Exclusive: Biodiversity has been ignored, says Federated Hermes UK investment chief

Eoin Murray is not an unknown face in the sector. Apart from being UK head of investment at US-headquartered Federated Hermes, he is also the asset manager's executive sponsor for diversity, equity & inclusion. 

On a personal level, Murray leads search and rescue operations in the Devon region of England during his time away from work.

Such a demanding ‘hobby’ gives him a chance to be regularly out in nature, and to experience Britain’s biodiversity, currently under threat from areas from declining numbers of farmland birds to high amounts of raw sewage being dumped into its waterways.

A key plank of the responsible investment strategy Murray is looking to pursue is through Hermes’ Biodiversity Equity Strategy, which aims to achieve long-term capital appreciation by investing in companies that look to avert loss of and support restoration of biodiversity.

“When it comes to biodiversity, [finance] could do with being more proactive. This strategy was launched with a view to investing in a portfolio of leaders in a number of industries." 

He stressed that "resonated" with some key biodiversity themes around improving supply chain, improving the source of food produced, and making sure that "we were investing in companies that were seeking to positively change their biodiversity footprint”, said Murray.

This wider approach is coupled with the Hermes’ UK Nature Impact Investment Strategy, launched in November last year and which looks to develop a blended finance strategy to invest in nature based solutions across the UK in cooperation with environmental impact adviser Finance Earth.

“Biodiversity has been ignored, even though we've known that it was going to be a challenge for over a decade now. You can go back to 2009, when the Stockholm Resilience Centre identified nine planetary boundaries, of which biodiversity loss and extinction was one, and climate change another.

“I don't mean to be flippant about this, but solving climate change will actually be the easier one. Biodiversity, by its very nature is just so much more complex. So perhaps that's why it was largely ignored for the past dozen or so years.”

According to Murray, last year’s COP15 event in Montreal was the first time that finance and policymakers had “really taken biodiversity seriously.” The event was marked by developments such as a deal requiring large financial institutions to disclose their risks and impacts on biodiversity throughout their operations. Missing from the final texts, however, was a biodiversity preservation fund for developing countries.

ESG’s credibility crisis?

Institutions have often been regarded as at the forefront of the ESG push in finance, and with the overall Hermes entity having 84% institutional ownership of its stock this outlook is something that the firm has to be keenly aware of.

For Murray, what institutional investors, and the asset managers who work with them, should note is upcoming regulatory developments. 

Looping back to biodiversity, one such area to look out for is the upcoming Taskforce on Nature Related Financial Disclosures, a framework which is due to publish its final recommendations in September this year and a test version due for May.

Another key theme Murray is hearing more and more of focuses around the underlying notion of credibility: “A lot of the hubbub around the whole notion of ESG investing constitutes authenticity. 

What is or what is not greenwashing will also stay very much on the agenda. Investment managers will be required to demonstrate precisely what it is that they are doing to meet their promises, which can only be a good thing in my book.”

However, Murray does also express concern over the overt labelling system of the UK’s Sustainability Disclosure Requirements (SDR), and the ‘de facto’ labelling system that the EU’s Sustainable Finance Disclosure Regulation (SFDR) has become. 

He said such regimens attempt to force investing into boxes in a “nice, neat fashion”, something which is rarely achievable in the real world.

Similar concerns have also been raised by the Institutional Investors Group on Climate Change, which has criticised the UK’s Financial Conduct Authority for the mutually exclusive nature of the categories in the SDR.

Greenwashing

When it came to the labels, the financial world was stirred at the start of the year by the shift of many SFDR Article 9 funds (impact) to Article 8 (sustainability-linked) as the reporting threshold tightened. 

This led to accusations of greenwashing against big names in asset management such as BlackRock and HSBC, though a counter argument was this was simply the SFDR becoming effective as a reporting device.

With the bar now raised for Article 9, it may also strengthen the argument that impact led investing can be a stalwart in the fight against the accusations of greenwashing that have so dominated the ESG space in recent years.

Murray said: “Impact is a way to avoid greenwashing, for sure. But I think of greenwashing as being simply the same point of being an authentic investor, and the important thing is living up to the idea that you do what you say on the tin."

He added that “ESG investing is difficult, it's always been a complex subject full of trade offs. But we're investment managers, and what we're paid to do is to make decisions under uncertainty." 

"The challenge of ESG investing is about trying to figure out what are the material items that have an impact on long term value," Murray concluded.