05 May 2020
As the novel coronavirus outbreak continues to cross the globe, and while we try to adapt and manage the risk, mitigate the economic impact and heed scientific advice, questions remain.
In this blog, we attempt to consider whether a link exists between population growth, resource scarcity, unsustainable production and consumption patterns, deforestation, climate change and the emergence of communicable diseases*.
As active investors, we have a role to play in directing capital flows towards companies that can demonstrate resilience and offer long-term solutions. As responsible investors, we can help encourage investee companies – pushing for the development of consumption and production models that are scalable and sustainable over the long term.
For years, scientists have forewarned of the ‘spillover’ of viruses from animals into humans, and today we face the consequences of the inextricable link between human, animal and ecosystem health [1]. The spread of COVID-19 has disrupted lives, livelihoods, communities and businesses worldwide. This has destabilised the global financial markets at an unprecedented and alarming rate and stretched healthcare systems and economies to breaking point. As the crisis escalates, and our grasp of its seriousness unfolds, governments and central banks are rushing to deliver on fiscal and monetary policy stimulus packages to alleviate the adverse, long-term impact on the global economy. In recent weeks, countries around the world went from indifference to declaring states of emergency. It is against this backdrop that we attempt to connect the dots.
The onset of the outbreak: how communicable diseases are able to flourish
Communicable diseasesare caused by viruses or bacteria spread from one individual to another by a variety of means, but most typically through contact with contaminated surfaces or bodily fluids. Zoonotic diseases, or zoonoses, can be transmitted from animals to people (or vice versa) and more commonly exist in animals but can also infect humans. These viruses reside comfortably with their ‘reservoir hosts’ but, when disturbed, can jump from the animal host, sometimes through an intermediate ‘amplifier host’ and, eventually, to highly-abundant human hosts. Since the 1940s, hundreds of microbial pathogens have spread across the globe, either emerging for the first time or re-emerging in geographies where they had never been seen before. Some have come from pets and livestock; most (more than two thirds) originated in wildlife [2].
In 2017, years after initially researching the SARS (Severe Acute Respiratory Syndrome) epidemic, which affected China in 2002, a team of epidemiologists discovered the origins of the disease in a cave in Yunnan province, crowded with different species of horseshoe bats [3]. The researchers discovered the genomes of several different coronaviruses, and in these genetic codes, the ‘building blocks’ of the virus in the bats. How the virus ‘spilled over’ from bats to humans remains uncertain today, but the researchers believe that the civet, a cat-like wild animal and a delicacy in some parts of China, played the role of intermediary, or ‘amplifier host’, spreading the virus on to highly-abundant human hosts. Most microbes live harmlessly in animals, but, when ‘spillover’ events happen frequently enough, animal microbes adapt to our bodies and evolve into human pathogens.
Of course, the consumption of wild animals is not the only way diseases spread from animals to people; nor are respiratory viruses (like the novel coronavirus) the only diseases that we should be concerned about. Billions of people, particularly those who live in poverty, lack adequate sanitation, and are readily in close contact with infectious vectors, such as mosquitoes and domestic animals.
In addition, the illicit wildlife trade houses species in close proximity that would rarely, if ever, encounter each other in nature; allowing microbes to jump from one species to the next. Not only does the illegal wildlife trade facilitate inappropriate mixing of species, it facilitates cross-border movements without certification or health checks. The other major issue, which is subtly different, is the world’s system of animal husbandry, food production and food distribution, which has been linked to deadly microbes such as strains of E.coli5. Furthermore, the tons of excreta produced by livestock introduces yet more opportunities for animal microbes to spillover into human populations.
Factors influencing and exacerbating the spread of Zoonotic diseases
Tropical deforestation, the expansion of towns and cities, and industrial activities bring humans and animals closer together creating new pathways for animal microbes to adapt to the human body. The destruction and degradation of biodiverse hotspots, that disturbs fragile ecosystems, is an encroaching threat, exacerbated by a changing climate and unsustainable consumption patterns. Combined, these factors can contribute to the risks of novel deadly microbes spilling over into human populations.
Speculation about which specific animal originally harboured the novel coronavirus – a particular media focus – obscures a more fundamental source of our growing vulnerability to pandemics: the accelerating pace of habitat loss[4]. We cannot ignore the inextricable link between human, animal and ecosystem health, and the unsustainable consumption and production patterns which are expected to increase as the world’s population expands.
Population growth:
With an extra two billion people expected on the planet over the next twenty years, addressing issues related to food scarcity and sustainable food production will play a critical role in alleviating poverty to ensure that we end hunger and improve nutrition.
There are currently around 7.8 billion people alive today, more than half of which live in urban communities[5], and roughly 83 million people are being added to the world’s population every year[6]. This growing, and ageing, population is expected to have a profound effect on societies; underscoring fiscal and political pressures that many countries are likely to face.
With a rapidly growing global population, demand for goods and services will continue to rise and necessary action will be required to ensure that current material needs do not result in the over-extraction and degradation of environmental resources.[7]
In an average year, according to recent estimates, billions of animals are slaughtered for human consumption: 50 billion chickens (excludes male chicks and unproductive hens killed in egg production); nearly 1.5 billion pigs, a number that has tripled in the last 50 years in light of the growing appetite for pork products; and half a billion sheep. We eat more meat per person than ever. In the last 50 years the number of people on the planet has doubled, but the amount of meat we eat has tripled – this is not a sustainable pattern of consumption. The environmental cost of our growing appetite for meat is considerable.
But why the focus on animal protein? The World Resources Institute (WRI) estimates that the food gap (the increase above the amount of food produced in 2010, the base year, to the amount the world will require in 2050 (based on projected demand) is 56%, driven by population growth from 7.8 billion to 9.8 billion people[8]. Consumption of animal proteins is likely to grow by 68% from 2010. This increasing demand is expected to place undue pressure on the Earth’s biosphere, contributing to rising climate change; resulting in biodiversity loss and ecosystem degradation.
Climate change and Biodiversity loss:
Scientific evidence suggests that climate is changing faster than at almost any point in history and the increase of CO2 in the Earth’s atmosphere can be largely attributed to human activity, particularly the burning of fossil fuels, but also tropical deforestation from land-use change and intensive agricultural practices for key commodities such as palm oil, soy and beef.
Climate change and biodiversity loss are interconnected[9]. Rapid changes in climate can damage ecosystems and accelerate biodiversity loss[10] with negative consequences for human well-being. Biodiversity, through the ecosystem services it supports, also makes an important contribution to both climate-change mitigation and adaptation.
The loss of global biodiversity is accelerating, moving us closer towards unknown and irreversible changes to the Earth’s ecosystems, and climate change is likely to become one of the most significant drivers of biodiversity loss by the end of the century.
Irrespective of human needs and interests, changes in climatic variables have led to increased frequency and outbreaks of pest and communicable diseases.For example, the distribution of vector-borne diseases (e.g. malaria and dengue) and food and water borne disease (e.g. diarrhoea) are exacerbated by changes in climatic factors.
Biodiversity protection and effective action on climate change are not mutually exclusive. Future climate-related risks could be reduced by accelerating far-reaching, cross-sectoral climate mitigation strategies that recognise the relationship between biodiversity, ecosystem services and climate change. Nature plays a critical role in providing food, energy, medicines and genetic resources and a variety of materials fundamental to physical well-being. Yet, the biosphere, upon which humanity depends, is being altered across all spatial scales.
The target of limiting global warming to 1.5°C (above pre-industrial levels) is aimed, not least, at reducing the loss of vital ecosystems. However, at current estimates, the world is already at ca. 1°C of warming above pre-industrial levels. According to an IPCC Special Report on Global Warming[11] meeting the 1.5°C target will likely only be achieved by rapid, far-reaching and unprecedented changes to all aspects of society.
Deforestation and Ecosystem degradation:
Tropical forests cover about 7% of dry land, but it is estimated that they probably harbour about 50% of all species on Earth. Many species are so specialised to microhabitats within forests that they can only be found in small areas[12]. Habitat destruction forces those wild species that aren’t eliminated to cram into smaller fragments of remaining habitat, increasing the likelihood that they will come into repeated, intimate contact with human settlements expanding into newly-fragmented habitats. The impact of deforestation and degradation of tropical forests is widely recognised as a constituent in global Greenhouse Gas (GHG) emissions, but what is often overlooked is the critical importance of protecting biodiversity hotspots.
Global demand for key forest risk commodities such as palm oil, soy and beef are largely responsible for the deforestation of tropical forests. On the island of Borneo, at least 50% of all deforestation between 2005 and 2015 was related to oil palm development[13]. Today, we can directly link the deracination of tropical forests with the deleterious impact on biodiversity, as biodiverse hotspots are converted into monoculture plantations.
Conversion of natural ecosystems, mostly in the tropics, tends to harm biodiversity, resulting in ecosystem degradation and intrusion. This disturbs intact ecosystems and dislodges viruses from reservoir hosts and internal ecosystems, freeing them to pass onto new, highly-abundant hosts. Protecting our natural capital and keeping our ecosystems intact will play a critical role in avoiding future spilling over of viruses[14], portentously highlighted by leading epidemiologists in recent years.
Interconnectedness
So how do we bring this all together? We have discussed the emergence of new, communicable diseases (specifically zoonotic diseases at the animal-human interface), population growth, unsustainable consumption patterns and climate change. We have talked about the link between climate change and biodiversity, and covered the trafficking of animals out of their natural habitats to be bred for human consumption and the link to highly-infectious communicable diseases. These factors are interconnected: the pressure we are placing on the earth’s finite resources, the insatiable demand for more animal proteins, the destruction of biodiverse hotspots and the forces of climate change.
The increased interconnectedness and interdependence of peoples and countries, includes two elements; (i) the opening of international borders to increasingly-fast flows of goods, services, finance, people and ideas, and (ii) the changes in institutions and policies at national and international levels which facilitate or promote such flows[15].
Globalisation has lifted millions of people out of poverty and offers interdependence, interactivity and virtually instantaneous exchange of information, but competition to meet our global demand has resulted in overexploitation of natural resources and unsustainable practices. Today, we seek to link the great acceleration in population growth, socio-economic and earth system trends[16] to forest destruction, biodiversity loss, climate change and emergence of new, communicable diseases.
Assessments by the World Economic Forum (WEF) on a hyperconnected world give us new tools and perspectives to address the science of complexity[17]. This science is not so much a subject of research as a new way of looking at phenomena. It is inherently interdisciplinary, meaning that it derives its problems from the real world and its concepts and methods from all fields of science. For centuries, scientists have worked by reducing the object of study down to its constituent components. Complexity science, by contrast, provides a complementary perspective by seeking to understand systems as interacting elements that form, change, and evolve over time.
The WEF identified ‘infectious diseases’ as one of the top ten risks in terms of impact, yet progress against pandemics has been undermined by vaccine hesitancy and drug resistance, making it increasingly difficult to eliminate some of the most virulent, existing infectious diseases and tackle new and emerging pandemics; posing a global health security risk.
Declining vaccination levels against communicable diseases, such as measles, poses an enormous public health risk, and, as we’ve witnessed in 2020, worldwide health systems are underprepared for a significant outbreak of emerging infectious diseases, such as COVID-19, SARS, Zika and MERS. An infectious disease outbreak involves a complex interplay of human, animal and ecosystem health. Set against an environment that includes global travel, stress on healthcare systems and social mixing. Lapses in environmental health are increasingly recognised as major contributors to illness and death. This is further exacerbated by human-made environmental problems including deforestation, biodiversity loss and climate change.[18]
Initiatives, Frameworks and Solutions: UN SDGs
The United Nations Sustainable Development Goals (UN SDGs) are interlinked and indivisible and the global goals set out a blueprint for building a better, more sustainable world that works for both people and the environment. Current negative trends in biodiversity and ecosystems have the potential to undermine progress towards 80% of the assessed targets[19]; highlighting the critical importance of biodiversity conservation and ecosystem services. Protecting wildlife habitats, so animal microbes stay in animal bodies and don’t cross over into ours, will be a critical part of the solution.
A nexus approach to Sustainable Development
Many global challenges, though interconnected, are addressed singularly; a nexus approach to sustainable development examines interactions among multiple sectors[20]. With the global population projected to exceed 9 billion people by 2050, global challenges to reduce food insecurity, improve health and well-being, protect biodiversity-rich hot spots and combat communicable diseases are deeply interconnected. Major threats from climate change compound the challenge, adding further interlinkages. In order to deliver on the UN SDGs, a nexus approach seeks to understand the connections, symbioses and trade-offs.
A nexus approach can also help to identify unexpected consequences and enhance planning, decision-making, governance and management. In this blog alone, we have identified a nexus of five SDGs that are deeply interconnected when tackling the issue of food scarcity, sustainable production, health & well-being, climate action and communicable disease. Nexus models help us understand and elucidate the consequences of various scenarios and identify complex and dynamic interactions such as the co-benefits and synergies among different sectors.
What does all of this mean for investors?
Active managers seek to engage with company managements to ensure they have understood the risks and opportunities to their businesses from a changing climate, resource scarcity and extreme weather events. On the back of the COVID-19 pandemic, we will increasingly see investee companies being called upon to demonstrate an awareness of how biodiversity loss, ecosystem degradation and pandemics can harm their business and, where appropriate, evidence measures to mitigate the risk. The crippling effect the current pandemic is having on complex supply chains and a company’s ability to operate with a diminished workforce has rapidly changed the playing field in only a few short months.
Understanding how companies are positioned to deal with immediate supply chain disruption and a sudden loss of consumer confidence will force responsible investors to reappraise how they evaluate investee companies through an Environmental, Social and Governance (ESG) lens. In light of the current situation, there will certainly be intense focus on disaster recovery procedures as we emerge from this crisis. There are companies that are emerging as winners, demonstrating dynamism, agility, innovation and adaptation; credentials that responsible investors will increasingly seek, as they too evolve in response to this crisis.
We are also witnessing corporate collaborations in response to the outbreak; with healthcare companies combining forces to evaluate and produce treatments to combat COVID-19, manufacturers repurposing machinery and technological systems to produce equipment including much-needed medical ventilators, textile producers looking at their ability to switch capacity over to the production of surgical face masks and other protective wear for healthcare workers, and consumer goods companies pivoting and redeploying efforts to produce anti-bacterial gels. In times of economic stress, while facing a threat to health and well-being, the willingness of companies to adapt, collaborate and offer accessible solutions, demonstrates much sought-after agility and receptivity to new challenges.
The financial sector, a critical component of a well-functioning economy, also has a role to play, in directing capital flows towards those companies that are investing in solutions to prevent future outbreaks. There are a number of levers that active managers have to engage with investee companies and, today, they have an ever-more critical role in identifying those companies that can demonstrate the astuteness to acknowledge the impact and likelihood of global risks (as identified by the WEF) and take action accordingly.
It is becoming increasingly important that investment analysis identifies material risks related to climate change, ecosystem degradation and biodiversity loss. Tackling communicable diseases, supporting sustainable production and consumption, and maintaining ecosystem strength to build capacity for adaptation to climate change, will all have an impact on longer-term financial returns.
If active managers are also to thrive, they will need to evidence that they have understood the inextricable link between human, animal and ecosystem health, and ensure that company engagements are far-reaching and exploratory, in a way that they may never have been before.
*Please note, the content in this summary blog forms part of a wider paper by the same author – Anita McBain, Head of Responsible Investment and ESG, M&G Investments entitled, ‘Pandemic: The inextricable link between human, animal and ecosystem health’.
[1] Quammen, David (2012) Spillover: Animal Infections and the Next Human Pandemic
[2] Shah, S. (February, 2020) Think Exotic Animals Are to Blame for the Coronavirus? Think Again. The Nation.
[3] Kahn, L. H. (2020). Coronavirus or antibiotic resistance: Our appetite for animals (wild and domestic) poses big disease risks
[4] Shah, S. (February, 2020). Think Exotic Animals Are to Blame for the Coronavirus? Think Again. The Nation.
[5] Worldometer. (2020). Current World Population
[6] UN DESA. (2017). World population projected to reach 9.8 billion in 2050, and 11.2 billion in 2100
[7] UN. (2020). Sustainable Development Goals Knowledge Platform
[8] World Resources Institute: Creating a sustainable food future
[9] Convention on Biological Diversity. (n.d.). About climate change and biological diversity
[10] IPBES. (2017). Climate Change and Biodiversity: Opportunities and Risks
[11] Masson-Delmotte, V., Zhai, P., Pörtner, H.-O., Roberts, D., Skea, J., Shukla, P. R., … Waterfield, T. (2019). 2018: Global warming of 1.5°C An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate
[12] NASA Earth Observatory https://earthobservatory.nasa.gov/features/Deforestation
[13] IUCN. (n.d.). Palm oil and biodiversity
[14] Quammen, D. (2012). Spillover: Animal infections and the next human pandemic. Yale Journal of Biology and Medicine, 587.
[15] World Health Organisation (WHO). (2016). Guidance for managing ethical issues in infectious disease outbreaks. In World Health Organisation.
[16] Steffen, W., Broadgate, W., Deutsch, L., Gaffney, O., & Ludwig, C. (2015). The trajectory of the Anthropocene: The great acceleration. Anthropocene Review, 2(1), 81–98.
[17] WEF. (2013). Perspectives on a Hyperconnected World. In World Economic Forum.
[18] WEF. (2020). The Global Risks Report 2020.
[19] UN SDG Annual Report
[20] Liu, J., Hull, V., Godfray, H. C. J., Tilman, D., Gleick, P., Hoff, H., … Li, S. (2018). Nexus approaches to global sustainable development. Nature Sustainability, 1(9), 466–476.
value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.