Planetary Boundaries Theory Presents Investment Opportunity
Private markets specialist Eurazeo plans to invest in companies that are aligned to the holistic concept of a ‘safe operating space for humanity’.
The European Union’s environmental regulations may be among the toughest in the world, but one asset manager believes there is money to be made by skipping far ahead even of Brussels’ green tape.
Private equity investor Eurazeo has launched a new fund that will invest strictly in accordance with the ‘Planetary Boundaries’ framework, a cutting-edge scientific programme initiated by Johan Rockström of the Stockholm Resilience Centre, which identifies and measures nine environmental thresholds beyond which human life is imperilled.
The framework looks past climate change – which is just one of the nine categories – to freshwater use, biodiversity, ocean acidification, atmospheric aerosol loading, ozone depletion, nitrogen and phosphorous flows, land system change, and the mysteriously titled ‘novel entities’, which refers to human-produced chemicals.
It is an attempt to comprehensively categorise and measure all the ways human activity is changing and harming the planetary life support system. The Stockholm Resilience Centre, part of Stockholm University, defines the region within the boundaries as a “safe operating space for humanity”. Six of the nine boundaries have been breached – some of them by a wide margin.
Eurazeo, a Paris-based private markets specialist with €35 billion (US$38 billion) under management, is one of the first investors to use the Planetary Boundaries framework as an investment guide.
Its new Eurazeo Planetary Boundaries Fund plans to invest €750 million in around a dozen small to mid-sized companies that promote a circular economy or contribute to mitigation of and adaptation to environmental damage. A key principle of the fund is that it will not invest in one solution if it finds it has a negative impact in another area covered by the Planetary Boundaries framework.
Eurazeo expects to “buy and build” privately-held, often family-owned or founder-led companies in sectors such as agriculture and food, waste and packaging, water management, low-carbon energy, and transport services, the group said.
“We want to invest in future champions,” said Wilfried Piskula, the fund’s Co-head, at a media briefing on Wednesday. “That’s why we’ve chosen the small to mid-market segment, because that’s where we see the opportunities lie.”
He said Eurazeo would bring capital and “know how” to help these companies develop.
“Not only will we not sacrifice returns for impact, but my personal conviction is that because we are investing in businesses that provide critical solutions, we are going to be able to outperform … more mainstream buyout strategies,” Piskula said.
The fund expects to hold companies for around five years, before selling them on to other investors, though probably not via initial public offerings. It looks to close its first round of fund raising later this year at around €300 million, reaching the €750 million target within 18 months.
Do no harm
Eurazeo’s vision has persuaded one of Europe’s top environmental policy experts – former head of the European Environment Agency (EEA) Hans Bruyninckx – to put his name to the fund as a member of its advisory committee.
Bruyninckx said he and his fellow advisory committee members had been “convinced by the fact that this fund is shifting the needle on the compass when it comes to placing cutting-edge investments where they are needed”.
“The Planetary Boundaries concept, which I worked on for a long time as an academic and as a scientist, is indeed offering a new way of thinking about not only the state of the planet, but also where do we want to be going,” said Bruyninckx, who left the EEA after 10 years last year, and is now a Professor of Climate and Environment Policy at the University of Antwerp.
“Using [Planetary Boundaries] as the foundation … for an investment strategy is unique, is cutting edge, and is also going in the direction where policymakers in Europe have been saying we ought to be going,” he said at the briefing.
Boundaries breached
When Rockström et al. published their first paper on Planetary Boundaries in 2009, just three of the seven boundaries that they measured had been breached. But last September, the Stockholm Resilience Centre announced in the latest study that, of the nine boundaries now examined, six had been breached.
“This update on Planetary Boundaries clearly depicts a patient that is unwell, as pressure on the planet increases and vital boundaries are being breached,” Rockström, who is Professor in Environmental Science at the Stockholm Resilience Centre, said at the time. “We don’t know how long we can keep transgressing these key boundaries before combined pressures lead to irreversible change and harm.”
Bruyninckx said boundaries relating to biodiversity loss, nitrogen and phosphorous flows, and novel entities were a particular concern, and were “very poorly understood” by the public. Ocean health was also a major worry.
“We tend to be focused on what is happening on land. But 70% of this planet is actually water. We call it Earth, but if we had to rename it, it would be called Ocean. So we need to pay attention to the impact of what we are doing to our oceanic environment,” he told ESG Investor.
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