The Hedge Fund Industry can be a Genuinely Positive Force for Change – could it provide a solution for the ‘E’ in ESG?

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In summary…

“There will be no social justice, no economy, no art and culture, no democracy or gender equality – no human society at all – on a dead planet.”[1] Douglas Tompkins[2]

While the hedge fund industry is known for generous philanthropic giving, for the majority of hedge fund businesses, environmental issues remain at the periphery of business management and investment strategies. However, there is a deep connection between sustainable social welfare and environmental regeneration and conservation.

Conserving nature is vital for human wellbeing and locally-led conservation efforts can play a key role in furthering UN Sustainable Development Goals to promote a more sustainable relationship with the natural world.

The environment underpins many ‘traditional’ development issues, but the level of funding for conservation is still far too low and there is a lack of readily available knowledge for donors wishing to support effective conservation.  A report by the European Foundation Centre published in 2016 noted that cumulative data from environmental grantmaking networks in the US, Canada, Italy, France and the UK suggests that environmental grants account for no more than 5-6% of total philanthropic giving[3].

Our natural systems have evolved over many thousands of years and the process of evolution constantly balances the diversity of species within an ecosystem and the resilience of the ecosystem. As we reduce biodiversity we reduce the capacity of ecosystems to adapt to changing conditions or shocks to the system and we know that climate change is bringing about change across the globe. In this context the importance of biodiversity is even greater.

Between 1970 and 2012 we lost[4]:

  • 81% of freshwater species monitored populations
  • 36% of marine species monitored populations
  • 58% of vertebrate species monitored populations

As well as:

  • over 25% of the world’s tropical forests since 1750
  • and 239 million hectares of natural forest since 1990

Conservation works, but innovation is needed.

Our natural environment is a complex web of inter-dependencies that we are currently unable to map accurately. We are in the foothills of understanding how ecosystems work and being able to model how these systems change as conditions change.

Solving the world’s environmental issues and risks is a complex problem.

The hedge fund industry understands complexity and risk. An industry strength is analysis of data and seeking to understand the impact of trends and system changes. By extending this approach to how businesses approach environmental impact, the hedge fund industry could be a genuinely positive force for change.

Utilising hedge fund managers’ expertise and resources to address environmental challenges also has the potential to bring additional business and reputational benefits, such as:

  • Engaging with clients
  • Engaging the existing workforce
  • Inspiring new entrants to the industry
  • Balancing negative industry perception

How to solve the ‘E’ in ESG

The Directors of Aurum Fund Management Ltd. (“Aurum”) had lengthy discussions over three years ago about how to begin to address the ‘E’ in ESG. This kick-started a process that took them much deeper into considering what the reality of environmental impact looks like and what their actions could set out to achieve. A business’s environmental footprint does not just comprise carbon emissions, although these are an important constituent. It includes all the components that go into computers and mobile phones as well as buildings and office furniture. This takes us into a web of supply chains that stretches across the world, with many ending in developing countries, where the rate of environmental change is the greatest. Aurum looked at the consumption it could measure and then set out to look at what it could reduce and what schemes were available to ‘offset’ this consumption.

The invisible footprint of the investment industry

Those of us in the investment industry have a far greater, almost immeasurable, additional invisible footprint on the planet.  The money we invest supplies the capital necessary to run the global economic machine, which is responsible for so much of the erosion of the health of the global ecosystem.   Consider even a lone investor working from his solar powered home office, but making investment decisions that could potentially be funding industries that cause mass deforestation in the developing world.

What does offsetting do?

The notion of ‘offsetting’ is an interesting one. The term is now in common usage and one dictionary definition tells us the verb means to ‘Counteract (something) by having an equal and opposite force or effect’. It is important to query the accuracy of this definition when applied to the use of environmental offsetting in the business world. To answer this question we need to understand what environmental impact actually looks like; to go beyond litres of water and tonnes of CO2 emissions to the impact on landscapes around the world.

Environmental impact is not a discrete set of independent factors that can be individually offset, or a portfolio of assets that can be perfectly hedged. It therefore follows that ‘offsetting’ is a misnomer and is in fact, at best, mitigation.

So how should businesses approach the complexity of mitigating their environmental footprints?

Single dimension solutions do not answer multi-dimensional problems.Using a carbon ‘offsetting’ approach is a step in the right direction, but it is a one-dimensional solution to a multi-dimensional problem.

Having understood this, what does a multi-dimensional approach to negative environmental impact mitigation look like? Aurum started with carbon emissions and carbon offsets, but soon looked beyond this. The goal was to have a broader and more positive environmental impact, reflecting the complexity of its footprint.

Regenerating ecosystems: a multi-dimensional approach

Aurum partnered with conservation organisation Synchronicity Earth, and with its help devised a ‘Regeneration’ approach to this problem. Synchronicity Earth works with a broad range of Regeneration partners, local and multi-national Non-Governmental Organisations (NGOs) that are undertaking conservation work in developing countries in collaboration with local communities. These Regeneration partners set out to regenerate landscapes using the range of species native to an area with the long-term aim of re-establishing biodiversity and species abundance. This also results in carbon sequestration, improved freshwater catchments and reduced soil erosion.

Aurum’s Regeneration initiative is a funding partnership with Hutan, an NGO Regeneration partner of Synchronicity Earth. It was established in 1998 to restore highly degraded and fragmented forest patches in Sabah, Malaysian Borneo. This part of Borneo has already lost 80% of its forests to palm oil plantations. The forests that remain are vulnerable to further degradation, leaving wildlife isolated in ‘islands’ of forest where small populations are often not viable over the long-term.

Hutan has been rehabilitating wildlife habitat and forest corridors with local staff since 2003, by planting a broad range of species of native, fast-growing trees in areas where regeneration does not naturally occur. These forest corridors aim to provide shelter, food and connectivity for orangutans and many other animal species, as well as restoring carbon stocks and reconnecting ecosystems.

Benefits for people and the environment

What Aurum also learnt was that the funding it provides to Hutan also supports livelihoods, gender equality and education. The team replanting and nurturing seedlings are local paid staff, who are currently predominantly female. They have become firm supporters of the Regeneration project and their role in the project has changed their status in their community. At the end of 2015 a young local woman left the project. What Aurum initially thought of as a set-back turned out to be one of the best demonstrations of impact to date. This young woman went to university to learn more about environmental science, having been inspired by the work she had done as part of the project team.

Aurum is not alone in this approach

Other businesses in the hedge fund industry are now using this approach and getting involved with Synchronicity Earth’s work:

  • In May 2016 Albourne, a leading provider of independent hedge fund research, hosted a breakfast with Aurum to demonstrate how investment management firms can address environmental factors by supporting projects in the Synchronicity Earth Regeneration Portfolio.
  • Albourne also hosted a conference in Singapore in 2016 and, mindful of the environmental impact of participants travelling long distances, decided to support a Regeneration project.
  • In 2016 a London-based hedge fund manager began funding a Regeneration project in Ecuador, which supports a forest reserve in an area of rich biodiversity and funds reforestation to link the reserve to nearby protected areas.
  • In 2017 a US-based hedge fund manager began funding a Regeneration project in Tanzania, which supports communities to plant native forestry and agroforestry to restore local landscapes and improve sustainable agriculture.
  • Two hedge funds, one US-based and one UK-based, provide annual unrestricted funding to Synchronicity Earth, which supports strategic programmatic work on overlooked and underfunded conservation issues.
  • In 2017 Synchronicity Earth launched endowment funds. These portfolios provide for an annuity income, which facilitates planning and allows long-term conservation challenges to be addressed.  So far three have been established: The Ape Fund, The Living Fund and the Amphibian Fund. The donations that generate the endowment income are invested in hedge funds.  These are considered much needed innovative finance vehicles for the conservation sector.

The hedge fund industry has the potential to lead the way in developing enduring positive environmental impact solutions

Funding regeneration of ecosystems can produce long-term, sustainable and measurable positive environmental impacts.

If done with local people the benefits are as multi-dimensional as the problems being addressed

This approach has fundamentally changed the way many of the hedge funds involved with Synchronicity Earth think about the environment, and interest in the project continues to grow.  It has also brought benefits to their wider businesses in terms of both client and employee engagement.

We love the idea of helping to create a new livelihood for the local communities and understand the positive impacts that having healthy trees and forests will have on the environment and people of that region.’
Employee of a hedge fund that works with Synchronicity Earth.

To find out more about Synchronicity Earth please contact Catherine Bryan: Tel: 44 (0) 20 75810 100

A version of this appeared in HFM InvestHedge. HFM InvestHedge is one of several titles published under Pageant Media’s hedge fund brand, HFM Global, covering investor actions, profiles, in-depth analysis of investors and investor-related issues for allocators, consultants and the investor relations community.


  2. Douglas Rainsford Tompkins (March 20, 1943 – December 8, 2015) was an American conservationist, outdoorsman, philanthropist, filmmaker, agriculturalist, and businessman who assembled and preserved the land which became the largest gift of private land to government in South America.



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