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Research has found that on a number of levels, nature is unravelling. This poses an existential threat to societies and economies – and by extension asset owners and investors. As an asset manager with clients who depend upon a stable biosphere, we have a responsibility to understand how our investments impact nature and how nature loss may translate into financial risks.
Such an understanding involves carrying out regular research. Just over a year ago, we presented our biodiversity roadmap. We assessed our dependencies and impacts on nature – in particular, our exposure to water and deforestation risks.
In our latest research paper, we present findings on how to determine a biodiversity footprint. This complements work on our water and deforestation footprints with data to arrive at a more complete picture of our exposure to, and impact on, global biodiversity loss.
Our goal is to integrate this data into our sustainability-based approach to investment decisions. In this paper, we are testing biodiversity footprinting on selected holdings in our global portfolios so that we can understand what it looks like, what it can be used for, and to identify improvements
What is biodiversity footprinting?
It is a tool that helps combine the modelled and reported data of companies we have invested in – and their supply chains – to quantify their potential biodiversity impact. It does not measure how dependent they are on nature, nor does it quantify the risks that arise from biodiversity loss.
It should be stressed that the goal at this point to have an indication of potential damage to enable us to visualise total potential impact and compare one company to another.
It must also be understood that while all biodiversity is local, a variety of global events – in particular, greenhouse gas (GHG) emissions – are having a significant impact on local ecosystems. Such events occur independent of business activity, but still affect biodiversity.
Furthermore, corporate transparency on nature loss is poor – we often do not have the full data on how specific operations affect a particular piece of land. This forces us to work with averages.
Potential biodiversity impact of our corporate investments
We focused on two asset classes – equities and fixed-income securities in publicly-traded companies.
Our ‘financed absolute biodiversity footprint’ shows that for each EUR 1 million invested in our funds, six fully degraded hectares are potentially maintained each year. Our analysis also found that we are relatively less invested in issuers with a higher biodiversity impact.
The research highlighted one of the main biodiversity challenges for investors: Impacts are predominantly situated within value chains, but issuers typically do not provide the information and traceability required for investors to properly assess these impacts.
We found that land use change was the main environmental pressure,contributing about 80%, followed by water pollution (10%), climate change (8%) and air pollution (3%).
Based on our analysis, we note some key takeaways:
- More than 65% of the selected assets is invested in sectors with a low biodiversity intensity. This is mostly due to our high exposure to financials.
- Consumer staples has the highest intensity – mostly due to land use change. It represents over 5% of the assets.
- We find that in most sectors, our average biodiversity intensity is lower than the sector average, particularly the consumer discretionary sector. It is higher than the sector average for energy, industrials and utilities.
So what? Looking ahead
This first assessment complements our sector and issuer analysis and helps us identify targets for engagement by our stewardship team and portfolio managers. We continue to encourage our most biodiversity-impactful investees to disclose useable data such as tonnes of GHGs emitted or hectares of land converted.
We encourage data providers to pay particular attention to, for example, a company’s mitigation efforts and develop methodologies for measuring positive impact.
We plan to investigate the links between issuer-level biodiversity footprints and the other indicators we use to steer investments such as our ESG scores. We believe our proprietary ESG scoring framework is instrumental to generating long-term sustainable returns for clients, while having a positive impact on the environment, the economy and society.
 Including asset-backed securities