ESG data specialist RepRisk has partnered with the Integrated Biodiversity Assessment Tool (IBAT) Alliance to launch a geospatial analytics tool that helps investors to assess biodiversity risks.
- RepRisk and the IBAT Alliance have combined multiple datasets to provide insights on the proximity of extractive industry projects to high-biodiversity areas.
- Biodiversity loss is associated with a range of financial and non-financial risks, which are becoming more extreme by the day.
- As investors grow more aware of the importance of nature, the need for transparent data will drive demand for platforms that can help them to assess biodiversity risks.
RepRisk’s Geospatial Analytics tool builds on its existing ESG Risk Platform to provide investors with a greater understanding of companies’ exposure to biodiversity risks.
The new tool has been developed alongside the Integrated Biodiversity Assessment Tool (IBAT) Alliance, a UK-based group of organisations including BirdLife International, the United Nations Environment Programme World Conservation Monitoring Centre, the International Union for Conservation of Nature (IUCN) and Conservation International.
“RepRisk Geospatial Analytics is ground-breaking for investors. It is essential to understand where companies own and operate assets before it is possible to understand the potential biodiversity related risk of an investment”, said Edward Ellis, the IBAT Alliance’s business manager.
RepRisk Geospatial highlights asset proximity to high-biodiversity areas
The IBAT Alliance is responsible for licensing the commercial use of biodiversity datasets such as the IUCN’s Red List of Threatened Species, the World Database on Protected Areas and the World Database of Key Biodiversity Areas.
In collaboration with RepRisk, these datasets have been integrated into the RepRisk Geospatial Analytics platform to capture the proximity of over 65,000 extractive industry projects to more than 285,000 environmentally sites.
This proximity data is then combined with RepRisk’s own ESG risk incident data (which highlights where problems have already occurred) on companies and projects, as well as details on over 15,000 owner and operator firms.
The platform enables users to link assets on the ground to associated companies, and to assess nature-related risks in terms of their proximity to high-biodiversity areas. This allows them to conduct a more thorough due diligence process, by highlighting potential issues such as clients that are operating pipelines near protected areas or assets that overlap with biodiverse ecosystems.
RepRisk has conducted an initial analysis using its platform, revealing that around 32% of UNESCO World Heritage sites are currently within one kilometre of an extractive project and that 81% of global oil and gas pipelines are within 10 kilometres of at least one environmentally sensitive site.
By providing transparent data on biodiversity risks, the company aims to help investors avoid cases of greenwashing and identify opportunities to invest in biodiversity conservation. It has said it will soon expand the tool to include proximity data on projects beyond the extractive sector, and to incorporate data on emissions and deforestation.
Understanding biodiversity risk
Biodiversity loss due to human activity is accelerating at an unprecedented rate, with the global rate of species extinction now up to several hundred times higher than the natural rate over the past ten million years. This loss is contributing to many of the interconnected crises that the world is facing today.
Society, and the economy, are dependent on biodiversity for ecosystem services ranging from the pollination of crops to natural carbon and water cycles. Biodiversity loss and climate change are deeply intertwined, meaning that failure to address both crises as one will result in neither being successfully resolved.
With over half of the world’s economic output being either moderately or highly dependent on nature, there are also significant social and financial impacts of failing to take action against declining biodiversity.
The multiple causes and impacts of nature loss can make biodiversity risks to companies and investors difficult to understand. Essentially, businesses are connected to nature both by their dependencies and by their impacts.
This bi-directional connection raises several different types of risk, with the World Wildlife Fund identifying the five main categories as being physical, regulatory and legal, market, reputational or financial.
Each of these risk categories are worsening day by day. Physical risks are being compounded by climate change, thereby enhancing market risks by putting pressure on commodity supply chains.
The development of frameworks such as the Taskforce for Nature Related Financial Disclosures (TNFD) and regulatory measures including the EU’s Corporate Sustainability Reporting Directive, meanwhile, are heightening the risks of legal penalisation and reputational damage.
Although these are just a few examples of the complex intersections of biodiversity risks, it is fair to assume that there will always be a corresponding impact on business profitability. The financial aspect of biodiversity risks is becoming greater still, as investors are growing more aware of nature’s importance.
Investors are taking action against biodiversity risks
Biodiversity has become a key consideration in ESG investment, factoring into investors’ due diligence and risk management processes. Investment decisions are more frequently being made with double materiality in mind – considering the financial aspects of business activities alongside their social and environmental impacts.
This trend has been adopted by major financial institutions, with JPMorgan (NYSE:JPM) having incorporated a double materiality framework within its ESG risk assessment platform while Fitch Ratings has included impact and outcome scores in its latest bond ratings.
Pension funds such as Smart Pension and AXA IM (XPAR:CS) have begun to focus directly on biodiversity investments, while Moody’s (NYSE:MCO) has introduced a biodiversity screening framework to its risk assessments process.
Such initiatives reflect the growing demand from the financial community for public and private investment to be aligned with ambitious biodiversity commitments.
According to a 2021 report from Responsible Investor, which surveyed 327 global asset managers and asset owners, around 84% of investors are concerned about biodiversity loss. The majority of its respondents believed, however, that there was not enough available data for them to make investments that effectively supported biodiversity.
Information on biodiversity risks is scarce, fragmented and difficult to measure. The lack of transparent data makes it difficult for investors to hold companies accountable or align their decisions with their biodiversity goals.
As investors strengthen their call for accessible insights on biodiversity risks, there will be an increase in demand for platforms such as RepRisk and the IBAT Alliance’s Geospatial Analytics tool.
As summarised by RepRisk’s executive vice president of sales and marketing, Alexandra Mihailescu Cichon: “RepRisk Geospatial Analytics not only brings clients in step with emerging frameworks like TNFD but empowers them with the most cutting-edge technology and the world’s most comprehensive ESG dataset. Nature doesn’t disclose anything, and ultimately biodiversity risk and financial risk are one and the same. It’s time for financial markets to integrate biodiversity risk considerations into their decision-making processes.”
