Influence In cubes tool notes that Europe has a greater exposure to biodiversity than the US or emerging markets.
ESG and climate data provider Impact Cubed has launched a biodiversity dataset that provides investors detailed insights more than 2,300 business activities approximately 60,000 listed companies worldwide.
The toolswhich aims to help investors to map biodiversity-related risks in their portOlios, found that $28 trillion of market capitalization within developed markets is exposed to significant biodiversity risks the vast majority (25 trillion dollars) tribes from products and services that have a negative impact on biodiversity.
This biodiversity exposure affects both developed and emerging markets, with $19 trillion in developed markets at risk (components of the MSCI World Table of contents) and up to $9 trillion in emerging markets (MSCI Emerging Markets), underscoring the global size of the financial sectorly material risk to biodiversity. This means that $6 trillion is at risk in EuropeAnd 10 trillion dollars in the US.
Antti Savilaakso, partner and head of research at Impact Cubed, explains ESG that “anyone who takes responsible investing or ESG seriously” must look carefully at the risks to biodiversity.
Impact Cubed uses a machine learning system to collect information from publicly traded companies that disclose their activities through sources such as annual reports, which comprise 70-80% of the company’s data set.
It then uses science-based insights from sources such as the Intergovernmental science-policy platform for biodiversity and ecosystem services (IPBES), to map publicly disclosed activities with regard to their potential impact on four primary biodiversity drivers: land and sea use change, climate change, natural resource exploitation and pollution.
The company additionally assesses each company’s alignment with the Sustainable Development Goals (SDGs) and evaluates operational factors such as greenhouse gas emissions, water and waste efficiency.
The biodiversity dataset is supported by the Nature-related financial disclosure task force (TNFD). This mix of publicly released data and science-based insights provides a robust and comprehensive view of biodiversity risks and opportunities in financial markets.
Exposure to European biodiversity
Savilaakso said Investors are increasingly focused on understanding the risks and impacts on biodiversity. This follows the signing of the Global biodiversity framework (GBF) in Montreal last December, with the signatories promising to take action halt and reverse nature loss, including to protect 30% of the planet‘s surface by 2030.
The GBF is also encouraging regulators to implement new reporting requirements, with many expected to use the disclosure framework being developed by the Taskforce on Nature-related Financial Disclosures.
“We spoke mainly with investors from Europe, but also with some from the US,Savilaakso said. “There is curiosity about the possibilities available to tackle biodiversity, but also fear.”
A key finding from the data set was that despite the fact that the US exists perceived as subject to greater exposure to biodiversity, Europe (as represented by the constituents of STOXX600) had almost double the negative impact on biodiversity per unit market capitalization compared to the US (S&P500).
STOXX600 has a total biodiversity exposure of 46%, of which 43% is negatively aligned to biodiversity, compared to the S&P500 which has an exposure of 26% and 21% negatively.
The total European biodiversity exposure, at 39%, was also higher than that of the MSCI EM and 31% of the MSCI ACWI.
Impact Cubed found that roughly 75% of the discrepancy was driven by European companies having twice as negative exposure to land use change compared to their US counterparts, which is branded as a “significant factor” contributing to the greater overall negative impact on Europe’s biodiversity.
It said the remaining 25% of the difference can be attributed to pollution levels, which are about 1.5 times higher in Europe compared to the US.
“For investors developing biodiversity strategies, this underlines the importance of understanding the specific factors influencing biodiversity impacts across different regions and sectors, and the need for targeted strategies to address these specific challenges,” the organization said..
Savilaakso said: “aAs an investor who cares about biodiversity in your portfolio, you can’t automatically think that as long as I stay close to home, everything will be fine. If you want to find opportunities in the field of biodiversity, you have to be very active in looking for things outside Europe.
“If you only invest in Europe, you definitely have biodiversity risk in your portfolio,” he added.
Providing deeper data
Savilaakso said the data set wide Coverage and the granularity and objectivity of his data were the key to that utility for investors.
“Typical ESG datasets typically only cover a small percentage of companies in a portfolio, which can give you really good insight into 20-30% of your investments, but not knowing anything about the rest creates problems,” he said.
“By giving investors the actual detailed data points and numbers, they can feed this information into things like quantitative portfolio models and portfolio optimization models.”
Savilaakso expected investors Unpleasant apply the new tool for a varietyuses, including for regulatory reporting, building funds, or something a complementally source.
“More than a third of the developed world is at risk from biodiversity. Investors could potentially lose a third, if not more, of their investments if we continue to pollute and destroy the planet as we are doing currently,” He warned.
Corporate biodiversity initiatives
New research by Imperial College Business School and HSBC has analysesed40,000 biodiversity initiatives revealed in the sustainability reports of more than 6,000 listed companies. It showed that the number of corporate initiatives in the field of biodiversity had increased sharply from 600 between 2005-2007 to 4,000 between 2019-2021.
However, the research also found that only 6% of the 651,880 business initiatives involved sustainability identified between 2000 and 2021 were related to biodiversity, and that the majority of these focused on land-based initiatives, as opposed to ocean-related projects.
By sector, utilities implemented the highest number of biodiversity initiatives as a percentage of their total sustainability initiatives, at 16%. This is followed by 14% for industrial and materials companies (including mining) and 12% for consumer goods.