The many ways to get started in biodiversity assessment of investments
The news is full of reports about how biodiversity loss is happening at a staggering rate. Fortunately, financial institutions increasingly want to support species diversity and mitigate the financial risk of biodiversity loss. But how? That’s what the news doesn’t say. Banks, insurers and pension funds regularly invest billions of euros, and currently they barely have any quantitative data on biodiversity to use in their decision-making. In this project, we showed that, although biodiversity assessment of investments isn’t easy, there are many ways you can get started with it.
Six pioneering financial institutions crossing that first hurdle
With financial institutions, there is both interest and hesitance about biodiversity assessment. Knowing where to start is half the battle. To help answer that question, we started a project with funding from the Dutch government and with sustainability consultancy CREM, ASN Bank and seven financial institutions as partners. The goal for these financial institutions: to be the first to quantify the impacts of their investments on biodiversity, to tackle a variety of methods to start implementing biodiversity assessment, and to share the results to inspire others.
PRé and ASN already worked together previously to develop a biodiversity assessment method for their entire investment portfolio. ASN Bank has the ambitious goal of being net positive on biodiversity by 2030. The six other pioneering financial institutions each contributed a case study. This setup allowed us to support different approaches.
For ASN, the goal was monitoring their biodiversity footprint over time. Other partners were interested in analyzing specific investment opportunities or working on a new benchmark for biodiversity impact of investments.
Do you prefer broad or detailed?
There are roughly two approaches when it comes to getting started in investment biodiversity assessment. You can screen your entire portfolio on a surface level, which is useful to understand trends and disinvest in the lowest performers. Or you can screen a few potential new investments in more detail, and help steer them towards concrete improvements. For instance:
- For FMO, we analyzed the footprint of Agrovision, a Peruvian agricultural company. Their reforestation project already has a positive effect on biodiversity. Switching from diesel buses to clean ones for worker transport could reduce the negative contributions to their footprint.
- For ING, we analyzed the investment of a solar farm. Placing the panels on industrial land instead of agricultural land can reduce the direct land use impacts.
- For NWB Bank, we assessed the footprint of water company Waternet. We found that it pays off focus on the impact of producing the chemicals for water purification. However, as Waternet correctly states, it is difficult – and we did not do that in this round – to assess impacts such as the benefits of purifying water, or of creating animal-friendly river banks.
And, of course, there are drawbacks to each. For the portfolio approach, there is always more detail you would like. And for the project-based approach, there are always upstream impacts (for instance, the production of the solar panels using gray energy) that you can no longer affect when it is time to make the decision to invest.
Still, both are valid approaches; they’re just different. Which suits you better depends on your business philosophy and the interests of your clients.
Creating a biodiversity benchmark for investments
Several of the partners in our joint project – Achmea Investment Management, APG, ASN Bank, a.s.r. and ING – wanted to calculate the biodiversity impact of the MSCI World Index, containing 1500 large listed companies in developed markets. This index is often used as a benchmark for financial performance. Now the biodiversity impact of such an important list is known, financial institutions can also compare their biodiversity impact against the MSCI.
To generate the benchmark, we looked at each company’s revenues in certain sectors in certain countries. Then we used an input/output-database of trade flows between countries and sectors to estimate the biodiversity impact. Of course, these figures are based on very generic average data. Many companies already report their environmental impacts in much more detail, especially CO2 emission. Water and land use reports, which are more relevant for biodiversity assessment, are less common.
Because the approach is so generic, it can be a good start for a conversation. Companies that may not be jumping with enthusiasm to provide additional reports may be much more happy to do so if it could get them more investors. Showing that their sustainability strategy is better than the average company in that sector and country might make them more attractive.
Working together with other financials on biodiversity
The project was very enjoyable. During each update meeting, the partners shared their results so far, allowing the other partners and us to learn from their experiences.
The take-home message of the project was definitely that there are many good ways to get started assessing the biodiversity impacts of current and potential future investments. Although there is always more information you might like, you can already start making better decisions with the information that is relatively easy to get.
So much of the world’s economic activity, from food production to safe operating environment of industry, is only possible with a steady climate and strong ecosystems. That means we need to invest not in the world as it is, but as it will be years and decades from now. How? by investing in companies that do well in business while protecting – and perhaps even improving – biodiversity.
It doesn’t matter where you get started, as long as you do.
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Our team can support you with biodiversity assessment of products, organizations or investments.
Daniël worked at PRé from 2018 until 2023. As a Sustainability consultant, he collaborated on many LCA projects, especially in the fields of biodiversity and ecosystem services. He also provided SimaPro, LCA trainings and biodiversity footprinting trainings.