Biodiversity: ESG’s Latest Priority

Executive Summary

Although ESG is often thought of as a monolithic package, its Environmental, Social and Governance pillars have not received equal attention and the environmental pillar seems to have eclipsed the other two. Even within the environmental pillar, there has been a strong focus on carbon and climate issues only.

Currently, there are a significant number of ESG data vendors offering carbon data and more sophisticated solutions such as climate scenario analysis.

Because it is closely connected with climate change, biodiversity loss has recently become a major topic of interest within the ESG space. Different initiatives including the Business for Nature Coalition, the Finance for Biodiversity Pledge, and the Finance Sector Roadmap for Eliminating Deforestation have been launched to support investments which favor the protection and restoration of biodiversity.

The Taskforce on Nature-related Financial Disclosures (TNFD) is probably the most important initiative when it comes to biodiversity disclosures. Launched in June 2021, the TNFD framework follows the same model as the TCFD and is intended to be a tool to help companies track their biodiversity footprint and allow investors to allocate capital in a nature-friendly way.

With the increasing demand for biodiversity disclosures and the development of regulatory requirements, biodiversity-related data will be increasingly needed. This represents a real challenge, since biodiversity metrics and indicators are still under development.

However, a handful of vendors, including Iceberg Data Lab and Carbon4 Finance, have started to provide a dedicated offering to measure the impact of a company on biodiversity, as well as the impact of biodiversity on a company’s performance. In addition, biodiversity indices and funds have started to emerge, particularly in Europe.

Once biodiversity-related metrics and indicators are fully available, the definition of targets and objectives will be necessary to measure a company’s trajectory. The launch of the final version of the TNFD recommendations expected for Q3 2023 might be a critical step to make biodiversity the new ESG priority.

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