1 00:00:05,760 --> 00:00:08,549 Sean Aylmer: Welcome to the FEAR & GREED Business Interview. I'm Sean Aylmer. 2 00:00:09,030 --> 00:00:12,570 Sean Aylmer: This is pretty confronting. Australia is home to over 10% 3 00:00:12,570 --> 00:00:17,639 Sean Aylmer: of the world's biodiversity, but we're second globally for biodiversity 4 00:00:17,639 --> 00:00:20,669 Sean Aylmer: loss and have the highest rate of decline in developed 5 00:00:20,759 --> 00:00:24,300 Sean Aylmer: nations. For some companies and investors, it's crystallized a new 6 00:00:24,300 --> 00:00:27,809 Sean Aylmer: focus for their ESG efforts, putting a very real, very 7 00:00:27,809 --> 00:00:32,788 Sean Aylmer: significant value on the environmental aspect of ESG. One global 8 00:00:32,790 --> 00:00:37,409 Sean Aylmer: asset management firm has been particularly active in this space. UK- 9 00:00:37,409 --> 00:00:42,390 Sean Aylmer: based Federated Hermes has more than 750 billion US dollars 10 00:00:42,390 --> 00:00:45,239 Sean Aylmer: in assets under management. In Australia, it works with leading 11 00:00:45,240 --> 00:00:48,179 Sean Aylmer: institutions and super funds, and my guest this morning was 12 00:00:48,179 --> 00:00:50,608 Sean Aylmer: in the country recently to meet with clients and speak 13 00:00:50,610 --> 00:00:54,239 Sean Aylmer: to the rise of the corporate biodiversity champion. This is 14 00:00:54,240 --> 00:00:57,120 Sean Aylmer: general information only. You should always seek professional advice before 15 00:00:57,120 --> 00:01:02,040 Sean Aylmer: making investment decisions. Ingrid Kukuljan, Head of Impact and Sustainable 16 00:01:02,040 --> 00:01:06,329 Sean Aylmer: Investing at Federated Hermes Limited joins me from London. Ingrid, 17 00:01:06,330 --> 00:01:07,440 Sean Aylmer: welcome to FEAR & GREED. 18 00:01:07,799 --> 00:01:10,170 Ingrid Kukuljan: Good morning, Sean. Thank you for having me. 19 00:01:10,830 --> 00:01:13,380 Sean Aylmer: It's very difficult to go to a conference and not 20 00:01:13,380 --> 00:01:16,830 Sean Aylmer: hear about biodiversity at the moment when we're talking about 21 00:01:16,830 --> 00:01:21,479 Sean Aylmer: investing, but just explain to our listeners what is biodiversity 22 00:01:21,780 --> 00:01:24,179 Sean Aylmer: and why does it matter to corporates? 23 00:01:24,780 --> 00:01:30,480 Ingrid Kukuljan: Yeah, put simply biodiversity is the variety of plant and 24 00:01:30,480 --> 00:01:34,950 Ingrid Kukuljan: animal life in the world or a particular habitat and 25 00:01:34,950 --> 00:01:40,020 Ingrid Kukuljan: obviously want to have a high level of biodiversity. Unfortunately, 26 00:01:40,650 --> 00:01:43,530 Ingrid Kukuljan: scientists will tell you that we are in the midst 27 00:01:43,559 --> 00:01:47,880 Ingrid Kukuljan: of the six global extinction and we have severely altered 75% of the Earth's surface and 28 00:01:48,360 --> 00:01:56,280 Ingrid Kukuljan: 66% of the marine habitats just to satisfy two needs, 29 00:01:56,340 --> 00:02:00,300 Ingrid Kukuljan: our consumption and our energy needs. And why it's important 30 00:02:00,300 --> 00:02:05,640 Ingrid Kukuljan: to corporates is that everyone and everything depends on biodiversity. 31 00:02:05,940 --> 00:02:12,600 Ingrid Kukuljan: So given that it's a resource that is limited, whereas 32 00:02:12,600 --> 00:02:17,638 Ingrid Kukuljan: people think that it's permanent, corporates are becoming increasingly worried 33 00:02:17,700 --> 00:02:20,758 Ingrid Kukuljan: and you can see the disruptions that we are seeing 34 00:02:20,758 --> 00:02:23,340 Ingrid Kukuljan: across supply chains globally. 35 00:02:24,750 --> 00:02:29,400 Sean Aylmer: Biodiversity is, my understanding at least, it's broader than some 36 00:02:29,400 --> 00:02:32,850 Sean Aylmer: of the other issues that corporates face or investors face. 37 00:02:33,300 --> 00:02:36,570 Sean Aylmer: If you talk about governance, we understand governance and the 38 00:02:36,570 --> 00:02:39,389 Sean Aylmer: need for good governance, etc. The thing about biodiversity though, 39 00:02:39,389 --> 00:02:44,850 Sean Aylmer: it kind of almost creeps into all aspects of a company. 40 00:02:45,389 --> 00:02:48,570 Ingrid Kukuljan: That's correct, Sean. That's well put. It creeps into all 41 00:02:48,570 --> 00:02:51,270 Ingrid Kukuljan: aspects because obviously you have to take it as a 42 00:02:51,270 --> 00:02:54,360 Ingrid Kukuljan: part of your risk management as well as a part 43 00:02:54,360 --> 00:02:59,849 Ingrid Kukuljan: of your strategic decisions. So really it goes across the 44 00:02:59,879 --> 00:03:03,179 Ingrid Kukuljan: E, the S, and the G. And when I'm saying 45 00:03:03,180 --> 00:03:06,900 Ingrid Kukuljan: around the S, which people think why around the S, 46 00:03:06,900 --> 00:03:10,440 Ingrid Kukuljan: if you think about the supply chains, especially if you're 47 00:03:10,440 --> 00:03:14,130 Ingrid Kukuljan: part of the food industry, the S is very important 48 00:03:14,130 --> 00:03:20,519 Ingrid Kukuljan: because 40% of the global population directly and indirectly depends 49 00:03:20,520 --> 00:03:26,429 Ingrid Kukuljan: on agriculture. So disruption of those really have huge consequences both 50 00:03:26,429 --> 00:03:30,629 Ingrid Kukuljan: in the local communities as well as across the supply 51 00:03:30,630 --> 00:03:32,850 Ingrid Kukuljan: chains for the corporate itself. 52 00:03:33,839 --> 00:03:35,849 Sean Aylmer: How big a challenge is this in Australia? 53 00:03:36,480 --> 00:03:42,030 Ingrid Kukuljan: Huge challenge in Australia and Australia is key for global 54 00:03:42,030 --> 00:03:47,819 Ingrid Kukuljan: biodiversity. Practically you have about 10% of all the species 55 00:03:47,820 --> 00:03:52,769 Ingrid Kukuljan: on Earth. You are one of the 17 mega diverse 56 00:03:52,770 --> 00:03:58,830 Ingrid Kukuljan: countries. 85% of your plant species are endemic, which is 57 00:03:58,830 --> 00:04:01,800 Ingrid Kukuljan: a very high number and you have a very high 58 00:04:01,800 --> 00:04:08,249 Ingrid Kukuljan: economic dependence on biodiversity. So whether it's agriculture, forestry, fisheries, 59 00:04:08,250 --> 00:04:13,350 Ingrid Kukuljan: and obviously tourism because all of those depend on the 60 00:04:13,350 --> 00:04:19,020 Ingrid Kukuljan: healthy native vegetation ecosystems as well as the marine life. 61 00:04:19,740 --> 00:04:23,639 Ingrid Kukuljan: And then you have many threats. Your track records hasn't 62 00:04:23,639 --> 00:04:28,859 Ingrid Kukuljan: been fantastic. You're actually the only country that is included 63 00:04:28,949 --> 00:04:34,230 Ingrid Kukuljan: into the 24 global hot spots. In terms of deforestation, 64 00:04:34,230 --> 00:04:37,469 Ingrid Kukuljan: you're number five in the world and you're the only 65 00:04:37,470 --> 00:04:40,950 Ingrid Kukuljan: developed nation to make that cut. The main reason for 66 00:04:40,950 --> 00:04:45,899 Ingrid Kukuljan: this is obviously the cattle farming followed by the logging. 67 00:04:46,709 --> 00:04:50,550 Ingrid Kukuljan: It's quite curious why things are not changing in Australia 68 00:04:50,550 --> 00:04:54,630 Ingrid Kukuljan: given that you have been seeing the effects of the 69 00:04:54,630 --> 00:04:58,980 Ingrid Kukuljan: climate change firsthand and you are at big risk. So 70 00:04:59,490 --> 00:05:02,490 Ingrid Kukuljan: to be ruining the natural carbon sinks and not taking 71 00:05:02,490 --> 00:05:06,449 Ingrid Kukuljan: care of your biodiversity is not an option that I 72 00:05:06,450 --> 00:05:07,260 Ingrid Kukuljan: think you have. 73 00:05:07,980 --> 00:05:09,839 Sean Aylmer: Stay with me Ingrid. We'll be back in a minute. 74 00:05:17,099 --> 00:05:20,880 Sean Aylmer: I'm speaking to Ingrid Kukuljan, Head of Impact and Sustainable 75 00:05:20,880 --> 00:05:27,240 Sean Aylmer: Investing at Federated Hermes Limited. So I understand what you've 76 00:05:27,240 --> 00:05:31,710 Sean Aylmer: just said. Do you think Australian corporates understand it, number 77 00:05:31,710 --> 00:05:34,889 Sean Aylmer: one and number two, if they do understand it, are 78 00:05:34,889 --> 00:05:36,329 Sean Aylmer: they taking it seriously enough? 79 00:05:37,320 --> 00:05:41,699 Ingrid Kukuljan: Those that are directly impacted understand it. I think you 80 00:05:41,699 --> 00:05:46,080 Ingrid Kukuljan: start taking it seriously enough once the regulation kicks in 81 00:05:46,920 --> 00:05:53,610 Ingrid Kukuljan: and without regulation, it's quite difficult to make corporates change 82 00:05:53,610 --> 00:05:57,599 Ingrid Kukuljan: their ways unless they can get away with what they're away 83 00:05:57,599 --> 00:06:00,180 Ingrid Kukuljan: with. I mean, you have a delay in your nature 84 00:06:00,180 --> 00:06:05,940 Ingrid Kukuljan: repair bill again, which was a bit surprising and those 85 00:06:05,940 --> 00:06:07,860 Ingrid Kukuljan: sorts of things are not going to help. But there 86 00:06:07,860 --> 00:06:13,020 Ingrid Kukuljan: are corporates that are taking initiative themselves to take care 87 00:06:13,020 --> 00:06:19,710 Ingrid Kukuljan: of biodiversity and understanding importance and the value of it and the reason why every 88 00:06:19,710 --> 00:06:24,390 Ingrid Kukuljan: corporate should be taking biodiversity into account. As I mentioned 89 00:06:24,390 --> 00:06:28,890 Ingrid Kukuljan: earlier, it's not a permanent resource, it's a scarce resource. 90 00:06:28,920 --> 00:06:32,250 Ingrid Kukuljan: Just like the way you think about copper, aluminum, you 91 00:06:32,250 --> 00:06:35,938 Ingrid Kukuljan: should be thinking about biodiversity. And the second reason as 92 00:06:35,940 --> 00:06:39,029 Ingrid Kukuljan: well is if you look today, there was a very 93 00:06:39,029 --> 00:06:43,500 Ingrid Kukuljan: important piece of work done in the UK by Professor 94 00:06:43,500 --> 00:06:46,830 Ingrid Kukuljan: Dasgupta who said, " If you take the living standards that 95 00:06:46,830 --> 00:06:50,008 Ingrid Kukuljan: we have globally today, we need the next extra 1. 96 00:06:50,400 --> 00:06:53,339 Ingrid Kukuljan: 6 Earths just to keep where we are." 97 00:06:55,410 --> 00:06:56,430 Sean Aylmer: That's a bit stark. 98 00:06:56,520 --> 00:07:00,630 Ingrid Kukuljan: That's very scary. And the latest space exploration news, that 99 00:07:00,630 --> 00:07:03,719 Ingrid Kukuljan: Bezos and Musk have not been successful in finding this 100 00:07:03,719 --> 00:07:07,559 Ingrid Kukuljan: extra 1. 6 Earths. So we have to deal with 101 00:07:07,559 --> 00:07:11,939 Ingrid Kukuljan: what we have here and it should be a priority 102 00:07:11,940 --> 00:07:16,770 Ingrid Kukuljan: for regulators and corporates to really start considering biodiversity. But on 103 00:07:16,770 --> 00:07:20,010 Ingrid Kukuljan: a positive note, things are changing. We had the global 104 00:07:20,010 --> 00:07:24,929 Ingrid Kukuljan: biodiversity framework that was agreed almost two years ago in 105 00:07:24,929 --> 00:07:28,379 Ingrid Kukuljan: Montreal, also known as the COP 15, which is very 106 00:07:28,379 --> 00:07:33,840 Ingrid Kukuljan: ambitious. We also have TNFD, which is for the time 107 00:07:33,840 --> 00:07:38,280 Ingrid Kukuljan: being a voluntary reporting system for the corporates, and the 108 00:07:38,280 --> 00:07:44,969 Ingrid Kukuljan: pilot was taken up by 320 corporates globally. So things 109 00:07:44,969 --> 00:07:47,370 Ingrid Kukuljan: are starting to happen in a positive direction. 110 00:07:48,720 --> 00:07:54,330 Sean Aylmer: What about the opportunity for investors in all this? Where 111 00:07:54,330 --> 00:07:54,750 Sean Aylmer: are they? 112 00:07:55,800 --> 00:07:58,860 Ingrid Kukuljan: The opportunity is huge, and the reason why the opportunity 113 00:07:58,860 --> 00:08:03,239 Ingrid Kukuljan: is huge is twofold. First, from the risk perspective, the 114 00:08:03,240 --> 00:08:06,779 Ingrid Kukuljan: need is to spend about a trillion in terms of 115 00:08:06,810 --> 00:08:12,870 Ingrid Kukuljan: to restore and preserve our ecosystems and biodiversity. The cost 116 00:08:12,870 --> 00:08:16,079 Ingrid Kukuljan: of inaction to the global GDP is 3 trillion. So 117 00:08:16,080 --> 00:08:19,980 Ingrid Kukuljan: if we don't do anything, it's three X. Investors are 118 00:08:19,980 --> 00:08:24,359 Ingrid Kukuljan: starting to pay attention. Asset allocators are starting to pay 119 00:08:24,390 --> 00:08:28,860 Ingrid Kukuljan: attention, but it's a recent phenomenon and it's something where 120 00:08:28,860 --> 00:08:32,040 Ingrid Kukuljan: we really need to see more movement. The reason for 121 00:08:32,040 --> 00:08:36,900 Ingrid Kukuljan: this is that biodiversity loss poses the biggest systemic risk 122 00:08:37,320 --> 00:08:41,190 Ingrid Kukuljan: to the global economy. So what we are hoping to 123 00:08:41,190 --> 00:08:45,690 Ingrid Kukuljan: see that in a very short period of time, this 124 00:08:45,690 --> 00:08:49,410 Ingrid Kukuljan: will become a key question for asset allocators. They'll be 125 00:08:49,410 --> 00:08:55,020 Ingrid Kukuljan: asking their investors whether they're considering and taking into account 126 00:08:55,049 --> 00:08:58,889 Ingrid Kukuljan: their impacts and dependencies on biodiversity and whether they're doing 127 00:08:58,889 --> 00:09:01,740 Ingrid Kukuljan: full analysis. And the reason why you need to do 128 00:09:01,740 --> 00:09:07,350 Ingrid Kukuljan: this, they are businesses that will face operational, financial, reputational, 129 00:09:07,470 --> 00:09:13,590 Ingrid Kukuljan: even permitting risks. There are areas they're so- called 30 by 30 130 00:09:13,860 --> 00:09:19,590 Ingrid Kukuljan: schemes for the protection of terrestrial areas, waterways and oceans. 131 00:09:19,590 --> 00:09:22,230 Ingrid Kukuljan: And if you happen to do business in those areas, 132 00:09:22,650 --> 00:09:26,460 Ingrid Kukuljan: your business may become obsolete. So there are a myriad 133 00:09:26,460 --> 00:09:30,630 Ingrid Kukuljan: of risks. The opportunities are that it's been estimated that nature- 134 00:09:30,660 --> 00:09:36,420 Ingrid Kukuljan: positive jobs could create an additional almost 400 million jobs 135 00:09:36,420 --> 00:09:40,710 Ingrid Kukuljan: by 2030. That's the first thing. Second one is that 136 00:09:40,800 --> 00:09:44,489 Ingrid Kukuljan: there was a study that was done with food that 137 00:09:45,000 --> 00:09:52,800 Ingrid Kukuljan: people who work in nature- related businesses, climate slash nature 138 00:09:53,190 --> 00:09:58,800 Ingrid Kukuljan: are 3. 8 times more paid than those that work 139 00:09:58,890 --> 00:10:03,780 Ingrid Kukuljan: in fossil fuel industries. So that's also an interesting fact. 140 00:10:04,889 --> 00:10:09,089 Sean Aylmer: Do you think in the next five years, obviously you 141 00:10:09,089 --> 00:10:11,879 Sean Aylmer: have a great interest in this Ingrid, in the next 142 00:10:11,879 --> 00:10:15,570 Sean Aylmer: five years, what do you want to see from Australian 143 00:10:15,600 --> 00:10:18,240 Sean Aylmer: corporates? Obviously you want to see government legislation, so I 144 00:10:18,240 --> 00:10:22,710 Sean Aylmer: think that's part of it. What about corporates though? So 145 00:10:23,099 --> 00:10:26,610 Sean Aylmer: let's just park the legislation and hopefully that passes, but 146 00:10:26,610 --> 00:10:28,319 Sean Aylmer: what do corporates and Australia need to do in the 147 00:10:28,320 --> 00:10:28,919 Sean Aylmer: next five years? 148 00:10:28,919 --> 00:10:32,520 Ingrid Kukuljan: The first thing they need to do is to start 149 00:10:32,550 --> 00:10:37,230 Ingrid Kukuljan: analyzing their impacts and dependencies on biodiversity and to actually 150 00:10:37,230 --> 00:10:40,380 Ingrid Kukuljan: know where their weak points are and what they should 151 00:10:40,380 --> 00:10:43,200 Ingrid Kukuljan: be doing. So that should be the starting point for 152 00:10:43,200 --> 00:10:47,699 Ingrid Kukuljan: any company in Australia or elsewhere. Second, it should be 153 00:10:47,699 --> 00:10:53,280 Ingrid Kukuljan: that biodiversity becomes part of the governance and is included 154 00:10:53,370 --> 00:10:57,179 Ingrid Kukuljan: as one of the biggest global risks that we are 155 00:10:57,179 --> 00:11:01,379 Ingrid Kukuljan: facing as such, the businesses itself. Third thing, it would 156 00:11:01,380 --> 00:11:05,789 Ingrid Kukuljan: be nice to see that KPIs, especially for Remco, are 157 00:11:05,789 --> 00:11:12,240 Ingrid Kukuljan: linked to biodiversity positive outcomes. And every corporate, it's not 158 00:11:12,330 --> 00:11:15,959 Ingrid Kukuljan: a laundry list of demands, but every corporate should put 159 00:11:16,440 --> 00:11:21,600 Ingrid Kukuljan: targets that are relevant to their businesses and look to improve 160 00:11:21,839 --> 00:11:28,260 Ingrid Kukuljan: their negative or minimize their negative impact on biodiversity. And 161 00:11:28,260 --> 00:11:31,470 Ingrid Kukuljan: that would really go a long way in terms of 162 00:11:32,070 --> 00:11:35,910 Ingrid Kukuljan: at least helping to reduce biodiversity loss. 163 00:11:36,509 --> 00:11:38,400 Sean Aylmer: Ingrid, thank you for talking to FEAR & GREED. 164 00:11:39,000 --> 00:11:39,780 Ingrid Kukuljan: Thanks, Sean. 165 00:11:40,320 --> 00:11:44,040 Sean Aylmer: That was Ingrid Kukuljan, Head of Impact and Sustainable Investing 166 00:11:44,040 --> 00:11:48,120 Sean Aylmer: at Federated Hermes Limited. This is the FEAR & GREED Business Interview. 167 00:11:48,120 --> 00:11:50,670 Sean Aylmer: Remember, this is general information only and you should seek 168 00:11:50,670 --> 00:11:54,569 Sean Aylmer: professional advice before making investment decisions. Join us every morning 169 00:11:54,570 --> 00:11:56,848 Sean Aylmer: for the full episode of FEAR & GREED, daily business news 170 00:11:56,849 --> 00:11:59,429 Sean Aylmer: for people who make their own decisions. I'm Sean Aylmer. 171 00:11:59,820 --> 00:12:00,238 Sean Aylmer: Enjoy your day.