Lester Asset Management, a Montreal-based portfolio management firm, has launched what it bills as Canada’s first biodiversity fund, betting that investing in nature will generate returns.

Named the Lynx Global Biodiversity Fund, it was inspired by the COP15 biodiversity event in Montreal in 2022, and a realization by Lester president and CEO Stephen Takacsy that there are few investment funds focused on biodiversity.

“We saw enormous tailwinds of certain businesses that are going to make really good sectors to invest in,” Takacsy told Sustainable Biz Canada.

With its investing strategy built around sustainability themes, he believes the Lynx fund can offer strong, sustainable returns, while avoiding greenwashing and helping to slow biodiversity loss.

Lynx has raised $8.5 million thus far and is deploying capital. Takacsy hopes it will grow to a fund worth $100 million to $200 million in the next one to two years.

Lester, founded in 1987, holds approximately $330 million in assets under management, according to Takacsy. Its clients include private and high-net worth individuals, and institutions such as pension funds.

Lester’s sustainability story

The portfolio management firm has been focused on environmental governance since its origin, Takacsy said. Lester has not invested in oil and gas exploration, for example; instead, as has held or holds stakes in the renewable energy, water filtration and soil remediation sectors.

Takacsy, who joined Lester in 2006, is also an advocate for land conservation, co-founding Quebec land conservancy Conservation Manitou.

After years of managing Lester’s Canadian equities and bonds portfolios, Takacsy decided the moment was right to open a biodiversity fund.

The COP15 biodiversity conference in Montreal, Lester’s headquarters, highlighted the need to counter biodiversity loss. Biodiversity is considered critical to global GDP and provides more than US$150 trillion per year in economic benefits through food, carbon storage, and water and air filtration, according to a Boston Consulting Group analysis.

“The loss of biodiversity affects food security, water security,” Takacsy said.

Sustainable investment tends to gravitate toward climate solutions, he found, despite biodiversity loss also impacting the global climate. He also feels these losses are easier to slow than the warming climate.

Motivated by COP15 and the lack of biodiversity-focused investment funds and strategies, Takacsy saw an opportunity to support companies that promote nature-based solutions. He studied ESG, cleantech, climate tech and sustainable investing to understand how Lester could apply its core strengths to the field.

What he saw was risk and loss.

Unprofitable electric vehicle companies and businesses in solar energy and lithium mining were being hit hard by rising interest rates. He also said greenwashing was rife in some funds, while sustainable ETFs and investment strategies were including bank, commodity and technology stocks to create returns that are not "green".

Lynx, he believes, can address these problems.

Lynx’s four pillars

The Lynx fund is based around four themes and underlying investment fields:

• environmental stewardship (environmental remediation and green infrastructure, including investments into Canadian engineering firm WSP);
• pollution control and clean technology (treatment and management of water and air, and cleantech)
• sustainable products and processes (biodegradable packaging, for example); and
• sustainable agriculture and food systems (green agriscience, biologic fertilizers and pesticides)

Investments into companies in these fields can reverse biodiversity loss, according to Takacsy. Engineering firms that perform environmental assessment and remediation can heal ecological damage; cleantech can manage pollution; supporting alternatives to plastic packaging reduces the amount of long-lasting waste in the environment.

Funds could also go to supporting alternatives to meat consumption, which has the potential to slow down global deforestation for the cattle industry.

From its initial list of 4,000 to 5,000 global companies, the number was whittled down to approximately 40 which fit Lynx’s investment profile.

To minimize risk and the potential for greenwashing, Takacsy said Lynx will exclude tech stocks and investments in electric vehicle, solar energy and mining companies.

The Lynx fund model can be successful, according to Takacsy. Its five-year back-testing model that compared Lynx to the MSCI World Index showed it could outperform the index at 15 to 18 per cent growth, versus 12 to 13 per cent, respectively.

Matthew Kaszel, a portfolio manager at Lester with a background in global equities, will be the lead portfolio manager of Lynx.

The type of investors Lester is looking to attract are retail and high-net worth individual clients and pension funds. Takacsy expects the Lynx fund to particularly resonate with institutional clients, high-net worth families and younger generations with an interest in responsible investing.

As proof of its commitment, Lester has become a member of biodiversity investment initiatives Nature Action 100 and the Taskforce on Nature-related Financial Disclosures.