‘Focusing solely on reducing CO2 emissions is not enough’

Rize ETF co-founder digs into pollution, water and the loss of natural habitats for solutions to the world's issues

Whether its rising temperatures or sea levels, melting glaciers, thawing permafrost, shifting rainfall patterns or increasingly frequent floods and wildfires, we are experiencing a grim look into our future should we not take bold actions on climate change, now.

Climate change is unfortunately not the only environmental challenge we face though. There are myriad issues resulting from years of natural resources exploitation.

Managing greenhouse gas emissions has become synonymous with “solving” climate change. Because of this, it attracts the most investor attention and shareholder capital. Consequently, many “environmental” funds have become proxies for “carbon avoidance” funds.

Investing in this area is a great way of giving something back to the world while getting exposure to a rapidly growing sustainable economy.

However, environmental challenges extend far beyond climate change and carbon avoidance. Focusing solely on reducing CO2 emissions is not enough.

Here are a few of the areas where we believe investors have the chance to ride the growth of exciting and innovative companies that are tackling the planet’s urgent issues:

Air and soil pollution

Efforts to combat air and soil pollution may have increased in recent years — particularly in developed nations — but both remain major issues.

  • Toxic particles and gases emitted from combustion engines, fossil fuel power plants and industrial facilities are currently responsible for 18% of deaths globally.
  • Currently, the degradation of land and soils is affecting at least 3.2 billion people – 40% of the world’s population.

Today, the number of companies developing technological solutions to address these issues worldwide is growing. In fact, pollution control and circular economy solutions are already multi-billion-dollar industries and are expected to grow even larger over the coming decades.

One name at the vanguard of this long-term growth is Donaldson, a manufacturer of filtration and pollution control systems. Clean Air regulations around the world are getting stricter and Donaldson is at the forefront of this regime change. The company offers state-of-the-art pollution control equipment systems for offending industries like construction and mining.

Clean water and sanitation

A 2019 report from UNICEF and the World Health Organisation revealed one in three people do not currently have access to safe drinking water. In addition, 4.2 billion people do not have safely managed sanitation services, while 3 billion lack basic handwashing facilities.

According to the OECD, investments in this space are projected to double and reach $3trn by just 2030.

One firm leading the way when it comes to the sustainable use and protection of water is Kurita in Japan. The business develops systems that recycle water, reduce waste and convert waste into fuel to massively decrease the environmental impact of its clients.

As the water theme increasingly inhabits the minds of investors, policymakers and regulators, Kurita is well positioned to benefit from the inevitable influx of sustainable capital.

Loss of natural habitats and species

Between 1970 and 2016, we saw a 68% decline in the population of monitored vertebrate species.

It’s no surprise, then, that many scientists now believe that a sixth mass extinction event is currently under way and accelerating.

Population decline stems primarily from a loss of natural habitat and wilderness. This, in turn, is driven by the transformation of areas such as forests and grasslands into agricultural, urban or industrial land.

This has given rise to a growing pool of companies working to reduce the stock of natural capital we use per person.

Take Europe’s largest private forest owner SCA,which excludes areas presenting vital habitats for sensitive flora and fauna from its forest management activities. In total, it has currently set aside 400,000 hectaresof various habitats — that is more than three hundred thousand football fields.

As the global spotlight increasingly shines on the protection and restoration of biodiversity and ecosystems, companies like SCA that will benefit greatly.

Widening the net

Widening the net to encompass all environmental themes like the three listed above offers an opportunity to get more than one bite of the global sustainability revolution “cherry”.

After all, protecting the earth is a matter of life or death — any investment that supports this cause is one that has the potential to generate positive returns as we spend the next few decades investing in the undoing of our past transgressions on nature.


Natasha Turner

Natasha is global editor at ESG Clarity, part of Mark Allen Financial, and has been a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the...