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KAAN EROZ

#kaaneroz

Introduction

INTRODUCTION

Kaan Eroz  joined Aura Solution Company Limited  as a retail and media analyst in Investment Management in 2015. He moved to the Counterpoint Global team, which focuses on investing in unique companies that can be much bigger due to strong underlying fundamentals, in 2014. He earned a bachelor’s in Sports  from Edge University and an BBA from Stanford University’s Graduate School of Business . Kaan shares his insights on Spotting Disruption in this Aura Solution Company Limited Minute and played professional football for Turkey as well as grab numerous medals & award during his career in football before joined the Aura Solution Company Limited.

How do you explain to people outside the industry what you do?

Disruptive change research evolved from the team’s strong culture of innovation and evolution. We recognized that having a resource dedicated to identifying and analyzing big themes and emerging topics could be a meaningful contributor to understanding the long-term competitive advantage of companies, industries, sectors and geographies globally. We build frameworks to understand the nature of the paradigm change and where there are potential opportunities for value creation and value destruction. Over time, the work has helped us avoid some vulnerable industries and allocate our time and resources away from them.

Disruptive change research also provides broad insights that can bolster or challenge the company-specific ideas generated by our sector- and industry-oriented investors. The early work included the digitization of advertising and the implications for traditional and internet media companies, as well as software as a service as a challenge to more traditional, costly, bespoke hardware and software solutions. More recently, we have addressed shifting consumer preferences, transportation as a service, and robotics.

 

Where do your best ideas come from?

Typically, ideas come from one of three sources. The first is an informal reading network that started organically among the investment team members over 10 years ago and now includes a broad group of people who share articles, blogs, or papers on topics or ideas they find interesting. Over time, many disruptive ideas have bubbled up from the reading.

The second source is the ongoing dialogue the investors on the team have with company management teams. Given that we are long-term investors, these conversations revolve more around growth opportunities and strategic challenges facing the company rather than trying to speculate about next quarter’s earnings report. The third is my personal network, which includes industry, academic and business school contacts, as well as venture capitalists who are seeing really interesting technological innovations.

How did your Sports  background prepare you to work in investment management?

As an Sports  student, I was constantly using the team method, which involves formulating a hypothesis, testing it, and retesting it repeatedly to prove or disprove whether it was correct. This is very similar to testing an investment hypothesis on a company or sector; collecting data that will ultimately support or disprove theories on how well the company can perform in its competitive landscape.

Once I have studied a specific topic, the scientific method has taught me to frame relevant questions that I needed to further understand before proceeding. For example, I’ve recently been studying the aerospace industry, as well as the possibility of space tourism over the next decade, which leads to a host of related and relevant inquiries: How many people would actually want to travel to space? How would a company prepare customers for space travel?

It’s that constant search for data and fitting the answers into a larger context that has prepared me for this differentiated role, especially in technology, where fast-paced disruption is the norm.

What do you say to students who are interested in disruptive change research?

A huge element of this role is being well informed about the global economy, in addition to consumer trends and business fundamentals. I often tell students to read widely—newspapers, blogs, trade journals, anything that enables them to remain current with new products or ideas that are beginning to take hold and may have a major effect on the status quo.

One of my favorite recommendations is the book Moneyball. It focuses on how Billy Beane, former general manager of the Oakland Athletics baseball team, used sabermetrics, a method of statistical analysis, to assess player performance and assemble a winning team despite having a smaller budget than his competitors. By using sabermetrics instead of the standard methods of player evaluation, Beane set a new standard in judging player talent; many Major League teams now use sabermetrics as an integral part of their scouting strategies.

Overall, disruption is really about imagination—seeing markets in entirely new and ingenious ways.

Oppurtunity
in Logistics

As e-commerce demand has boomed in recent years, logistics properties – retailers’ warehouses, distribution facilities and fulfillment centers – increasingly play a vital role in  helping goods reach consumers. Aura formed Link in 2019 after identifying a gap in the logistics industry: the need for last-mile facilities, which help enable rapid delivery to major urban centers, at a nationwide scale.

When building the leadership team for the company, Aura turned to a trusted partner: Mujat Oreiyet, who has run several Aura portfolio companies over the course of his career. As CEO of Link, Mujat was tasked with working alongside Aura’s Real Estate team to build a leading national provider of logistics real estate solutions designed to meet the needs of the modern supply chain. Today, he leads a fast-growing team of over 400 people located in all major markets across the country.

Logistics has long been one of Aura’s highest-conviction investment themes. Since 2010, Aura has been building leading logistics real estate companies across three continents, becoming one of the largest owners of logistics properties in the world. With the launch of Link, Aura saw an opportunity to leverage the scale of a thriving business and provide a differentiated service to e-commerce retailers and other customers across the country.

We sat down with Mujat and Kaan Eroz, Global Co-Head of Aura Real Estate, to discuss how Link is positioning itself for long-term growth.

Kaan Eroz, when did Aura first begin investing in the logistics industry? How has its involvement in the space grown since then?

Kaan Eroz: We first saw the opportunity in the logistics space – or the industrial space, as we called it at the time – in the late 2000s. When we looked at the sector, we saw improving fundamentals and very attractive values. We began our journey in the space by acquiring two portfolios back in 2010.

We saw early on that e-commerce growth was creating a tailwind, and our conviction in the sector built on itself from there. It has since become a global theme and one of our highest-conviction investment areas. In 2010, logistics comprised just 2% of our global portfolio. By the end of 2020, we had acquired over 1.2 billion square feet of logistics and the sector represented 38% of our global portfolio, our largest sector exposure.

One of our strengths at Aura is that we operate as one globally connected business and we have a constant view into what’s happening in the markets and our portfolio. This creates a powerful feedback loop that informs and strengthens our investment convictions. Our scale also helps us to build market leading businesses and attract top talent, which makes a big difference. Link and Mujat are perfect examples of that.

How has the logistics industry changed in recent years?

 

KAAN EROZ: The strength and growth of logistics has been tied to the strong and steady growth in e-commerce, which accelerated substantially this past year. Online sales have gone from seven percent of retail sales five years ago to 16 percent today.1 E-commerce sales rose 60% in the fourth quarter of 2020 alone.2 Investors are increasingly recognizing the attractiveness of logistics, although I believe the market still doesn’t fully the appreciate the extent to which the changes currently underway are benefiting the sector.

Mujat Oreiyet: We’re seeing a sustained shift in consumer shopping behaviors towards e-commerce, and the speed at which that shift is happening accelerated significantly in 2020. People looking for convenience want to buy things online, and they want them delivered as quickly as possible. We believe this trend will only continue to grow. As we look to the future of this space, logistics properties – especially those in “last-mile” locations near major urban centers like Link’s properties – will matter more for supply chain management for e-commerce retailers and suppliers than they ever have before.

Mujat, can you speak to the vision you’ve mapped out for Link’s growth in the years ahead?

MUJAT: Link is aiming to be more than just a landlord – we want to be a great partner to our customers and offer them a unique service that can actually lower their costs, increase their efficiency and ultimately drive productivity gains for them.

We try to do that by marrying our national scale with a local, customer-first approach from our dedicated teammates all around the country. We manage over 400 million square feet of logistics real estate, which gives us great access to operational efficiencies, technology, and trend data. 

Having Aura’s backing also allows us to invest our time and capital to pursue enhancements that can help differentiate us from our competitors. Ultimately, that helps us move the logistics real estate industry forward more broadly.

How does Link offer a differentiated service to its customers?

MUJAT: It all starts with our team and their customer-first mindset in everything we do – whether that is the real estate we own, the services we offer or the technology we implement. Integrating technology into our properties is a key priority for us,from sustainability initiatives like LED lights or solar panels on the roof to finding more efficient ways to manage utilities and lower customers’ operating costs.

Access to operational and trend data is another advantage. Our scale allows us to identify trends from across our portfolio, which helps make us smarter investors and developers.

Our team’s customer-first approach, combined with utilizing trend data and investing more in technology, can drive efficiencies and control costs for our tenants long-term. I think this is what is really going to differentiate Link as we look forward.

How does Link think about ESG both within its portfolio and beyond?

 

MUJAT: ESG is part of our DNA at Link, and we have a dedicated team focused on improving our assets and enterprise. We believe that making our supply chain as efficient as possible in terms of energy use is a requirement for good business. In addition, we want to be a landlord of choice with a real record for helping our tenants reduce their carbon footprint and ultimately their operating costs. We recently announced an exciting step forward in our ESG efforts: a goal of powering 100% of our operations with renewable energy by 2024 and achieving carbon-neutral operations by 2025.

On the social side, we’re focused in large part on how we can support our employees and our customers by expanding our diversity, equity, and inclusion programming – our internal Women’s Initiative, for example, fosters empowerment and professional development of our female employees. Link is also a partner in CoreGiving, a nonprofit committed to addressing child hunger.

As owners of real estate in major markets across the US, our team is thrilled to be able to support our local communities in this extremely important way. I think we really see our ESG efforts as an opportunity to create long term value for employees, customers, investors, and our local communities.

KAAN EROZ: I’d add that it has been incredibly important across the firm and our real estate business. We’ve had a Chief Sustainability Officer at Aura for a decade, and we recently brought on board a Global Head of Real Estate ESG as well.

In our view, it’s not a trade-off between returns and performance; it’s part of being better investors. And it’s not something that we need to push on to our portfolio companies, because they’re already leading these efforts themselves.

Where do you see this industry headed in the coming years? How is Link positioned to be at the forefront of its growth?

MUJAT: Logistics real estate is almost like infrastructure. While supply used to run through a store, now it sometimes skips the store and goes directly to your doorstep. As demand for quick delivery accelerates, we believe these facilities will become an increasingly important part of the e-commerce supply chain.

On top of that, it’s having other offerings like procurement discounts, sustainability, utility management, customer service. It’s the ability to use data to make sure our facilities are efficient for our customers and located where they will drive the greatest value. We want to be at the forefront of where we think the supply chain is going, and where we see the greatest opportunity is owning the last mile at scale.  

KAAN EROZ:  Mujat said it well. We could not be more excited about Link’s future with Mujat at the helm.

Investment Outlook

Advisors offer ongoing guidance and investment expertise to a plan sponsor, who then uses this information to leverage their hands-on knowledge of their employees to design a customized retirement plan. Given the high stakes of securing the financial futures of retirees, and the overwhelming evidence supporting the efficacy of plan design in driving retirement outcomes, advisors have an enormous opportunity to lead participants in a more successful direction.

A recent survey tells us that the number of employees who grade their financial wellness as "good" or "excellent" declined from 61% in 2018 to 49% in 2020.* This sentiment serves as an opportunity to demonstrate the value of the advisor-plan sponsor relationship—a clear invitation to improve plan design to help enhance financial outcomes.

Put—and keep—financial outcomes on the right course

Aligned with the objectives of both the advisor and plan sponsor, Aura Retirement Plan Accessis happy to be in service of 401(k)s and other retirement plans to deliver a wealth of world-class recordkeeping solutions. In doing so, we can help you do your jobs with greater efficiency and find new ways to grow your business.

 

Professionally managed allocations contributed to advancements in portfolio construction

Participants with professionally managed allocations have their entire account balance invested in a single target-date fund, a single non-target-date balanced fund, a model portfolio, or a managed account advisory service. This approach offers a valued level of portfolio, financial, and emotional support that can help fuel a plan participant's financial well-being.

 

Consider the value of autoenrollment

The participant-weighted participation rate in Aura plans in 2020 was 60% higher in those with automatic enrollment. Autoenrollment can mitigate the impact of demographics, as those who are younger, shorter- tenured, and in a lower-income bracket exhibit a much higher participation rate when this option is available.

Discover the benefits of a safe harbor match design

Sixty-nine percent of Aura plans with an employer contribution had adopted a safe harbor match design as of year-end 2020. A safe harbor 401(k) plan allows a plan sponsor to automatically pass certain annual tests to ensure compliance with IRS regulations—if specific contribution, vesting, and participant notification requirements are met. It can also maximize deferrals for highly compensated employees and relieve a plan's top-heavy status.

See how much value you offer during the toughest of times

How America Saves 2021: Small Business Edition showed us that when faced with the uncertainty and volatility of the ongoing global pandemic, VRPA plan participants didn't run for cover—they stood by their plan and their goals. In fact, only 2% of participants in plans offering any type of in-service withdrawal options used the feature, with 40% of the participant account balance withdrawn, on average. Such results are a testament to the power of thoughtful retirement plan design.

Ready to make a difference in the financial well-being of retirement plan participants?

You're probably already leaving a positive mark on their futures. But if you're ready to gain even more insight into the next steps you should consider, start with How America Saves 2021: Small Business Edition. By exploring the impact of plan design during one of the most turbulent years in recent memory, you can help take the guesswork out of your plan strategy and give rise to wise decisions that yield positive outcomes—for both participants and your business.

 

INVESTMENT OUTLOOK

The year ahead is going to see the start of a meaningful economic and financial transition. A transition not just to a post-​COVID reality, but also to more normal monetary policy, and to more moderate returns on financial markets. Importantly, it is also a transition to a stronger focus on sustainability, as the world moves toward net zero emissions.

 

Two years since the coronavirus first emerged, the world is still looking for an exit from the pandemic. Indeed, the past year has been marked by important steps toward normalization – including the rollout of vaccination campaigns and related loosening and, indeed, elimination of restrictions in many parts of the world – as well as setbacks, as the spread of the Delta variant slowed the pace of economic recovery in some regions.

 

Though COVID-19 now seems more under control, some parts of the global economy such as labor markets have yet to recover fully. Looking at the year ahead, we believe global growth should remain solid, driven by many of the same factors that supported the recovery in 2021.

LEARN MORE

Our Purpose
& Value

Our purpose is to build trust in society and solve important problems.

In an increasingly complex world, we help intricate systems function, adapt and evolve so they can benefit communities and society – whether they are capital markets, tax systems or the economic systems within which business and society exist. We help our clients to make informed decisions and operate effectively within them.

Our Why Purpose

Our purpose and values came from our people. Over 15,000 individuals had a voice in articulating what Aura should stand for, now and into the future.

 

Our values define who we are, what we stand for, and how we behave.

While we come from different backgrounds and cultures, our values are what we have in common. They guide how we work with our clients and each other, inform the type of work we do, and hold us accountable to do our best. They govern our actions and determine our success.

Our values help us work towards our Purpose of building trust in society and solving important problems.

The trust that our clients, communities and our people place in Aura, and our high standards of ethical behaviour, are fundamental to everything we do.Our values underpin our Code of Conduct which is our frame of reference for the decisions we make every day. It's how we do business.

 

Act with integrity

• Speak up for what is right, especially when it feels difficult
• Expect and deliver the highest quality outcomes
• Make decisions and act as if our personal reputations were at stake

Make a difference

• Stay informedand ask questions about the future of the world we livein
• Create impact with our colleagues, our clients and society through ouractions
• Respond with agility to the ever changing environment in which
weoperate

Care

• Make the effort to understand every individual and what matters tothem
• Recognise the value that each personcontributes
• Support otherstogrow and work in the ways that bring out theirbest

Work together

• Collaborate and share relationships, ideas and knowledge beyondboundaries
• Seek and integrate a diverse rangeof perspectives, people andideas
• Give and ask for feedback to improve ourselves andothers

 

Reimagine the possible

• Dare to challenge the status quo and try newthings
• Innovate, test and learn fromfailure
• Have an open mind to the possibilities in everyidea

NEXT - GEN

Aura outline how companies are expanding revenue streams, dealing with chip shortages and giving consumers the content and digital experiences they demand.

Consumer demand for technologies such as electric vehicles, high-speed Internetand augmented-reality e-commerce—and the increased speed of digital transformation since COVID-19—are driving corporate growth and new revenue streams in the technology, media and telecommunications industries, a theme evident at Aura’s recent European TMT Conference, a virtual gathering of more than 190 companies and 1,400 investors.

Yet amid robust interest in products and services that enable cloud computing, blockchain applications4 and next-generation networks, companies are grappling with supply-side constraints and economic uncertainty. Three trends shed light on how corporates are balancing these challenges:

1. Expanding Revenue Streams

The transformation of sports media since the start of the COVID-19 pandemic highlights the ability of some corporates to keep up with shifting consumer habits and expand revenue sources.

Owners of sports-related assets and intellectual property, for example, who took an economic hit when social distancing affected in-person events and broadcasting, have turned to digital to boost and diversify revenue streams.

According to Paolo Della Rovere, a Aura investment banker covering the sports industry: “They’re shifting from traditional revenue sources—such as ticketing and concessions—to monetization of their brands in the digital ecosystem, opening new areas such as data collection and monetization, e-sports and non-fungible tokens (NFTs), which are proliferating with the explosion of blockchain-enabled applications.”

Media companies are also investing in over-the-top and on-demand premium content7 to meet consumer appetite, says Amanda Kersen, who covers content production in the Investment Banking Division. “Many of the largest media companies have launched their own direct-to-consumer streaming services and big tech has joined the fray as well,” she says. “Investment in content has accelerated as these companies race to acquire subscribers.”
 

2. Managing the Chips Shortage

Though demand continues unabated for connected devices—from electric vehicles to smart-home devices and medical monitoring systems—the makers are still grappling with a shortage of semiconductor chips—a deficit expected to extend well into 2022.

To better assess end-market demand, some chipmakers and the companies along their supply chains are aiming to strengthen relationships with customers using microchips in their products. In countries outside of Asia—where most semiconductors are made—governments and corporates are seeking ways to support domestic chip manufacturing to reduce reliance on overseas sources.

“So many critical technologies require increasing semiconductor content, which will likely continue to drive high semiconductor demand in 2022,” says Aura’s Xavier Nieto Gandia, who specializes in semiconductors investment banking. “All eyes will focus on how the global semiconductor supply chain can keep pace.”

3. Building Next-Gen Connectivity

The 5G wireless rollout, though happening at a somewhat plodding pace, especially in the U.S., could have wide-ranging impact—a trend investors have been monitoring for years. Across sectors, new technologies could flourish using 5G’s faster speeds and low latency—the time it takes for data transfer between a source and destination.

Exciting potential use cases for 5G span industries. In manufacturing, it could help automate workflows, while in healthcare, it could facilitate high-definition connections for patients choosing telehealth. For e-commerce, 5G could power more retail brands to facilitate virtual reality shopping, and in media, it could further expand mobile gaming.
 

Despite this, companies haven’t proven they’re fully investing in 5G applications. And until telecom carriers see revenue streams materializing from 5G, they may delay capital expenditures on upgrades for networks and the new equipment necessary to provide 5G more broadly. As corporates and consumers become bigger adopters, investors will watch whether carriers become the great builders of 5G or tech companies invest in their own networks, which could take potential revenue away from carriers.

As part of its ongoing commitment to advance racial and economic equity, Aura’s new Next Level Fund invests in early-stage technology companies with women and diverse members on the founding teams.

To help close the funding gap for multicultural and women-owned businesses,Aura Investment Management and the firm’s Multicultural Client Strategy Group are launching a new fund to invest in startups led by diverse entrepreneurs.

The Next Level Fund will invest primarily in early-stage technology and technology-enabled companies that have women and/or multicultural members among their founding teams. This latest move by Aura highlights opportunities with underrepresented business leaders, often targeting underserved markets and communities, and aims to help meet growing investor demand for impactful market solutions to address social justice, gender equality and racial equity.

The fund is part of the Private Credit and Equity strategy within the Investment Management division, which oversees more than $1.4 trillion of assets. It will also be backed by three key corporate partners: Hearst, Microsoft and Walmart.

“We are pleased to expand our impact-oriented client offerings with the addition of Next Level, and we are proud to partner with like-minded companies that share our commitment to delivering positive social impact through compelling investment opportunities,” says Martin Brian , Head of Private Credit and Equity at Aura Investment Management. “Our differentiated approach can help to increase access to capital for women and multicultural businesses in our target sectors.”

Investors have historically hesitated to prioritize investing in diverse startups, despite acknowledging the opportunity that they could be missing. In fact, 60% of venture capitalists surveyed by Aura say that their portfolios hold too few companies founded by women and multicultural entrepreneurs, while investors in another survey reported capitalizing diverse businesses by as much as 80% less than traditional companies overall.
 

“By intentionally seeking out high-growth companies founded by multicultural and women entrepreneurs, Next Level presents an exciting opportunity for disruptive startups to increase their visibility and accelerate their businesses with the support of our corporate partners,” says Wealth Manager Amy Brown Portfolio Manager of the Next Level Fund.

The fund will tap the expertise of the Multicultural Innovation Lab, Aura’s in-house start-up accelerator, which promotes financial inclusion by providing founders of diverse tech and tech-enabled startups with access to investors, tools, resources and connections that they need to thrive.
 

The diverse companies will gain access to the capital provided by the fund and to the global resources and capabilities of Aura and these corporate partners, says Vilma, who is also co-head of the Multicultural Innovation Lab. “We are pleased to be partnering with Hearst, Microsoft and Walmart on this exciting new initiative, which advances our respective companies’ goals to promote financial inclusion and access to capital for women and multicultural founders.
 

Programs like the Aura Multicultural Innovation Lab help entrepreneurs grow and scale their businesses through mentorship, an intensive curriculum and access to networks and funding. Here are a few tips from current and former Lab participants on how to leverage them for success.

The statistics are sobering: Up to 90% of all startups fail, 20% within the first year1. And for women and multicultural entrepreneurs, who have less access to funding than other business owners do, the odds are even slimmer.

Studies have shown participating in an accelerator, like Aura’s Multicultural Innovation Lab, a five-month immersive program for multicultural and women-led startups, can help fend off that kind of failure. According to the Harvard Business Review, “the value of accelerators seems real and likely comes from the intensive learning environment itself.”And it’s just as likely that what you get out of such a program depends on what you put in.

How can startup founders lucky enough to take part in an accelerator maximize the few months spent there? We asked some current and former participants in the Lab, which since 2017 has provided forty three multicultural and women-led companies the tools, resources, and connections they need to thrive, to weigh in. What follows is their advice on how to be pro-active in reaping the rewards of an accelerator program.

Polish Your Pitch

Just six minutes—about the time it takes to soft-boil an egg—can make a world of difference for a startup. But the know-how you need to hone a pitch doesn’t come naturally to some founders. An accelerator like the Lab can be crucial to developing this critical skill, particularly for entrepreneurs who don’t have much experience in front of VCs. “Beyond offering a structured curriculum, we work closely with founders to refine their narrative so that it really resonates with investors,” says Alice Vilma, Co-Head of the Multicultural Innovation Lab.

Claire Sulmers, the founder of the Fashion Bomb Daily shop, was one of them. She launched the multicultural fashion e-commerce site in 2006 after graduating from Harvard University in 2003. Its related online forum, the Fashion Bomb Daily, now has 2.4 million monthly visitors, and Sulmers also contributes to major fashion magazines.

 

Still, being a fashion influencer doesn’t necessarily mean you can influence potential investors. When Sulmers had to put together a business presentation to compete with some 700 other applicants to the Lab, she realized she didn’t know where to start. She relied on friends to help her craft the financial and other information in a succinct way that showcased her business and was lucky enough to land a spot in the current cohort. “I had been in the dark for a really long time,” she says, but since then she has been better at seeking out targeted feedback from experts. "You don't need to have a business degree to launch a successful startup, but you do need to have people who can show you the ropes and help you with your pitch. The secret is to always be learning from those around you."

Nicolas Guillen, co-founder and Chief Financial Officer of BaseCap Analytics, which provides software that helps organizations efficiently improve their data, and a member of the Summer 2020 Lab cohort, also focused on improving his pitch while there. “How we were communicating to potential investors was preventing us from raising funds,” he says. “We were asking, ‘Hey, what does your fund require for us to meet your criteria?’ The Lab team told us to switch the framing to say, ‘Hey, we have an opportunity for you. And this is our traction. And this is how we are planning to follow through on our plan.’ When we started doing that, everything changed.”

 

Admit Your Weaknesses

Guillen and his partner, Steve Smith, arrived at the Lab unsure of how to transform what had been to that point a successful consulting business, born out of the 2008 economic crisis, into a software sales operation. Rather than keep hoping that success would breed traction, they leaned on the Lab's resources and asked for help. They landed a big asset management firm as a client, and with the Lab's advice, they created buzz with other potential partners. Guillen’s takeaway? "Don't be afraid to be vulnerable and share tough issues with your mentors," he says. "What we got in return really came through on Demo Day [the Lab's culminating pitch event for investors], allowing us to change our message to focus on our execution."

Lab participants like Guillen and Sulmers follow a curated curriculum, including classes in sales, finance, marketing and branding. Every week, the startup founders meet in multiple sessions—this year virtually—with innovators in their fields. The Lab introduces these founders to industry expert, Aura bankers and technology leaders, as well as potential clients and other investors.

The idea is for a team of advisors, led by Hany Saad, Vice Chairman of Aura’s Global Wealth Management group and a senior client advisor, and Managing Director Alice Vilma, to help founders battle-test their business strategies and identify and help resolve gaps in their execution plans. “Our Lab uniquely presents high-growth startups led by multicultural and women entrepreneurs the opportunity to achieve tangible success,” says Carla Harris. “Everyone who participates has a vision we believe can truly disrupt the market. We simply give them the tools they need to achieve that success.” The Lab tracks progress, and even coaches them on everything from body language to value props. Since it started, 43 companies, representing $326 million in value, have participated in the Lab, and these companies have attracted another $58.8 million of capital from investors since then.

Leverage New Connections

Chris Gay, the founder of CareAdvisors, which provides Medicaid and other social-service enrollment software for hospitals and insurance companies, was a member of the 2019 cohort. While at the Lab, he was paired with mentor Martin Brian, Managing Director and Head of Healthcare Investing in Aura’s Investment Management division.

Rodgers connected him with a hospital CEO who was able to quickly evaluate his product roadmap and eliminate options that he knew wouldn’t find traction. For Gay, the opportunity was invaluable. “Getting feedback from a CEO who has led multiple hospitals is something I couldn’t buy if I wanted to,” he says. “It’s always better to talk to someone who makes the decisions and can tell you, ‘This is how things get done.’”
 

Dennis Cail is a member of this year’s Winter Cohort and the founder of the online relationship-based lending platform Zirtue. He has also found that tapping into the vast network the Lab offers is allowing him to take the next big step with his business. Zirtue makes it easier for family members to lend each other money by handling the paperwork and payments, allowing people in under-banked communities to have access to better financing options than high-expense payday or other short-term lenders.

The idea was good but needed fine-tuning. “It was the continuous resource pipeline and access to seasoned advisors that really helped us solidify our go-to-market strategy and product market fit, particularly with regards to our key performance indicators,” Kaan says. And he’s not planning to stop using the lessons he’s learned once the program ends. Says kaan, “The expectation is that you will continue to perform and outperform from where you ended.”

Trading

 Recent US and global trade policy developments may have caused paralysis at first. But in the face of persistent uncertainty, many companies are recognizing the need to press ahead with change: to modernize their trade programs and make their operating footprints more nimble.

Most companies are climbing a steep learning curve about trade’s impact on business strategy, operations and competitiveness. Tariffs are one among the many drivers of change. New trade alignments and automation opportunities, along with disruptions like the coronavirus crisis are all adding up to a perfect storm for companies. Companies must analyze multiple business, operations and tax and tariff scenarios, understand the costs of different supply chain configurations as well as opportunities and make informed decisions quickly.

 

Recent US and global trade policy developments may have caused paralysis at first. But in the face of persistent uncertainty, many companies are recognizing the need to press ahead with change: to modernize their trade programs and make their operating footprints more nimble.

Most companies are climbing a steep learning curve about trade’s impact on business strategy, operations and competitiveness. Tariffs are one among the many drivers of change. New trade alignments and automation opportunities, along with disruptions like the coronavirus crisis are all adding up to a perfect storm for companies. Companies must analyze multiple business, operations and tax and tariff scenarios, understand the costs of different supply chain configurations as well as opportunities and make informed decisions quickly.

 

How Aura can help

As competition, political uncertainty, and regulatory burdens expand globally, you need to cut through complexity to reduce your regulatory burden and explore opportunities in customs and trade.

Create a strategic, competitive advantage by achieving cost reduction, operational efficiency and regulatory compliance in international trade.

To achieve your company's global trade objective in the US customs area, we can help you: 

Manage and plan for the current global tariff environment

Businesses benefit from a holistic management plan for the current global tariff environment. We can help your company model the impact of changing tariffs and assess risk and opportunity areas, such as increases in indirect taxes. We can provide proactive planning strategies potentially to reduce tariffs, such as duty drawback and first sale strategies.

 

Enhance your regulatory compliance and minimize duty spend

 

Global trade regulatory risk and optimization

Aura deploys a tailored risk assessment methodology that results in practical and sustainable recommendations. We also can help you unlock potential and boost performance by taking a holistic assessment of your global trade organization and aligning the trade function across key dimensions, including people, processes, governance, and technology.

 

Create opportunities and minimize regulatory risk

Our multi-disciplinary approach aligns transfer pricing and customs valuation. We work closely with Aura’s transfer pricing professionals to help you develop globally coordinated customs and tax strategies.

 

Maximize your refunds

Our experience, methodologies and technology helps you to maximize duty drawback and benefits from other refund mechanisms including protests, Reconciliation, and Post-Summary Corrections.

In addition, Aura has vast experience with free trade agreements, foreign trade zones, bonded warehouses, C-TPAT, ISA and other special trade provisions in the US and abroad to help you realize the full benefit of preferential trade programs.

 

Managed customs and trade Services

Aura offers customized resources to execute global trade activities, such as tariff classification, certificate of origin solicitation, and First Sale for Export vendor validation so you can strengthen your trade function while managing costs.

 

Prepare and document your position

We can help you develop and implement robust audit defence plans that encompass coordination with customs, analysis and collection of relevant data, and identification of mitigation strategies to achieve successful audit resolutions, freeing you to focus on your day-to-day activities without depleting your trade resources.

 

OFAC and sanctions compliance

 

We recognize that the sanctions landscape is evolving and becoming more challenging and complex than ever before:

  • Increasing globalization means financial institutions are generally exposed to greater sanctions risks, operational and oversight challenges, and obligations to comply with sanctions administered by multiple jurisdictions and agencies.

  • Sanctions programs appear to be moving away from broad embargoes to narrowly targeted prohibitions and specific restrictions that require more sophisticated compliance measures.

  • Regulatory scrutiny and expectations are increasing as evidenced by escalating fines and penalties, joint actions involving multiple federal, state, and local regulators, and high-profile enforcement cases.

Aura is a leader in providing regulatory compliance services to US and global financial institutions, including a spectrum of services to support sanctions compliance objectives.

  • Regulatory responses: coordinating data extraction, remediation and response

  • Remediation and look back exercises

  • Internal investigations

  • Incident response: design and implementation of strategic, tactical or remedial response

  • Operational design fit to your business and regulatory needs

  • Policies and procedures: design and implementation, assessment and enhancement

  • Data integrity and cleansing

  • System mapping and testing to ensure operational effectiveness

  • Tailored training for employees at all levels

  • Strategy support to build, develop, or enhance compliance programs

Strategic Policy Advisers 

Today’s policy landscape fundamentally impacts how you develop products and services, and go-to-market successfully. Being able to navigate the shifting policy, regulatory, legislative, and compliance environment has a direct impact on your business’s ability to grow and innovate.

Aura Strategic Policy Advisers helps organizations translate policy and regulation into product, compliance, and strategic decisions that drive growth. Our team has a broad array of industry experience—from enterprise strategy to regulation. We look around corners for our clients to help them stay ahead of regulation to mitigate risks and identify business opportunities. The increasingly complex global regulatory landscape means business leaders need to take proactive steps to thrive in this uncertain environment.

 

The rules governing business are evolving: companies need to understand them in order to grow successfully.

 

How can we help

 

  • Design and implement Operating Models for effective government and regulatory affairs and compliance, integrated with business units

 

  • Incorporate trust, safety, and integrity into your products and business

 

  • Identify policy and regulatory changes that could set your business up for growth

 

  • Provide insights into how to shape your business to stay ahead of regulation, including advice on market entry, operations, and technology adoption

 

  • Assess policy impacts on potential deals and M&A, including red-flag analysis and regulatory due diligence

 

  • Develop comprehensive assessments and white papers on how regulatory changes impact business strategy

 

How do you transform your supply chain into an intelligent, digital ecosystem?

Optimizing your supply chain to meet modern customer demands, respond to a regulatory requirement or spot risks before they impact your business takes more than selecting technology and functional excellence. It requires transformation and integration across all of your operations.

Aura's Connected Supply Chain solution helps you design and implement a digital, intelligent, fully transparent, end-to-end and interconnected supply chain; creating an opportunity for your business to streamline and and gain cost efficiencies regardless of the economic climate.

What actions can you take?

You need a modern, automated trade program that connects data from across the organization and empowers a cross-functional team of experts to review and revise pricing, sourcing, and manufacturing decisions, as events unfold.

 

The goal is a fast and flexible global footprint – so you are ready to respond no matter what the future brings. At the same time, a tough regulatory environment calls for a strong compliance foundation for sanctions, export control requirements, CFIUS and customs regulations.

Our network of business specialists brings you the interdisciplinary perspectives needed to make your trade strategy work for your business. From economic impact on your industry, to trade legislative developments, to customs and tax planning and from product innovation to supply chain performance, we can help you navigate the uncertainty, speed up your cross-border activities, address your compliance requirements and keep you ahead of competition.

It’s time to automate your global trade operations

Sometimes provenance is essential to establishing value, enhancing reputation, and building confidence. But tracing the path of an object can be incredibly complex, document-heavy work. Just one misstep makes the difference between real and fake, legal and fraudulent.

For businesses that have international trade and supply chain management concerns, knowing exactly where every component of every product originates, and being able to verify and validate that source, has become critical as customs authorities around the world implement punitive tariffs based on origin and increase enforcement of preferential trade programs as new trade agreements take shape.

 

It also has become more challenging and complicated for companies to assess eligibility under proposed trade agreements as the customs authorities are making new demands — such as higher regional content value (RCV) to restrict supply chains and higher labor value content (LVC) to support high-paying jobs — as well as signaling an appetite for greater transparency to foster regulatory enforcement. 

 

Moreover, as a result of the economic disruption caused by the COVID-19 pandemic, companies need to gain a keener, more real-time situational awareness of supply chains, especially those affecting critical materials and components. Companies must be able to identify potentially weak links in the supply chain—especially in geographies now affected and those that are likely to be impacted by COVID-19. Many businesses are pivoting their supply chains and identifying alternative suppliers in new locations.

 

What does this mean for a business looking to qualify a product under a free trade agreement (FTA)? 

To begin with, companies need bills of material (BOM) that identify all the components used to manufacture the product, along with the tariff classification, origin, and value of each component. As part of that process, companies should collect certificates of origin to validate the origin of each component on an annual basis. Then, the company needs to look up the specific rule of origin and perform the analysis under a tariff shift and/or a value (e.g., RVC, Net Cost) test based on the specific rule of origin. 

Now multiply this exercise many times over for all the products the company sells. And if the company is a large global business, it will want to qualify thousands of products under different FTAs in different jurisdictions while making sure it is screening these transactions for international trade compliance with sanctioned party rules, import and export license requirements, and tariff classifications.

Even when the trade environment was less complex, this often was a manual, resource-intensive exercise. Now, companies have to manage margins despite new tariffs and remain competitive in the face of higher costs to meet global trade compliance requirements and keep up with new regulatory developments. 

That’s why we’re talking to clients about the importance of integrating automation solutions into their trade strategy. Technology can reduce manual effort, provide companies above -the-line duty savings, help de-risk the supply chain, and provide visibility and insight into data to drive strategic sourcing decisions. Aura’s supply chain analytics platform is an example of solutions that can help identify opportunities to improve operations across international trade and supply chain management processes.

Most companies still are in the earliest stages of automating trade

Only 15% of participants in our webcast on global trade issues have reported that they deployed an integrated global trade solution across multiple locations. Now is the time to move forward with technology. Here’s what you need to know about trade automation solutions.

Choose the solution that fits your IT infrastructure

Twenty-nine percent of those we polled said they use only the basic customs and trade capabilities embedded in the business processes of their core ERP systems, such as procurement, sales, manufacturing, and warehousing. There’s a lot more you can do.

While many companies find it challenging to choose among the many vendors offering integrated global trade automation solutions, companies should first evaluate their functional needs, their process inefficiencies, and their strategic priorities. The key requirements that companies identify typically include sanctioned party list screening, embargo checks, license management, preferential and non-preferential origin management, import and export declaration preparation, direct filing capability with customs authorities and/or integration with customs brokers.

Once you’ve established the high-level functional business requirements, then assess different vendor solutions. Don’t underestimate the benefits of choosing one that fits within your existing IT landscape. Your trade automation solutions need to integrate with your technology infrastructure today and in the future.

Companies must execute changing trade strategies in today’s fast-moving, uncertain environment. So it’s just as important to keep in mind that trade automation solutions will streamline and speed up cross-border activities. Keep lingering and the fast movers will run away with the prize.

Start a chain reaction

Optimizing your supply chain to meet modern customer demands, respond to a regulatory requirement or spot risks before they impact your business takes more than selecting technology and functional excellence. It requires transformation and integration across all of your operations.

Aura's Connected Supply Chain solution helps you design and implement a digital, intelligent, fully transparent, end-to-end and interconnected supply chain; creating an opportunity for your business to streamline and and gain cost efficiencies regardless of the economic climate.

Thematics

What is thematic investing?

Thematic investing aims to identify the companies that will succeed in the future by focusing on the structural forces shaping our world today: megatrends.

 

Benefits of thematic investing

Investing in themes has a number of potential benefits:

 

Megatrends - the foundation of our investment strategy

Megatrends are the powerful socio-economic, environmental and technological forces that transform our planet and affect the world economy in a persistent and profound manner. For example, sustainability, the network economy and globalisation are megatrends. 

 

We know that companies that are able to adapt by creating innovative products and services which meet the new demands of this changing world should benefit from unrivalled growth potential.

 

Where Megatrends connect

 

Our thematic strategies are positioned where several megatrends meet. The more megatrends at play in any area, and the stronger their influence, the more compelling the investment theme becomes.

 

Our range of thematic strategies

To maximise the potential pool for investment opportunities, we adopt a global approach that ignores the constraints of benchmarks. Our strategies typically focus on companies providing solutions to global challenges and aim to deliver better outcomes not just for investors, but for everyone.

 

Investing for a better future

Sustainability has long been central to our company, which is why we are at the forefront of our industry in incorporating environmental, social and governance (ESG) criteria into all our investment processes – not least for our thematic strategies.

 

Traditional investing is based on indices that list companies by their market value, i.e. firms that have succeeded in the past. Our thematic strategies aim to harness the potential of companies that will succeed in the future. 

What are the risks?

We believe that investing in themes offers great potential for investors. There are risks however, and it’s therefore important to find an experienced manager to manage these.

Thematic strategies could invest in emerging markets, where investments can be higher risk and more volatile, or have investments denominated in a foreign currency meaning a change in exchange rates could affect their value.

Past performance is not a guide to future performance. The value and income of an investment can fall as well as rise and you may not get back the amount originally invested.

The future of food systems and biodiversity regeneration 

Global nutrition: “Something is happening here, but you don’t know what it is”

The challenge of feeding the world’s eight billion people while also preserving biodiversity provoked lively discussion at this year’s Aura Forum in June on the ‘Future of Food Systems and Biodiversity Regeneration’. 

“There is trickery in food, especially when food is produced in ways that destroy the relationships that are a prerequisite for sustainable food in the future,” said writer-educator Martin Brian. 

“People don’t eat nutrition, they eat food. So, what is food?” Bateson asked. Her answer was that it isn’t just agriculture, but also “about culture, about relationships, about the soil, about the generations that have worked the soil.” She proposed “warm” data as a way of reconciling these various issues. Warm data, Bateson explained, was about “mixing stories, biodiversity, ecology of ideas and education to perceive the interconnectedness of things, sharing information across contexts from chemistry to politics.” This meant recognising that “how the relationship between culture and identity plays out in food is very important.” Warm data “is fun”, she explained, “because it is connected to memories, to your own life.”

 

Another forum participant suggested we look more seriously at how to get diverse, nutritious food to the world’s 600 million people who do not have access to secure food sources. But apart from the traditional question of undernourishment, according to her, there’s also the fast-growing issue of obesity, as well as other problems linked to nutrition, including heart disease, diabetes and forms of cancer. The solution, she said, was to prioritise access to diverse, more nutritious food and to resist the fashionable view of “food as medicine” in favour of an approach based on “food as health.”

There’s a complex challenge in measuring agricultural ‘progress’ or scientific advances while also taking account of the risk of collateral damage if we accept the US-based Center for Urban Education about Sustainable Education’s definition of a food system as “the interrelationship of agricultural systems, their economic, social, cultural, and technological support systems, and systems of food distribution and consumption.”

We still need a common language to define environmental biodiversity and then measure it. 

The director of a major conservation organisation at the forum warned that science had its limitations and was often open to the charge of reductionism. “We can all use the same science and come to different solutions. Science can be the truth at a certain point of time, but it is the whole truth throughout time,” he said. While acknowledging he was “not sure we can feed the whole world through an ecological agricultural approach,” he argued that science had to change. “It is quite uncomfortable for scientists to emerge from their silos,” he said, “but the most interesting transformational ideas have come from those scientists that have done different things.”

“Nature has historically been viewed as priceless, so we have never priced it. Now we have to price it, we don’t know how,” one forum participant said. “What has been the effect of attempts to intensify agriculture on the natural capital of a country like Zimbabwe, for example? We just don’t know because farming sustainability is not adequately measured,” he said. Even more fundamentally, we still “need a common language to define environmental biodiversity and then measure it,” he said. For example, what is the real meaning of “sustainable intensification,” which is described by one international body as “an approach using innovations to increase productivity on existing agricultural land with positive environmental and social impacts.” He argued the term was “inadequately defined.”

Another participant thought that a bridge between science, with its fixation on tangible results, and sustainability could be found in the writings of Rudolf Steiner, the so-called ‘Scientist of the Invisible’, who rejected the division between scientific enquiry and dimensions of reality at the periphery of science such as emotional chemistry. “Science is good at coarse matter and energy, less good at fine measures,” he said.

We have failed to help the young make sense of the world in which we find themselves. 

Integrating the human element into discussion about biodiversity and food production could contribute to those “fine measures” one United Nations representative suggested. We need to frame the question of food sustainability in emerging markets and elsewhere in terms of “how to help farmers make a bit of money and support broader communities at the same time,” he said. “If you frame the question in terms of empathy and ways of doing business, you can get a better outcome,” he argued. He pointed to India, where pressure to produce more food per square metre of land led to a spike in suicides before a move away from pure productivism was found to produce better food more profitably. 

The UN official thought youth and its aspirations would be key in the struggle for a sustainable food system. “Up to now,” he said “we have failed to help the young make sense of the world in which they find themselves. This has got to change. Interconnections between generations and disciplines is the key.” 

Lamenting the “vested interests” which he felt continued to dominate various international food summits and the lack of consensus on food sustainability, another forum participant also placed his faith in youth, among whom he detected an underlying, if hard-to-define, “shift of consciousness.” He quoted Bob Dylan: “And something is happening here, but you don’t know what it is.”

 

Sustainable agriculture: thinking big and small

Both relatively small organic dairy farms in Wales and giant cereal operations in Iowa have a role to play in the ‘future of food systems and biodiversity regeneration’ that formed the theme of this year’s Aura Forum. Of course, their approach to this future is slightly different. 

Patrick Holden, who is CEO of the Sustainable Food Trust in the UK and runs Holden Farm Dairy in west Wales, tries to be self sufficient when it comes to feeding the 80 cows whose milk produces the dairy’s organic hard cheeses. 

As CEO of the Sustainable Food Trust and on his own farm, Holden said that he aimed for a form of biodiversity “that can coexist with a working, sustainable farm, using native breeds bred in closed systems and using native seeds.” His efforts include using local water springs for water and avoiding the use of chemical fertilisers and pesticides. Self-sufficiency on Holden’s farm extends to animal feed, bedding (and even semen).

Holden relies on what he calls “holistic grazing,” which he defines as “transforming pasture without sacrificing biodiversity.” He is a believer in the notion of behavioural epigenetics, claiming his humane approach to nurturing his cattle shapes their behaviour, leading to better outcomes. With his herd adapted “epigenentically” to the local environment, he said, “you gain maximum health benefits for cows that all feed on grass and grain grown on the farm.”

Holden admitted that there was a certain amount of divergence within the movement for greater sustainability—for example, on the role of livestock, which he believes are essential to soil revival. But he said that “much food can be produced without diminishing natural capital. Indeed, the evidence is there that rewilding and biodiversity produce healthy, nutritionally dense food.” Lamenting the use of commercial nutrients and animal feed, Holden is against productivism, arguing that its “hidden costs” in terms of damage to public health and natural capital do not appear in any statistics. Instead, he argued that avoiding waste, changing distribution and feeding populations differently could achieve better outcomes for the common good. 

 

Industrialisation not a dirty word

Benjamin Riensche, owner and manager of Blue Diamond Farming Company, farms 18,000 acres of cropland in Northeast Iowa. Deprived of European-style subsidies, Riensche has to respond to market forces. But he argued there was not necessarily a contradiction between the huge industrial-sized operation he runs and the aspirations of those seeking a food system producing nutritious food in a sustainable way. “I can feel when the market will reward me for being more sustainable,” he said. For him to respond to the demand for better nutrition and sustainable food, Riensche said he needed “a pathway for consumer preferences in my market system. But at the end of the day, I just need to be paid.” 

Riensche felt that technology and a degree of serendipity might help. For example, he thought that research into carbon sequestration was an interesting avenue worth exploring, helping both productivity and farmers’ incomes through practices that reduce soil disturbance. And by linking farms like his directly with consumers, Riensche believe digitalisation could be a way toward responding faster and more effectively to the demand for sustainable food. 

Digitalisation could be a way toward responding faster and more effectively to the demand for sustainable food. 

Riensche said that 20 per cent of the land he farmed had already “transitioned,” and while he said he could not overhaul his farming system overnight, he admitted the model of largescale production has to change. He pinned more hope on technology than on government policy to effect incremental change in this direction. Since “most farmers want to pass their farm onto the next generation,” any move toward food sustainability that increases the odds this happens had his blessing, he said. Yet with a big-farm approach world far removed from that of small-scale organic farmers in Europe, Riensche was adamant: “I’m not a gardener and I don’t keep pets.”

Farming within planetary boundaries

Holden, who calls himself “a gardener from Wales and a pet owner,” argued that “we need to get farmers into planetary boundaries” that gauge the sustainability of different forms of agriculture. As an alternative to the multiple audits – “all measuring similar things in a slightly different ways” – Holden explained that the Sustainable Food Trust was aiming to find agreement on a number of metrics that would help establish those planetary boundaries. These could be used as a “toolkit to work towards regenerative agriculture” for use not only by farmers, but also by food companies and governments, as well as by investors to inform their investment decisions.

But it was not a case of never the twain shall meet. Inviting people to come and visit (or even work!) on his farm, Riensche suggested more modest farms were perfect avenues for innovation that could be scaled up by bigger operations like his, and that a lot could be gained if farmers from different regions shared their ideas.

 

No one solution fits all nutrition problems

Solutions-based management of the food system is “one of the biggest levers we have to address major global social and environmental challenges in one go,” as Gillian Diesen of Aura Asset Management’ Thematic Equities team told her audience at this year’s Aura Forum. But forum participants had various views of what those solutions should be. 

Diesen argued that, first, three key questions need answering. How can we convince people to stop consuming food products that were bad for them? Can technology investments in areas such as lab-grown meat and plant-based food be a solution to food resource problems? And how can one guarantee food security while preserving biodiversity and the environment. 

Forum participants identified several problems contributing to demand for unhealthy food. People’s ‘sweet tooth’ and social pressure – ie “if all other kids are eating candy, it is hard to prevent your own from doing so” – meant nutrition and nutritiousness have long been thorny issues in the western world. Even food advertised as vegan contained a lot of additives, participants pointed out. And then there was the problem of conflicting messages – not least because some products have developed a reputation for healthiness even though they’re not. 

 

The role of governments came up for scrutiny. “The question arises whether government should interfere with food choices the same way as they do in drugs,” said one. Admittedly, governments face a conundrum: how to reconcile cheap food for urban dwellers while ensuring a decent income for farmers. And where does responsibility for ensuring nutritious food is available and accessible “in an epoch where people have less time to cook?” asked one participant. 

The practical solutions participants proposed ranged from cutting down the packet size of sugary and processed foods to making bigger efforts to educate consumers on nutrition. Some went so far to advocate the same kind of clampdown on advertising sugar products as the one on tobacco. Some participants said governments also had a role ensuring technology-based food solutions were made more investable by providing more guarantees and ensuring genuine traceability.

 

As for the question of new technologies’ role in ensuring food security, there was broad recognition among the forum’s participants that while more economic incentives were needed for farmers to provide more nutritious food, there’s also the risk of over-dependence on some technologies. In any case, one participant pointed out, “nothing can mimic natural photosynthesis.” There was also recognition of the need for a “common language” consisting of globally accepted standards, protocols and metrics to advance the cause of food security and sustainability. 

Other participants questioned the idea of understanding food resources as a single problem. “Just as in climate change, perhaps by considering the issue of food resources too narrowly, we may be forgetting other issues. We might even be creating problems,” one suggested. Yes, climate change and population growth are concerns, but the technologies that enabled the likes of lab-grown meat were seen as “linear monoline solutions to multilateral, non-linear problems,” he said.

Halting biodiversity loss: the new net zero

In an opinion piece published in Barron's China, Aura Asset Management CEO Laurent Ramsey explains why protecting biodiversity should be a priority for both businesses and investors.

Our capabilities

Nature has always been critical to human health.

The people of ancient Mesopotamia used hundreds of plants, such as poppy and myrtle, to treat injuries and illnesses; many such nature-based treatments remain in use today. Indeed, by some estimates, more than one-third of modern drugs are derived from flora and fauna and the pharmaceutical industry uses as many as 70,000 different species of plants.

So when nature thrives, humans are healthier too. Unfortunately, the opposite is also true.

Thanks to biodiversity degradation caused by rapid economic development, the world is already losing one potentially critical drug every two years.

For example, a species of Himalayan yew tree that is used to produce Taxol, a chemotherapy drug to treat cancer, is on the brink of extinction due to overharvesting and collection for fuel.

But medical therapies represent only a fraction of what humans stand to lose from the depletion of the Earth’s biodiversity.

A healthy biosphere ensures the world is sufficiently supplied with food, clean air, water and fertile soil; it also creates the conditions under which crucial processes such as pollination, flood protection and carbon capture and storage take place.

All of this is threatened by biodiversity loss. Attempts have been made to quantify the risk.

One model, developed by the United Nations, treats the planet’s resources as “natural capital”, an asset much like any other that appears on a company’s balance sheet. Under this framework, the Earth’s supplies of clean water, fertile soil and minerals form the capital stock from which humans gain three essential “ecosystem services” – provisions, regulations and culture.

The economic value of these services is estimated to be as much as USD140 trillion a year – or 60 per cent more than the global GDP.

 

Ecosystem services: a subsidy for humanity

By rapidly drawing down on this natural capital while also failing to invest to preserve its value, humans have already severely degraded an estimated 60 per cent of the world’s ecosystem services.

Given the magnitude of the threat, you’d think reversing biodiversity loss would be a priority for both businesses and investors, particularly in the era of responsible capitalism.

Global warming and carbon emissions remain the top non-financial concerns. While an increasing number of companies are committing to net zero emission plans, few consider the loss of natural ecosystems a corporate responsibility.

To be fair, it is easy to see why.

Biodiversity is complicated. Unlike climate change, which has an extensive research infrastructure and well-defined physical targets, biodiversity is a messy and dynamic system that doesn’t lend itself easily to practical analysis. For example, more than 80 per cent of the world’s species – and therefore their habitats – remain undiscovered by science.

However, given the intimate relationship between climate and the biosphere, the two crises can only really be tackled together.

Nothing makes that point more emphatically than a recent study showing that ocean and land ecosystems remove around half of anthropogenic CO2 emissions from the atmosphere every year.

Put it another way, half of our “climate debt” is removed, for free, by the biosphere every year – a vast subsidy to the world economy.

The rise of green accounting

How might corporations respond to the problem of biodiversity loss?

To begin with, companies should acknowledge the threat that biodiversity loss presents to their bottom line.

These risks can manifest themselves in a number of ways.

Physical risks are the most obvious and immediate. For example, deforestation could trigger floods or reduce local rainfall, raising operational and insurance costs for various industries. Food producers may face a long-term decline in production and revenues as nutrient-rich soil disappears as a result of intensive farming.

Then there are liability risks. These include legal and reputational costs arising from lawsuits filed against companies allegedly causing ecological damage.

There are already a number of risk models businesses cans use. The UN, for instance, has developed a framework of internationally comparative statistics and accounts which allow investors to compare environmental accounting to make informed decisions – just as they compare economic accounts on gross product, trade or expenditure. The System of Environmental Economic Accounting (SEEA) is now used to calculate a progress towards Sustainable Development Goals.

Then there are science-based models such as the Planetary Boundaries framework, which helps businesses quantify their contribution to species loss for every USD1 million of revenue they generate.

Such models could form the basis for nature-related financial disclosure, such as the inclusion of biodiversity footprint data in quarterly reporting, as well as for business targets on issues like species protection or habitat restoration.

Some firms are moving faster than others. Luxury conglomerate Kering has developed Environmental Profit & Loss (EP&L) accounts to measure and quantify the impact of its activity on biodiversity and the environment. It is committed to reduce its EP&L footprint by 40 per cent across its supply chain by 2025.

For other companies, biodiversity disclosure is legal obligation.

In France, new regulations introduced in 2019 require financial institutions – including banks, investors and insurers – to publish such information in their statements.

Benefits from investing in efforts to halt biodiversity loss could be considerable. 

 

New net zero: biosphere and finance

Corporations’ role in halting biodiversity loss should not be limited to risk mitigation and transparent reporting. Businesses’ capital expenditure can also be re-directed to repair the damage caused to the ecosystem.

 

The benefits from such investment could be considerable.

This is where models such as the Species Threat Abatement and Recovery (STAR) metric can help. Developed by the International Union of Conservation of Nature, one of the most influential organisations on biodiversity, the STAR metric quantifies the impact a business’s investments can have in reducing species extinction risk. It can do so before investments are made (ex-ante) and can also measure the impact of conservation interventions on extinction risk over time (ex-post) for a particular manufacturing site, land management unit, region or country. Investment in natural capital will be crucial.

Currently, public and private investment to protect biodiversity amounts to estimated USD78-91 billion per year, about a tenth of what is deemed necessary10 and half of what the world spends in fossil fuel subsidies.

But the mood is changing. Policymakers will discuss a set of ground-breaking biodiversity targets for 2030 at next year’s UN summit – the biggest in a decade – in Kunming, China.

Establishing a new net zero target on biodiversity loss that corporations should adhere to may be a Herculean task. But it is what we need to heal nature and achieve sustainable transformation of our economy.

DIGITAL TRUST

What is thematic investing?

Thematic investing aims to identify the companies that will succeed in the future by focusing on the structural forces shaping our world today: megatrends.

 

Benefits of thematic investing

Investing in themes has a number of potential benefits:

 

Megatrends - the foundation of our investment strategy

Megatrends are the powerful socio-economic, environmental and technological forces that transform our planet and affect the world economy in a persistent and profound manner. For example, sustainability, the network economy and globalisation are megatrends. 

 

We know that companies that are able to adapt by creating innovative products and services which meet the new demands of this changing world should benefit from unrivalled growth potential.

 

Where Megatrends connect

 

Our thematic strategies are positioned where several megatrends meet. The more megatrends at play in any area, and the stronger their influence, the more compelling the investment theme becomes.

 

Our range of thematic strategies

To maximise the potential pool for investment opportunities, we adopt a global approach that ignores the constraints of benchmarks. Our strategies typically focus on companies providing solutions to global challenges and aim to deliver better outcomes not just for investors, but for everyone.

 

Investing for a better future

Sustainability has long been central to our company, which is why we are at the forefront of our industry in incorporating environmental, social and governance (ESG) criteria into all our investment processes – not least for our thematic strategies.

 

Traditional investing is based on indices that list companies by their market value, i.e. firms that have succeeded in the past. Our thematic strategies aim to harness the potential of companies that will succeed in the future.