With momentum building around biodiversity investing, we took a closer look at the current state of the biodiversity data solutions landscape to support investors in their data solution selections.
More specifically, we looked at the materiality of biodiversity investing, analysed the various third-party data solutions available, and classified the different approaches (based on investment capability, the availability of data tools and portfolio goals). We discuss how biodiversity solutions can be selected, and look at the improvements we would like to see in existing and future solutions.
Our key findings:
Corporate biodiversity disclosure is sparse and, while data solution providers can already help investors interpret biodiversity data, the market is not as mature as the one for climate investing, so we are bound to see more product development1.
While biodiversity impact intensity (based on footprinting models) allows for comparisons across sectors, and shares similarities with the carbon intensity of climate investing, there are caveats – mainly due to the fact that footprinting metrics, such as Mean Species Abundance (MSA) or Potentially Disappeared Fractions of Species (PDF), are not as generally accepted as certain carbon metrics for climate investing, and because current footprinting implementations are too dependent on revenues-based extrapolation, which might cause issues beyond reporting purposes.
There is a strong rationale for leveraging scorecards that are focused on better documented biodiversity subsets or high-impact sectors.
There are multiple use cases beyond portfolio alignment, such as European Union (EU) and national regulations, EU Sustainable Finance Disclosure Regulation (EU SFDR) Principal Adverse Impacts (PAIs), and better corporate engagement.
There is a good momentum behind biodiversity investing (for example, the United Nations Biodiversity Conference, COP15), and we believe that improved reporting standards, regulations, and satellite imagery will contribute to making the existing solutions more accurate. However, identifying opportunities will still likely require specific capabilities on the investors’ side (such as fundamental research and corporate engagement).
1 For the purposes of this paper, climate investing is a shorthand reference to a broad range of investment strategies including strategies that evaluate financially material climate risks, and opportunities and strategies that are designed to meet certain sustainability goals.