S&P has launched a new service built on its nature and biodiversity dataset, designed to help companies and financial institutions align with the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD).
- The dataset includes dependency scores, describing the level of risk associated with a company’s reliance on 21 different ecosystem services, and the ecosystem footprint, a new metric measuring operational impact on nature.
- New research using this dataset shows that 85% of the world’s largest companies have a significant dependency on nature across their direct operations.
- Companies, investors and other stakeholders can use this dataset to understand their impact and dependency on the natural world and to develop strategies to create more resilience with respect to the ecosystems they depend on.
As the guidelines for reporting nature and biodiversity risk under the TNFD draw near, it is worth noting that 85% of the world’s largest companies have a significant dependency on nature, highlighting the critical importance of greater transparency for market participants on nature-related risks and opportunities.
Analysis suggests that 55% of global GDP – equivalent to about $58 trillion – is moderately or highly dependent on nature, up almost one-third, or $14 trillion, since 2020.
What is the new dataset?
In order to help companies understand the risks that companies face, S&P Global Sustainable1 has launched a new service based on Nature & Biodiversity Risk, a new dataset assessing nature-related impacts and dependencies across a company’s direct operations that can be applied at the asset, company and portfolio level.
It is intended to support companies, investors and entities as they seek to understand, manage and mitigate the exposure of corporates and portfolios to nature-related risks and impacts. The dataset is aligned with the LEAP risk and opportunity assessment approach, as recommended by the TNFD.
The dataset applies the Nature Risk Profile, a new methodology for analysing companies’ impacts and dependencies on nature, launched by S&P Global Sustainable1 and the UN Environment Programme (UNEP) in January 2023.
Thomas Yagel, chief operating and product officer at S&P Global Sustainable1, said: “From the launch of the Taskforce on Nature Related Financial Disclosures (TNFD) in 2021 to the significant commitments made at COP15, there is an increasing demand from companies and investors to be able to quantify both their dependency on nature and the impact of their operations on location-specific ecosystems.”
Understanding nature dependencies and impact
The dependency score considers the level of reliance that a business’ direct operations have on 21 different ecosystem services, as well as the expected resilience risk of the ecosystem providing these services, where these businesses are operating around the world. The dependency score is on a scale from 0 to 1.0 (where 0 represents no dependency risk and 1.0 represents very high dependency risk).
The Ecosystem Footprint measures a business’s direct operational impact on nature and biodiversity. This metric combines three key areas of analysis: the areas of land impacted by the company (land area), the degree to which the location-specific ecosystem integrity is reduced (ecosystem degradation) and the significance of the location-specific ecosystem impacted (ecosystem significance).
Steve Bullock, global head of research and methodology at S&P Global Sustainable1, added: “Our research shows that 85% of the world’s largest companies have a significant dependency on nature, indicating the critical importance of greater transparency for market participants on nature-related risks and opportunities. This new dataset signals a maturation of the conversation on nature and provides clear metrics quantifying the nature related dependency and impact of over 1.6 million global real assets.”
Nature dependencies in the S&P 1200
The S&P 1200 is a group of the world’s largest public companies, and analysis using the data set says that 85% of the world’s largest companies have a significant dependency on nature across their direct operations. More than that, 46% of the world’s largest companies have at least one asset located in a Key Biodiversity Area (KBA) that could be exposed to future reputational and regulatory risks.
In one example, S&P 1200 companies used an estimated 22 million hectares of land for their direct operations in 2021 to generate $28.9 trillion in revenue. Expressed as an ecosystem footprint, this is equivalent to fully degrading 2.2 million hectares of the most pristine and significant ecosystems globally, such as the most intact and biodiverse parts of the Amazon or Sumatran rainforests.
Market participants can leverage the dataset to understand their nature-related risks and more transparent alignment with TNFD recommendations.
Nature & Biodiversity Risk can be accessed through S&P Capital IQ Pro and covers over 17,000 companies and over 1.6 million assets, providing a number of new nature-related risk metrics, including a dependency score and ecosystem footprint measure, enabling greater understanding of a company or asset’s dependency and impact on nature.
SGV TAKE
While the majority of companies, and investors, are focused on understanding their carbon emissions profile, regulation around impact across biodiversity and nature is growing.
December 2022 saw the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF) at the COP15 UN Biodiversity Conference, agreeing to a set of goals aimed at protecting nature and ending biodiversity loss, as well as increasing biodiversity-related finance. This is likely to result in increased regulation around risk reporting.
Both the GBF and the TNFD approach recommend deepening understanding of nature-related impact and dependencies and the new services should help financial institutions to do that.
