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This Earth Day, it’s worth considering the importance of earth

To mark Earth Day, [1] Robert-Alexandre Poujade digs into a key part of functioning and healthy ecosystems – soil – and explains why investors should take note.  

Soil might not immediately sound like the most important of subject areas for investors to think about. But maintaining the health of soil around the world is vital for many reasons:    

  • Soil underpins numerous ecosystems and is an active component in delivering clean water and air
  • It plays a fundamental role in the provision and security of food
  • It forms a natural flood barrier
  • It supports local communities and livelihoods. 

Seen through a climate lens, soil is key for climate change mitigation – it is the world’s biggest terrestrial carbon sink.

However, soil health and land productivity are declining globally due to increased human activity, poor land use and intensive farming practices such as monocultures, intensive livestock rearing and overgrazing.

Heavy use of pesticides is another practice that is harmful to the environment arising from traditional agriculture models. It must be addressed to boost soil health. Pesticides damage invertebrates and soil microorganisms including fungi and bacteria. These facilitate carbon sequestration in the soil and help plants to access nutrients. Neonicotinoids, a commonly used agricultural insecticide, are increasingly being linked to declines in the bird population.

What are the solutions?

It is clear current agriculture systems are not sustainable in the long run. A transition to less-harmful practices should help protect soil health and biodiversity and mitigate climate change and other environmental impacts.

Such approaches could include carbon farming, which focuses on practices and planting crops known to optimise the amount of carbon sequestered in agricultural land and reduce emissions.
 
Agro-ecology – a sustainable method that works alongside ecological principles and uses local knowledge to plant crops – has been championed as another alternative.

A report by think tank IDDRI states European farms could adopt agro-ecological farming and still produce enough food to satisfy the needs of European population that is expected to reach 530 million by 2050.

Initial crop yield losses from agro-ecology’s less-intensive approach can be offset by orienting diets away from grain-fed meat and toward pasture-fed and plant-based proteins.
 
It’s worth noting that the large-scale deployment of organic agriculture practices could be hindered by nitrogen – an essential nutrient for plant growth that can determine crop yields. This is supplied synthetically under traditional agriculture practices.

Despite this, a recent Nature report states organic agriculture could occupy up to 60% of the global agricultural landscape if food supply and demand are addressed through policy. 

 
Why is soil important for investors?  

In the absence of large-scale efforts to protect nature, the decline of natural services provided by healthy ecosystems could result in the loss of USD 10 trillion of GDP by 2050.

Soil forms the basis of land-based ecosystems and investors have to date largely overlooked its value as a natural asset. We estimate that on average, our corporate holdings have a land footprint from agricultural commodities of about 30 hectares per million euros of net sales.

We believe that investing or reallocating capital to support healthy soils and solutions to protect soil health can provide environmental, social and economic returns.
 
There has been a rise in both private and public interest in developing carbon and ecosystem service credits – the UK government is working to establish a certified standard for soil carbon credits to encourage farmers to manage land sustainably.

Elsewhere, more voluntary schemes are being created. Agronomy company Soil Capital, for example, has a carbon programme designed to help farms transition to regenerative agriculture without risking a loss in profitability.

Company responses

Firms looking to address the issue will often focus on implementing regenerative agricultural practices to attempt to maintain soil health.

However, are those attempts ambitious enough? Half of our current food production depends on transgressing planetary boundaries, as Professor Johan Rockström reminded us in our Investment Symposium Series.

While we recognise that some food companies have started to act, anticipating behavioural change in their value chain, investors need to add their voices to solidify the transition.

Companies should implement regenerative practices in most of their agricultural land footprints with dedicated targets, deadlines and programmes, and shift away from the ‘project-washing’ associated with limited scales.

Food company General Mills2, for example, has a target to advance regenerative agriculture on one million acres of farmland by 2030, defining regenerative agriculture as working with suppliers to become land stewards and provide food with positive environmental, social and economic outcomes. This approach, which is entwined with its water use and emissions goals, includes improving soil health through reducing tillage, increasing biodiversity, keeping soil covered and integrating livestock.

Danone2 set out its approach last year. This focuses on working with farmers and providing them with a scorecard to protect soil (and water) biodiversity and respect animal welfare. It expects this to improve the quality of food as well as the quality of the environment. It says it has converted 150 000 ha (12% of its direct sourcing) to regenerative agriculture.

Finally, Unilever2 has drafted a regenerative agriculture principles document. This contains guidance on keeping living roots in the ground, preventing soil erosion, and rotating crops. This can also reduce the need for pesticides.  

A lack of data

Monitoring key biodiversity indicators helps inform the necessary – investor – action to reverse biodiversity loss.

However, some aspects of biodiversity can be monitored more easily than others. While monitoring techniques and datasets have improved, the lack of holistic data is particularly evident for soil biodiversity.

There are key gaps in data on organism taxonomy and distribution, and particularly on how soil biodiversity affects the functioning of ecosystems. As a result, soil biodiversity data is absent today from ‘investor-friendly’ biodiversity data.

These issues will need to be addressed if we are to take appropriate action to protect our soils. This, in addition to allocating capital to improve soil biodiversity and carbon sequestration, is where investors can help.

References

[1] 22 April; more at https://www.earthday.org/earth-day-2022/

[2] These companies are named for illustrative purposes only. This does not constitute any investment advice or a recommendation. BNP Paribas Asset Management may or may not hold a position in these companies.

Disclaimer

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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