To gain insight into these issues, we spoke with Emine Isciel, Head of Climate and Environment at Storebrand Asset Management, about the key elements of incorporating biodiversity-related issues into investment strategies, the challenges and the outlook.
Thorough risk assessment
“The foundation of integrating biodiversity into investment decisions lies in robust risk assessment,” says Isciel. This approach helps identify nature-related risks in investment practices, as well as highlighting opportunities.
One of the major investor initiatives on this front, the Nature Action 100 investor alliance, has identified 100 companies around the world that represent the highest risk to biodiversity. This is based on these companies’ scale and impact across the business value chain. The companies a clustered within eight specific sectors: Biotechnology and Pharmaceuticals, Chemicals, Household and Personal Goods, Consumer Goods Retailing, Food Production, Food and Beverage Retailing, Forestry and Paper and Metals and Mining.
“These sectors are major drivers of nature loss due to their large impacts on habitat loss, overexploitation of resources, and soil, water, and solid waste pollution”.
This initial foundation gives investors a solid platform from which to determine necessary actions, such as engaging with companies to adjust their trajectory, or reallocating capital based on their environmental practices.
Engagement
Investors can encourage companies to apply the mitigation hierarchy, which includes the following steps:
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Avoid negative outcomes from the outset (preferred option).
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Minimize negative outcomes that cannot be avoided.
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Restore: take measures to improve or re-establish degraded or removed ecosystems, where impacts could not be avoided or minimized.
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Actions for positive outcomes: only after avoidance, minimization and restoration have been robustly applied, can approaches to compensate for negative impacts occur. These are often referred to as biodiversity offsets, which should only be applied in certain circumstances.
Some investors also use biodiversity as a filter in negative screening.
“At Storebrand, we for instance exclude companies which contribute to severe environmental damage as part of our negative screening procedure. In 2022 we adopted a Nature Policy and introduced several product and sector divestment criteria to avoid negative outcomes for biodiversity”, Isciel adds.
Meaningful data
Data accessibility remains a challenge in evaluating the biodiversity impact and dependencies of companies, she explains: “The primary issues are insufficient details about the locations of assets and the sourcing of materials”. However, she notes that improvements are on the horizon: “Investors can still leverage existing data, where coverage and detail have seen significant advancements in recent years.”
“We are engaging with companies, policymakers and data service providers to encourage the provision of more meaningful and consistent biodiversity data”.
“Our approach is to start with available data and address severe breaches, allowing for a pragmatic and iterative approach,” Isciel adds. “The fact that there is a data challenge, absolutely doesn’t limit our ability to take informed and necessary steps now.”