Short-term solutions to biodiversity conservation in portfolio construction: Forward-looking disclosure and classification-based metrics biodiversity conservation in portfolio construction

Detalles

There is increasing demand among investors to build portfolios that promote positive outcomes for biodiversity. The evolution of investment strategies for zero-carbon transitions over the past two decades provides insights that will help strategize for biodiversity-positive investments. Many emerging approaches to capturing corporate impact and biodiversity dependency focus on nature-related threats to an organization by assessing ecosystem integrity. Other approaches focus on minimizing an organization's contribution to species extinction risks by using datasets such as the IUCN Red List of Threatened Species. However, while these approaches are useful for assessing threats to and from biodiversity for individual companies, in order to be effective for investment portfolio construction, the metrics must be comparable between companies in an investment universe. Many of the threat assessments that could link corporate activities to impacts are incomplete and omit critical information. If the investment community focuses on biodiversity without sufficient foresight, there is a risk of entrenching metrics with significant flaws. In this paper, it is suggested that interim approaches are needed to help investors understand the approaches that are being taken by potential companies in which they are investing. To that end, this analysis presents and discusses a disclosure-based Biodiversity Management Quality metric and a classification-based Biodiversity Income metric for biodiversity-related investment.