Analysis: Greater awareness of the impact of climate change on the environment and ecosystems has prompted most schemes to integrate mitigation measures into their investment processes – and this has now spread to concerns about biodiversity.
The economic importance of healthy ecosystems has been well documented. Around $44tn (£36tn) of economic value generation – more than half the total global gross domestic product – is moderately or highly dependent on nature and its services, according to the World Economic Forum.
Biodiversity loss was ranked as one of the top three global risks over the next 10 years by the WEF’s 2022 Global Risks Report. That is why a historic plan announced at December’s UN Biodiversity Conference in Montreal, COP15, which aimed to protect 30 per cent of the planet by the end of the decade, was lauded by commentators.
The Taskforce on Nature-related Financial Disclosures was launched in 2021 to help schemes address the human population’s impact on ecosystems.
The challenge for biodiversity data is that there is no single metric and it is a far more complex issue than climate change
Brian Kernohan, Manulife Investment Management
In a similar way that the Task Force on Climate-related Financial Disclosures helped establish standards for climate reporting, the TNFD aims to develop a framework to help industry stakeholders report and act on nature-related risks.
However, as things stand, pension schemes lack the tools to measure the biodiversity impact of their portfolios.
Less global, more local
Brian Kernohan, chief sustainability officer for private markets at global asset manager Manulife Investment Management, says asset managers should use data to substantiate investment decisions and demonstrate transparency to investors.
He says: “Biodiversity and climate are interlinked, but they are very different when it comes to the data. The challenge for biodiversity data is that there is no single metric and it is a far more complex issue than climate change.”
Unlike for climate change, biodiversity data is more about more localised impacts on habitats and ecosystems. “When you think of climate change, it is all about carbon dioxide – one tonne of CO is the same anywhere in the world,” says Kernohan.
“But when you think about biodiversity, it is different everywhere you go. Information is much more granular, and it therefore requires different methodologies and a lot more aggregation – and we are just not prepared for it yet.”
He adds it is unlikely that a single metric or indicator will emerge for biodiversity and that there will be no “net zero” goal for biodiversity.
Making data meaningful
Nonetheless, schemes’ need for metrics such as biodiversity indicators is prompting some data providers to develop more innovative ways to help them and their asset managers assess risk.
Alexandra Mihailescu Cichon, executive vice-president at Switzerland-based ESG data science company RepRisk, says interest in biodiversity has been building in recent years thanks to industry-led initiatives such as TNFD and COP15.
“Once you build a certain amount of awareness about a particular issue, as was done with climate change, at some point you move from awareness to action. That is where we are at now with biodiversity,” she says.
One way that RepRisk has done this is by combining geospatial or proximity data with mining and other extraction-based industries to help map biodiversity risk.
Mihailescu Cichon says the data has uncovered some interesting results. Around half of all mining and oil and gas projects are located within 10km of a key biodiversity or protected area. More alarmingly, 23 per cent of 8,700 oil and gas projects and 18 per cent of 5,700 mining projects are located within just 1km of a key biodiversity or protected area.
“This type of data, based on geolocation technology such as remote sensors on the ground or satellite imagery, signals a new era,” she says.
“It is still coming together in some spaces, but as this develops there will be a lot more datapoints and tools for investors and pension funds to use as part of their risk assessment.”
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Ultimately, many clients are looking for meaningful data to help them make more informed investment decisions, says Mihailescu-Cichon.
“With all the technological advances, we have a bit of a contradictory situation where people are very data hungry, but they are also drowning in data,” she explains.
“The challenge is how to make sure the data they are using is meaningful and useful for what they’re trying to achieve.”
