Biodiversity and the Financial Sector – Part 2: Investor perspective

  • Date: 10/09/2020

Webinar highlights

Measuring and managing biodiversity; the financial and the real-world approach

The awareness that biodiversity underpins all of society and therefore needs preserving is growing rapidly. Moreover, it is becoming increasingly clear that the loss of biodiversity will affect the financial sector negatively. As such, from a financial risk and opportunity perspective, it is essential for financial institutions to understand the relations between investments and biodiversity. Conducting an impact assessment on portfolio level is an important first step to identify impact hotspots and understand what investments and drivers of biodiversity loss deserve priority attention. An example of identifying and measuring biodiversity impact is provided by ASN bank. The biodiversity footprint of ASN Bank’s investment portfolio involves the following steps: Step 1: understanding the investment, step 2: assess environmental inputs and outputs, step 3: assess environmental pressures and the impact on biodiversity, step 4: interpret the results and take-action.

Reaching no net loss on portfolios

The availability of data is a key factor in the assessment of biodiversity impact and should be the first step when taking action to reduce said impact. The result of the footprint provides direction to ASN Bank, but the accuracy of the calculations is still limited. This is taken into account in the interpretation step. Furthermore, to reach a ‘no net loss’ or become ‘net positive’ on the level of an investment portfolio, the mitigation hierarchy must be respected; meaning one has to start with avoidance, then minimizing, followed by restoration and finally compensation. Moreover, the financial institution must be aware of the fact that a loss of biodiversity in one location cannot just be compensated with a biodiversity gain in another (e.g. building a road through an ancient forest and planting trees elsewhere will do more harm than good).

Real world links

According to IUCN, the usefulness of a biodiversity assessment approach depends on the ability to systematically link a change in the assessment output back to a change the real world. Since biodiversity is different in different places, the understanding of the spatial distribution of assets is the key that lets you unlock that link. The world’s governments are currently negotiating the biodiversity equivalent of the Paris Climate Agreement.  Any method for measuring biodiversity needs to be able to quantitatively interact with that emerging global science-based target. This is important because only then can science-based targets allow specific actors the opportunity and responsibility to identify how the specific actions they undertake in specific places stand to contribute towards a (possible) global biodiversity target of “halt loss by 2030, restoration by 2050”.

The STAR metric

These science-based targets for biodiversity must be: measurable at all scales, comparable between sites, used to calculate a global target, allow for disaggregation to enable contributions of all actors to count towards the global target, respond at the speed of investors and be able to measure threat abatement and restoration. An example of such a metric is the Species Threat Abatement and Restoration Metric (STAR).  The STAR metric measures the contribution that investments can make to reducing species extinction risk and global targets. A method like STAR can be used with a financial portfolio approach to easily identify the biodiversity risk exposure of investments.

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