Biodiversity: the next big investor demand for companies
Updated: Mar 9, 2021
Biodiversity is a growing concern for investors managing more than $7tn in equity assets, however, companies are failing to provide comparable data.
The Leaders Arena Biodiversity Study is the first of its kind and provides a deep dive on biodiversity reporting by the largest companies on both sides of the Atlantic. It aims to illustrate to Investor Relations and Sustainability professionals the opportunities to improve biodiversity disclosure.
SUMMARY
Biodiversity is a systemic risk and a growing concern for investors and stakeholders.
Investors are taking steps to manage biodiversity risks within their portfolios.
32% of large listed companies are disclosing on biodiversity initiatives within their business operations despite institutional investors managing $7tn in equity assets already considering this topic in their investment process.
Biodiversity as a growing concern
The 2021 UN Environment Program report on nature is a call to arms for economic, financial, and productive systems to be transformed and to lead on environmental sustainability, which means including natural capital in decision-making.[1] António Guterres, Secretary-General of the UN, states that ‘by transforming how we view nature, we can recognise its true value.’ The global population of freshwater species declining 84% on average since 1970 is just one example of the intensity of biological decline.[2]
Detailing the value and importance of nature, the 2021 Dasgupta Review on the economics of biodiversity, commissioned by the UK government, highlights that human demand is greater than Earth’s ecological supply,[3] and that not committing to the ecological transition, would result in 'a massive collective failure to manage the global portfolio of all our assets.’
In an effort that echos the Paris climate agreement and the challenge of the energy transition, 76 countries are working together as part of the UN Convention on Biological Diversity to address the ecological transition. Its COP15 summit in Kunming is expected to introduce a global biodiversity framework including 2030 and 2050 biodiversity goals.
Investors are taking notice
Biodiversity loss is also increasingly being recognised as a financial risk, the Leaders Arena Study finds that investors already considering biodiversity issues manage over $7tn in equity assets. Whether it is the destruction of habitats, soil degradation, or the proliferation of diseases like COVID-19 from animals,[4,5] biodiversity loss is emerging as a long-term systemic risk,[6] with clear implications for investments.
The $100tn AuM United Nations Principles for Responsible Investment (UNPRI) investor collaboration has also begun to address biodiversity,[7] encouraging investors to recognize the risks from biodiversity loss and the opportunities for them to play a role in not only reducing the degradation of the natural world but also making a positive impact in restoring biodiversity.
Beyond the UNPRI guidance, ESG-minded investors have already begun to integrate biodiversity into their investment decision-making. Robeco Asset Management has called the threats to biodiversity ‘greater than climate change’,[8] referencing the Stockholm Resilience Centre research which identifies biodiversity as one of the eight balancing factors of our planet.[9] BNP Paribas Asset Management stresses the connection between biodiversity and climate change as interlinking issues; an estimated 30% of climate change mitigation could be provided by effective conservation and restoration of natural resources.[10]
Inspired to a degree by the successes of the Taskforce for Climate-related Financial Disclosure (TCFD), these two asset managers along with governments, institutions, large businesses, consortia, and other investors, are seeking to establish the Taskforce on Nature-related Financial Disclosure (TNFD), with the goal of standardising biodiversity data reporting.
Leaders Arena study highlights insufficient disclosure
Despite increased demand for sustainability data, the Leaders Arena study shows that the biodiversity-related disclosures of the largest 100 US and European companies are generally lacking in-depth and quality. This poses a challenge for investors who wish to identify the biodiversity impact of their whole portfolio to assess asset allocation.
A key problem for companies is that, as of yet, there is no standardised way to report on biodiversity. Trailblazers of disclosure, such as French luxury fashion giant Kering, have developed their own composite ecology metrics, but this is not applicable for all companies - many of which are still not fully aware of the value of biodiversity reporting.[11] More recently, the EU Sustainable Finance Disclosure Regulation is requiring investors to report on activities negatively affecting biodiversity-sensitive areas.[12]
Figure 1: shows the category breakdown of biodiversity projects which are external to the scope of business operations
The research observes that only 32% report on biodiversity-related business activities, such as considering biodiversity impacts of their supply chain or business operations. In contrast, 53% of sampled companies reported on projects beyond the scope of the business, such as tree planting and animal conservation. This indicates that it is more common to dedicate resources to ecology projects outside the business than it is to assess and manage the relevance of biodiversity within core operations.
Conclusions
In order for asset managers to make informed decisions on biodiversity risks & opportunities, and for companies to show how they are managing biodiversity-related risks, more comparable biodiversity data is needed. To tackle the data gap which investors face, the TNFD is being developed to provide a comprehensive set of biodiversity key performance indicators.
From an ESG communication standpoint, companies need to prepare to proactively convey their efforts to investors on how they are addressing the ecological transition challenge to meet stakeholders’ expectations.
Biodiversity Webinar
If you want to learn more, watch our 30 minute webinar presentation here:
For the UK and Europe
For US and Canada
References
[1] UN Environment Programme. 2021. Making Peace with Nature. Available at: https://wedocs.unep.org/xmlui/bitstream/handle/20.500.11822/34948/MPN.pdf
[2] Living Planet. 2020. ‘Living Planet Report 2020’. Available at: https://livingplanet.panda.org
[3] Dasgupta. P. 2021. ‘The Economics of Biodiversity: The Dasgupta Review’. page 7, page 120. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/957291/Dasgupta_Review_-_Full_Report.pdf
[4] World Health Organisation, Origins of the SARS-CoV-2 Virus, 2021, Available at: https://apps.who.int/iris/bitstream/handle/10665/332197/WHO-2019-nCoV-FAQ-Virus_origin-2020.1-eng.pdf
[5] Tollefson. J. 2020. ‘Why deforestation and extinctions make pandemics more likely’. Nature. Available at: https://www.nature.com/articles/d41586-020-02341-1
[6] World Economic Forum. 2021. ‘The Global Risks Report 2021’. Available at: https://www.weforum.org/reports/the-global-risks-report-2021
[7] UNPRI. 2020. ‘Investor action on biodiversity: discussion paper’. Available at: https://www.unpri.org/sustainability-issues/environmental-social-and-governance-issues/environmental-issues/biodiversity
[8] Zandbergen – Albers. M. 2020. ‘Loss of biodiversity is a bigger threat than climate change’. Robeco AM. Available at: https://www.robeco.com/uk/insights/2020/09/si-opener-loss-of-biodiversity-is-a-bigger-threat-than-climate-change.html
[9] Stockholmresilience.org. 2009. ‘Planetary Boundaries’. Available at: https://www.stockholmresilience.org/research/planetary-boundaries.html
[10] PwC Switzerland. 2020. ‘Nature is too big to fail’. Available at: https://www.pwc.ch/en/insights/regulation/nature-is-too-big-to-fail.html
[11] World Economic Forum. 2020. ‘The Future of Nature and Business’. Available at: http://www3.weforum.org/docs/WEF_The_Future_Of_Nature_And_Business_2020.pdf
[12] European Securities and Markets Authority. 2021. ‘Sustainable Finance Disclosure Regulation: Final Report on draft Regulatory Technical Standards’. page 54. Available at: https://www.esma.europa.eu/sites/default/files/library/jc_2021_03_joint_esas_final_report_on_rts_under_sfdr.pdf
Leaders Arena’s unique advisory services and related research supports our clients through offerings such as comprehensive ESG investor targeting and peer benchmarking. This allows our clients to evaluate and improve their ESG programs, conduct more effective investor outreach, monitor progress and maximise the available ESG market opportunities. For those companies starting in this journey, we support their ESG disclosure efforts including how to prioritise ESG communication with ESG ratings agencies.
Reach out for a free consultation at support@leadersarena.global
