The importance of Natural Capital

Firstly, we have expanded our internal resources with the establishment of a dedicated Sustainable Investment Research, Strategy & Stewardship team (SIRSS). Through this team, we are advancing the analysis of sustainability considerations to integrate these directly into our investment processes. We have expanded this team with subject experts, data scientists and specialised capabilities, including geospatial analysis allowing us to monitor environmental risks on a near real-time basis.

Secondly, we have defined an investment framework with a broad focus on sustainability concerns at its very core. We believe our economy is transitioning from an economy that Wasteful, Idle, Lopsided and Dirty (WILD) to one that is Circular, Lean, Inclusive and Clean (CLIC^®). As part of this economic vision, we have defined eight sustainability challenges that we believe companies must address to meet the challenges of the future. Aside from a focus on climate objectives, resource efficiency and social considerations, this also includes a focus on regenerative nature and the circular economy. Our CLIC^® philosophy and sustainability challenges form a core part of our stewardship and engagement priorities.

Thirdly, we recognise that nature positive investing and the inclusion of biodiversity considerations into finance represents a vital but new frontier. To help us boost our own capabilities as well as boost public research into this area, Lombard Odier has launched a strategic partnership with Oxford University. This partnership funds research in sustainable finance, focuses on better understanding the environmental and economic aspects of climate change and the circular economy and nature. We also have a close partnership with Systemiq², an advisory firm specialising in system-level change related to sustainability challenges.

Fourthly, our Environmental, Social, Governance (ESG) materiality approach considers the most relevant ESG dimension for each industry. We have analysed 160+ sub-industries and have identified which of these have a high impact on nature and/or biodiversity and how companies, operating in such activities, manage these issues. Our expertise gathers data points from various sources to measure the exposure and management of companies to resource use, pollution and waste or impact on local communities.

This information is integrated in our investment teams’ process along with more short-term metrics and event-specific metrics, like controversies. Controversies flag media negative events related to these issues to highlight real-time signal with potential financial consequences onto the companies.

Fifthly and finally, with the support of our partnerships with Systemiq and Oxford University, we are rolling out new, proprietary metrics specifically built around our CLIC^® investment framework. We have already rolled out a proprietary metric aimed at measuring the alignment of portfolios to climate change objectives, which has been recognised as one of the leading metrics in this field. Our team is currently working on similar metrics to assess alignment of our investments and portfolios with the circular economy and biodiversity impact. For this purpose, we are drawing on tools and databases such as ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure), that may help us identify the level of dependence and impact of individual sectors, industries and sub-industries on natural capital.

Integration into investment processes and initiatives

These newfound capabilities are helping us re-shape investment and lead the way in sustainable, bio-aligned forms of investing.

The examples below outline the various ways in which we are looking to accelerate the necessary transition:

• We are among the first financial firms to sign the Finance for Biodiversity Pledge. Through this pledge, we are committing to collaborate on the assessment of biodiversity impact, engage our investee companies on this topic, to set targets based on available science in order to reduce negative impacts, and to publicly report on these. The pledge commits us to deliver on this complete set of objectives no later than 2024, but through the initiatives above, we are already integrating many of these objectives into our business as of today.

• To drive mainstream investment in nature positive investment, we have launched a dedicated Natural Capital strategy which seeks to invest in opportunities that help harness and preserve nature. This strategy is directly inspired by HM The King and developed in partnership with the Circular Bioeconomy Alliance, established under his Sustainable Markets Initiative. The Circular Bioeconomy Alliance, of which Lombard Odier is a founding member, aims to drive transformational change to a climate and nature positive economy by connecting investors to sustainable investable solutions.

• In addition to having endorsed the Task Force on Climate-related Financial Disclosures, TCFD, we support the establishment of the Task Force on Nature-related Financial Disclosures, TNFD including through participation in the Observers Group when it is established. The TNFD is intended to improve the reporting, metrics and data needs for financial institutions to drive improved understanding of risks, dependencies and impact on nature.

Leading by example

While we are conscious that our investments are the primary avenue through which we accelerate the transition to a nature positive economy, we firmly believe in the need to lead by example, including in our own business practices:

• We integrate our work on nature in our own corporate sustainability and business practices, and we were the first asset and wealth management firm to obtain B Corp certification³ in March 2019. Building on our 2019 carbon footprint analysis, we are formalising our environmental sustainability strategy and strengthening our sustainable procurement framework.  

• Our Philanthropy Services aid clients who wish to engage in giving and in innovative finance across multiple domains including the environment. In the summer of 2020, Lombard Odier and the WWF broke new ground by publishing a guide to philanthropy for individuals and private foundations wishing to make a meaningful contribution to reversing biodiversity loss and addressing threats to nature through the Donor’s Guide to the Environment. The guide provides information to understand the scope of the nature and climate emergency and outlines concrete projects, expected outcomes and donor opportunities for preserving oceans, forests and freshwater habitats across the globe, and highlights case studies in impact investment.

• Our sustainability philosophy has shaped the development of our new headquarters in Geneva, currently under construction. The building will be sized to gather up to 2,600 employees and aims to embody the highest standards of sustainability. In addition to our robust framework in regards to material use, energy provision, circularity and well-being, we emphasise the importance of integrating the building in the surrounding nature. For example, we will plant 150 new trees on the plot, making the space greener than before we started construction.  We aim to install beehives and insect hotels.  As our building will have a glass-covered façade, we avoid birds flying into the windows by making the wrap-around terraces so deep that strong light does not hit the building straight-on, thereby avoiding the mirror effect. We also discovered that orchids were growing on our plot. This protected species has been relocated to the Geneva Botanical Gardens during construction, and will be re-planted in our park.

A commitment for the future

Nature is central to our economy and, therefore, must be a central concern for investors and the financial industry. At Lombard Odier, we will continue to work to enhance our understanding of nature, and that of our clients, using this knowledge to drive a sustainable form of investing.

¹ World Economic Forum (2020)
² Systemiq is a systems change company that partners with business, finance, policy-makers, and civil society to make economic systems truly sustainable.
³ B Corp certifications are granted to companies that practice corporate sustainability at the highest level. The certifying institution is B Lab, a not-for-profit organisation. There are currently over 3’500 certified B Corporations across 150 industries in 70 countries.

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

Read more.