In a new article series, Downing’s Head of Private Market Investments, Kostas Manolis, discusses the main trends impacting ESG, investments and the wider financial markets. In this instalment, he unpacks our relationship, as investors, with the natural landscape.
What is our exposure to biodiversity?
Biodiversity is an important product of a healthy climate. It encourages functioning ecosystems which supply the planet with oxygen, clean air, water and food. Farming and agriculture are intrinsically linked to the UK’s biodiversity and could be seen as a significant threat and enabler to its future.
But what is Downing’s relationship with agriculture? We are significant investors in projects that use land to create essential services and provisions. Central to our strategy at Downing is investing in innovative companies and key assets that positively impact society - caring for the elderly, improving our health, building new homes and producing clean energy. In all these activities, farmers, as landowners, are frequently our partners and neighbours.
So, how do we interact with our landscape?
We recognise that, as investors, we have a great responsibility to protect and minimise our impact on the environment and improve outcomes where possible. With this in mind, our energy asset management arm manages multiple contracts to graze sites, sow wildflowers, partner with beekeepers and distribute contributions to rural community development funds.
Furthermore, as part of our healthcare and residential property development projects, we aim for the best energy efficiency standards and also strive to future-proof the infrastructure of the developments by including electric vehicle charging points. As responsible investors, we will always endeavour to avoid, mitigate, and manage risks on behalf of our investors and the environment and society.
More change is coming
Our own land development team and the operators that we back often knock on farmhouse doors to identify land for development. In getting to know farmers, we’ve heard about a quiet revolution. The government’s Basic Payment Scheme, which accounts for 35% of farm income in the UK, is being phased out and replaced by several schemes that place greater emphasis on environmental sustainability.
In 2020, the UK distributed £1.67 billion to farmers through the Basic Payment Scheme. However, the Sustainable Farming Incentive that starts to replace it this year will encourage capital investment in new technologies that help us feed our population, while mitigating climate change and promoting biodiversity.
At the same time, the government’s environment bill contains a provision for a 10% biodiversity net gain in all planning applications. This provision will indirectly encourage a professional eco-system of ecologists specialising in biodiversity calculations, as well as directly creating a liquid market in biodiversity credits.
A disruptive change like this might be uncomfortable for some in the funding and development ecosystem as it is likely to add more hurdles to processes such as planning approval. However, we believe that supporting these changes is a moral imperative and let’s not forget that changes like these rarely occur without presenting new investment options. Regenerative farming, agritech, biodiversity and natural capital (such as woodland) might offer interesting opportunities for innovative investors.
Responsibility to our landscape
Let’s look at the renewable space. There’s been a lot of talk recently about energy security and there are likely to be some reactive measures as a result of the Russian-Ukraine conflict that might delay carbon emissions reduction targets. However, we mustn’t forget that the true long-term goal should be to mitigate against climate change. If the UK is to meet its renewable energy aspirations that underpin our transition to a less carbon-intensive economy, it may have to dedicate 10% of its landmass to solar and wind farms and more than 14% if all energy required were to be generated by renewable sources.
As fiduciaries, we’re used to stewardship on behalf of our investors. But much like farmers, we are becoming stewards of our landscape and that responsibility isn’t just to our investors, it’s to society and the generations that will inherit it.
On reflection, I believe that we are one part of the next generation of farmers: farmers of energy and stewards of our landscape.