In a unique move, AXA Investment Managers, BNP Paribas Asset Management, Mirova and Sycomore Asset Management are currently on a shared hunt for an ESG data provider to help them with the latest ESG data challenge they are all facing: how to quantitatively measure the impact of a company’s activity on biodiversity.
In an announcement made last week, the four French asset managers called on the financial community to “address biodiversity in the same way that it has addressed climate change”. And they didn’t mince their words: “One million species are facing extinction. Biodiversity plays a vital role, and its collapse would jeopardise the future of humanity,” they said.
It’s the latest sign that financial players are paying more attention to biodiversity – the increasingly threatened networks of animals and plants that perform (in)valuable functions producing oxygen, regulating water, retaining soil and providing flood protection. The World Economic Forum’s Nature Risk Rising report recently found that $44trn of economic value generation – over half the world’s GDP – is moderately or highly dependent on nature and its services. PWC and WWF in Switzerland have pinpointed biodiversity as the next frontier in financial risk management, coining the expression “nature is too big to fail”. The Dutch National Bank, meanwhile, is working on a report to be published in the Spring, which will assess how the Dutch banking sector may be at risk from its dependency on biodiversity.
"This kind of collaboration between asset managers never happens. But we’re all facing the same challenges with data internally" – BNP Paribas Asset Management’s Poujade
And with increasing legislation and regulation in the space seeming inevitable, it’s no wonder investors’ ears are pricking up. 2020 has been coined the “super year for nature”, as world leaders ready for the 15th Conference of Parties (COP15) to the Convention on Biological Diversity (CBD) in China. Natural capital’s equivalent to the world famous climate negotiations, it is hoped October’s conference could provide a ‘Paris moment’ for biodiversity and nature, with corresponding national pledges; and there are whispers of a possible Task Force for Nature-Related Financial Disclosures to come out of it. The European Green Deal says all EU policies should “contribute to preserving and restoring Europe’s natural capital by integrating ecosystems and their services into decision-making”, and in France, the country’s landmark Article 173 disclosure bill has been amended to include a biodiversity section.
But the data, metrics and tools available to investors to start to understand portfolio impacts and dependency on biodiversity are still in their infancy. Robert-Alexandre Poujade, ESG Analyst at BNP Paribas and one of the four-strong team taking the collaboration forward, says there’s no shared assessment method as it stands. “There are different methods, different people talking about different things. Even for clients, when they go to Mirova or to Sycomore, they will see different approaches.”
Poujade says the data on biodiversity currently available is also “not very convincing”. “It’s mainly qualitative, and it's hard to discriminate between qualitative assessments for a very large number of companies,” he says. “We cannot discriminate between two companies that have a no deforestation policy, for example, if we don't have any proof of the performance side.”
Poujade says it was these issues that inspired the four firms to take a novel approach. As well as Poujade, on the team leading the initiative is Julien Foll from AXA IM, Sarah Maillard from Mirova, and Jean-Guillaume Péladan de Sycomore AM (which is now majority-owned by Italian insurance giant Generali).
“It’s the first time for there to be this kind of collaboration between asset managers,” he says. “It never happens. But we’re all facing the same challenges with data internally, so it was very logical to do it…In practice, it's four people who are evangelists and who are convinced that we should do more.”
The investors are looking to co-develop what they say will be a “pioneering tool” for portfolio-level biodiversity assessment, starting by establishing a quantitative methodology that allows investors to compare companies. They’re taking applications, from both mainstream and specialist providers, until the end of March, and will become the first clients of the data provider under the initiative.
There are key obstacles that the participants and selected provider will have to overcome, however – not least finding indicators that can work across a broad range of companies.
“It's not as easy as with carbon, when one tonne emitted in Indonesia is the same as in France in terms of impact on climate,” Poujade says. “This is where we would need to have sector estimates, because, for example, the finance industry would require a different level of disclosure compared to, say, the food production sector. So their requirements will vary. We will have to understand the impacts on a very granular basis.”
The four have also asked that the methodology adopt a ‘life-cycle’ approach, factoring in the entire supply chain, including customers’ use of products – a ‘Scope 3’ assessment for biodiversity, essentially – which promises to be particularly challenging.
Poujade sees the work feeding into the development of future standards. “The key aim is to have a common practice for everybody,” he says. “We know how it worked with climate – the Greenhouse Gas Protocol has been tremendously important so that everybody speaks the same language. So we said, okay, should we wait for somebody or should we try to initiate the movement?”