Back to nature: Inside the growth of biodiversity as an ESG issue

Do you know what your company’s impact is on the rainforests? Have you worked out what risks water scarcity might pose to your future operations? Have you told investors where and how your company – and its supply chain – is dependent on nature? These are some of the big questions companies will be asking themselves in the near future – if they aren’t already. These are the questions your investors are going to want the answers to as the ESG spotlight falls on biodiversity.

Last year, Norges Bank Investment Management, manager of the world’s largest sovereign wealth fund and holder of an average 1.4 percent of all the world’s listed firms, published an expectation document on biodiversity.

The mega-investor says it ‘expect[s] companies to be transparent on how they depend on and impact biodiversity and ecosystem[s]’. Firms that are ‘highly dependent on or impacting biodiversity and ecosystems should integrate relevant nature-related considerations into their corporate strategy, risk management and reporting,’ it adds.

Then there’s Robeco’s climate survey, released in March this year, which finds that investor awareness of biodiversity is rapidly increasing and has more than doubled, from only 19 percent of investors saying that biodiversity was a significant factor in their investment policy two years ago to 41 percent today.

Around the world, companies are taking note. Nick Mazing, director of research at Sentieo, says the term ‘biodiversity’ is growing both in transcripts and in proxy statements. ‘In 2021, there were 58 proxies containing the word, compared with 29 in 2020, 22 in 2019 and just 13 and 11 in 2018 and 2017, respectively,’ he explains.

‘Biodiversity is also growing as a topic on conference calls, with more than 400 transcripts that mention the word in 2021, in contrast to just 42 in 2017.’ Mazing adds that high-profile CEOs are increasingly commenting on the issue.

Shifting perceptions

Karine Basso, director for agricultural value chains at consultancy South Pole, says companies are increasingly waking up to the idea that protecting the natural resources they rely on, directly or indirectly, is about future-proofing their businesses.

‘Companies see the importance this has for their business continuity,’ she says. ‘We’ve seen it with the impact of climate change, we’ve seen it with Covid-19, with the disruptions to supply chains – how things can reach a level of disruption that you would not have foreseen two decades ago.

‘From that perspective, this future-focus is not necessarily a focus on biodiversity for its own sake, but more about the idea that if you do not take care of the impact your business has on nature, and on making sure that nature is conserved to a level that you can continue your business, you will have an issue in the future.’

The actual reporting of biodiversity, Basso adds, is almost a consequence of that way of thinking. Still, the issue is one that is almost too overwhelming if you try to think of it in big-picture terms. We all rely on nature, on water, on the planet, and Basso says companies don’t always know where to begin. At the same time, many are still trying to get to grips with Scope 1, 2 and 3 emissions, carbon pricing and the road to net-zero.

‘This is a topic that can seem a little daunting and companies will have different maturity levels,’ Basso admits.

But if you’re really starting from scratch, she says the first thing you need to do is ‘map your supply chain, map your activities as an organization to understand where your activities are located geographically, so you can begin to understand: if I’m sourcing from Africa, what are the biodiversity and ecosystems I’m tapping into? What are the activities I have? And what are the consequences of those activities?’

But she stresses that for most firms today, it’s not necessary to dive into the deep end on biodiversity reporting.

Instead, it’s about understanding where the risks – and opportunities – lie. From that base of understanding, companies can expand their data, prioritize their focus and begin to talk to investors about what they’re doing – even if things are still at the early stage.

This is an extract of an article that was published in the Summer 2022 issue of IR Magazine. Click here to read the full article.