances that rely on the commodities they supply to the rest of the world. So, you know, while developed countries might appear less vulnerable in terms of physical risk, they have far, far higher ecological footprint than developing countries, once we take into account their imports, and kind of the raw materials that they import. So we also need to find those kinds of mechanisms to flow finance to the right spots. You know, so paradoxically, you know, the highest levels of conservation funds actually go to Europe. So at some levels of emerging markets, some kind of financial support commitments were made over the past two years, but follow through an actual implementation is now needed.
Chloe
Yeah, I think that's really interesting, like with the fact that a lot of the funding is going towards Europe, as you mentioned, instead of maybe the other developing countries with those biodiversity hotspots. So the Kooning, Montreal global biodiversity framework has been signed by 180 countries in 2022. How do you think it is looking to address some of these challenges?
Sumati
Yeah, sure. Maybe just for the benefit of our audience, you're referring to the global framework that agrees with COP 15, which is the UN summit on biodiversity. And, yes, it's definitely helped set some common goals, to become nature positive. And it set the agenda for the coming decade across a number of relevant areas of biodiversity. Now, the previous framework we had on biodiversity is when the previous decade had not been too successful to generate action and change when most of the 2020 targets missed. But as a change this time, COP 15 drew substantial interest from the private sector. And in particular, I think good progress was made as well on recognizing the existing large investment gap that we've just discussed, the role of emerging markets and promoting a circular economy. So really, we’re changing the way business models are kind of made. But the real test starts now will countries rise to the challenge and make the necessary policy changes in time. So that's the real question. On the investment gap, the framework calls for repurposing at least $500 billion annually of harmful subsidies by 2030. So that's what I meant earlier by some of the nature negative expenditures mentioned before. That's equivalent to two thirds of the investment gap actually. And, you know, so those harmful subsidies can be those that kind of push for intensive agriculture or monoculture or things like that. And it's really an essential starting point, key to fulfilling other targets as well. And governments are encouraged to identify those by 2025, but I should say only by 2025. Because that leaves only just a few years for implementation thereafter, you know, amending incentives or subsidy schemes or taxes, it takes a lot of time and requires very strong political will, because we will be met by challenges. And but on the other side, you know, you have more market driven pressures, such as investors that are starting to exert pressures on nature intensive industries, and we've seen that scale. And, growing, it appeals, it refers back to that growing momentum that we discussed at the start as well. And just finally, on that there was also a common agreement that emerging markets should receive a greater flow of funds, but no Common Fund was created just yet. So let's see, you know, what comes out at COP 28 next week.
Kareena
I definitely agree that you're looking forward to COP 28 next week, as well, in terms of the timing, it will definitely be a very momentous set of time for us when it comes to looking at developments in biodiversity as well. So maybe moving the discussion a little bit. You moderated a panel at the London Biodiversity Sustainable Futures Forum 2023 on biodiversity data. How can we leverage such data and similar technology to tackle biodiversity loss?
Sumati
Yeah, sure. So what's the challenge here, biodiversity is not tied to one single metric the way carbon is, and it's not stackable in the same way, if my supplier emits this, then this is my wider scope. You know, that's kind of the idea in the carbon space. But, you know, can't really replicate that in biodiversity because: 1. Nature needs to be monitored through a range of different indicators, and 2. the interpretation of the data should be done within the context of the local area. So hence, this raises the need to have very powerful data tools and analytics. And that's where it gets really exciting. It's a growing area, we see innovation from geospatial data to environmental DNA. Let me just give you a quick example there on the environmental DNA, called eDNA basically. So you can, it can tell from the sample a small sample of water from a river, a number of key aspects to determine the health of the ecosystem. And it can trace back to some of the species that are present in this river. So it is much less intrusive, time intensive and labor intensive as other techniques. And this technique actually can prove key to oceans where geospatial data might find it difficult to identify detailed patterns and shapes. And that's exactly what we discussed at that panel where I was surrounded by some of the brains, you know, in that field from geospatial to eDNA. And, you know, and then it's about collating and summarizing the data from all these different locations and setting action plans for the company or the institution overall. And, you know, building the data infrastructure essentially will undergo an acceleration with a voluntary disclosure framework launched by the Task force for Nature related FInancial Disclosures, so the TNFD, which has been developed over two years period with regular consultation process, it will definitely help corporates kind of set targets on biodiversity that are deemed scientifically robust and kind of referring to the entire business. So that's a key kind of milestone in the biodiversity area, I'd say.
Chloe
Yeah, I also like the idea of eDNA, I think it's really interesting. And as you mentioned, it uses water. And a lot of the work you've done previously, also has to do with water. So I would also like to ask, Why do you think maybe water is an important area to cover?
Sumati
Yeah, sure. And just to rebound on what you just said, Yeah, eDNA can definitely be applied to water but can be applied to all kinds of aspects of nature. But yes, on your question, there's a famous quote here, that's quite helpful. ‘It says that if climate change was a shark, water would be its teeth.’ So you know, disruptions to the hydrological cycle are making a number of headlines from drought increasing 30% in duration since the 2000s. Floods making severe economic losses throughout the world and rising water pollution. But how did we get there? Well, okay, I might throw at you a lot of stats, but please cut me off if its too much.
So the volume of water withdrawals has grown twice as fast as the global population that was largely driven by agriculture with irrigation and meat production rising threefold. So alongside the crops that are dedicated to animal feeds, for example, but also rising living standards and inefficiencies in the water cycle, in fact, only 3% of the water that we extract is used to produce drinking water. So now the WWF finds that by 2025, two thirds of the global population will experience water stress. So it's very much today's problem.
Whilst all regions of the world are concerned in one way or the other, not all countries will be able to respond in the same way, the economic, social and political situation would be a large determinant of a country's vulnerability. And in particular, agriculture is in the frontline, and for economies highly dependent on that sector, it might severely impact macro numbers. And to address this, the first step is really better monitoring and data. Right now, you know, in countries around the world, they first of all, it's not all countries that monitor water level, but it's only a few, just a few that actually collect data on water quality, or soil moisture. So and a big part of that declining water quality is due to excessive fertilizer and pesticides use, you know, and actually, the UN FAO, has found that three times the safe level of nitrogen is added to fields every day, every year sorry. But also from you know, that water, the water quality decline can also be come from a number of other areas, which is the use of fossil fuels, you find contaminants as well in products all around the house of detergents, mismanagement of stormwater, so with a running off to hard surfaces carrying pollutants into back into waterways. And, you know, now that really calls for prioritization from policymakers. One example is the lack of appropriate infrastructure to manage water resources and track a monitor, you know, an example is in Asia, while they face large risks linked to water, only 29% of domestic wastewater flows are actually safely treated before discarded. You know, and there's the need to monitor better: set the right kind of KPIs and have the reporting mechanisms for water. So there's a lot of work that can be done here. And that's why it's such an interesting yet super important topic to focus on.
Kareena
I definitely agree with that, especially when you mentioned about how, you know, by 2025, two thirds of the population would experience water stress. And so there's definitely a lot of needs when it comes to reporting mechanisms. So maybe could you tell us a little bit more about some innovations that are happening in the space of water right now that you know, are starting to tackle these challenges?
Sumati
Yes, absolutely. So the challenge is really about improving the way we track and optimize water flow throughout the water cycle. So the way we look at it is that we try to look for innovating activities across the entire water cycle, from sourcing and pipework to distribution and storage solutions for industries, cities, utilities, households, and to recycling and water use. And to give you some more in depth examples, you know, this can be water management equipment, such as meters, control gates, and connected, you know, all connected through tech and software's. It could be water purification equipment, smart irrigation techniques, water testing, biobased, alternative to water chemicals, and so many others.
Chloe
Yeah, I think it's really important to note that water management really needs to pass a lot of framework and such. But we've talked a lot about, you know, biodiversity and aspects about water, maybe could you make clear of the links between biodiversity, water and climate for us?
Sumati
Yeah, good question. So the answer is really survival, health and all that is essential to life and coexisting on earth. Let me give you an example. So I really liked this new concept of green versus blue water. The planetary boundaries is very interesting because green water basically refers to the moisture held in plants, which is essential but for returning in the form of rain and clouds, and thus safeguarding the hydrological cycle. But because of the rate of deforestation, global warming, biodiversity loss, we are no longer in the safe zone. It does, it brings us into a vicious cycle if we don't act. And this is an example of why we tend to say that investing in nature is investing in water essentially. And I'd say that managing climate goals alongside biodiversity and water goals require coordination between scientists, politicians, economic agents on land management, and all these synergies, besides investing in nature can often provide other co-benefits, such as social benefits around food security, and employment, for example. So there are so many ways to tie the links between all of them. And really, it calls for some kind of joint action and coordination as I just said.
Kareena
Definitely agree with that. I think that, you know, that sort of classification of green and blue water is definitely incredibly interesting. And so maybe bringing it back to, you know, on a more personal level, based on your personal experience, what advice would you maybe give students who are looking to, you know, pursue a career in sustainability research? What sort of skills do you think are needed for a job? Or what sort of competencies are needed for a job in this field?
Sumati
Yeah, so sustainability is a very wide field. And there are plenty of opportunities depending on your skill set. Research specifically requires quite well rounded skills, I would say, we need to be analytical while comfortable with presenting and public speaking, but also writing. And this also includes knowing how to handle data effectively, having a high attention to details, ability to work independently, and also finding new angles to topics and problem solving as well. So they're all essential. In our team, we have quite varied backgrounds. As I said before, I did four years between the grad program and my first team as a rate strategist, in non sustainability roles. And this helped me to build kind of a strong finance foundation. And on the side of always kind of been deeply interested in sustainability and involved in one way or the other. But as you can see, my transition happened quite organically, and, but it was also me being quite bold and making it happen for me. So really, overall, I'd say, don't stress too much about, you know, having to gather some of the skills that you think are, you know, essential for your CV, I think, you know, everything will help you, essentially, and then it's up to how you see the opportunities. And, you know, it requires you to be quite bold, and most of all, be curious. You know, try to find the niche that might interest you. Because I think there's scope for everyone to embed a bit of sustainability in their day job. Because that's really the future as well. I know, I'm sounding very kind of boring when I say that, but I think that's very much true. So yeah, just try to embed it in your role and then naturally, you know, you'll be able to develop the skills and get more and more and more into it.
Chloe
Well, thank you so much Sumati. I think for a lot of our listeners who are students, we are still trying to kind of figure out what and decide what to do. So hearing that, you know, your process was very natural. I'm like, not as stressed anymore. As you know, things can come about naturally. So, once again, thank you so much Sumati for sharing your work and extensive experience in sustainability research. We really appreciate your time and sharing.
Sumati
No, it was my pleasure. Thank you for having me.
Chloe
Unfortunately, fortunately, we have come to the end of this episode, but I hope everyone has learned a bit more about sustainability research. This has been Chloe and Kareena from The GreenHouse and we hope you visit again!
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