Crossing the Biocapacity Line
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Article Type
Sustainability Soapbox
Topic
Responsible Investing
Published
July 30, 2024
Read time
4 mins
Author
Aegon AM Responsible Investment Specialists
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Earth Overshoot Day is upon us once again. The worlds population continues to consume more resources than our planet can regenerate. It really does feel like one step forwards, two steps back, since, despite efforts being ramped up worldwide to become more environmentally friendly, we grieve Overshoot Day earlier each year.

 

This year, it landed on the 1st of August, a day earlier than last year.

 

However, some individual countries have made serious progress in pushing back their own Overshoot Day. One such example is the UK, which delayed its Overshoot Day 15 days to the 3rd of June in 2024.

 

Much of the UKs success in reducing its ecological footprint comes down to its reduction in carbon dioxide emissions. It has achieved this using various methods. Having phased out coal, which made up two thirds of energy generation in the 1990s, it has implemented a cleaner energy mix. The UK has also experienced a drop-off in energy demand, partially aided by hybrid working reducing both car journeys and office space use. Nevertheless, further progress could be made if the government takes serious action. For example, it felt like a missed opportunity when, in September 2023, it cancelled regulations which would have required landlords to improve the energy efficiency of private rented homes.

 

In addition to the UK, other countries are investing heavily to reduce their ecological footprint. For example, one chart shows that China made a massive $1.6 trillion investment in clean energy in 2023, which continued into this year, exceeding fossil fuel investment by 3.7 times.

 

Investment in energy by country or region in 2024, $bn

 

Investment in energy by country or region in 2024, $bn

Source: IEA World Energy Investment 2024

 

However, the same chart highlights that not all countries have followed suit. Countries in the Middle East, for example, are investing 5.4 times more into fossil fuels than into clean energy. Incentives are an issue here. These economies are centred around the extraction of fossil fuels. Since demand in this industry is expected to remain strong in the future, it is unlikely that these countries will stop extracting their natural resources and commence a transition to greener energy sources. A lack of incentives is a big obstruction for enabling countries to reduce their ecological footprint but even countries that are keen to do so are not always fully successful.

 

Despite their best intentions, some governments are ineffective on acting on environmental policies which they have set out. There are multiple factors at play that can cause this, but there is one that is potentially unexpected: illegal activity.

 

Brazil, which has been subjected to criticism over its deforestation activities, was one of the signatories which agreed to end and reverse deforestation by 2030 at the COP26 climate summit in 2021. It has made progress, reducing deforestation to its lowest level since 2015, but rising deforestation in the Cerrado has been a concern. Millions of its acres were destroyed in 2023 and according to a report by MapBiomas, more than 93% of the deforestation showed at least one indication of illegality. The land gained from this destruction is being used to produce soybeans, making up nearly half of the country's overall production. Demand for soybeans is expected to grow and alongside the need for fields to cultivate them, giving ample reasons for the illegal activities to continue.

 

One of the fundamental issues preventing the world from moving its Overshoot Day, is that while the general public is keen to live on a healthy planet, they are less willing to change their consumption patterns to achieve this. One example is rising meat consumption in developed countries. In the US, the average person can eat more than 100 kilograms of meat per year, five times more than in some African countries. The rise in our appetite for meat has massive implications on the releasing of greenhouse toxic gases (caused by the decomposing animal manure and the deforestation required for grazing fields) as well as biodiversity loss.

 

Here at Aegon AM, we acknowledge our role in bringing World Overshoot Day forward. Nothing highlights this better than our Responsible Investment (RI) team, which has roots dating back over 30 years.

 

Throughout the decades, they have implemented a robust RI program consisting of the following pillars:

  • ESG Integration: incorporating financially material ESG factors into the investment process.
  • Active Ownership: engaging with issuers and investee companies and exercising shareholder rights on ESG issues. 
  • Solutions: providing focused sustainable and climate transition strategies to help our clients meet their responsible investment goals

 

Truth be told, we must all do our bit. Without our genuine help, countries across the world are struggling to postpone the World Overshoot Day. Even some, such as the UK, which have made a significant improvement in pushing out their own Overshoot Days, have a long way to go before they do not have to cross their biocapacity line year upon year. Fortunately, it is the simple things that matter most: things like turning-off the lights and recycling our waste. Aegon AM will also continue to play its part in delaying Earth Overshoot Day by taking advantage of our highly experienced and influential Responsible Investment team.

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Aegon AM Responsible Investment Specialists
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