Biodiversity loss affects investment portfolios
Biodiversity needs to be taken into account in investment activities in the same way as climate change. Currently there are only few biodiversity roadmaps available in Finland or globally. We want to contribute to creating new investor approaches says Karoliina Lindroos, Head of Responsible Investment at Ilmarinen.
The Earth is undergoing a significant nature loss: Plant and animal species are being lost and ecosystems are changing. Some species spread uncontrollably and displace others. Ilmarinen's task is profitable, secure and responsible investing so that pensions can be paid now and in the future. Biodiversity loss affects the economy and therefore investment portfolios. Based on a portfolio assessment, one quarter of Ilmarinen's direct listed investments significantly rely on biodiversity and natural capital. In turn, one third of the companies in the investment portfolio have a strong impact on biodiversity and natural capital.
– Investors play an important role in safeguarding biodiversity. We need to identify and manage both biodiversity risks to investments and the harm to biodiversity arising from investments. Karoliina Lindroos says.
– We did not wait for someone to develop a ready method for taking biodiversity into account. Instead, we created an approach ourselves based on information and approaches currently available. We also want to openly publish our approach so that we can discuss with other market participants and collaborate so that the investment industry develops better ways to take biodiversity into account, Lindroos says.
– So far, economic growth has happened at the expense of natural capital base that includes biodiversity. In investment terms, we should not consume the capital base itself but rather live on interest.
Ilmarinen produced the Climate Road Map, which guides our pathway to net zero 2035, a year ago. The Biodiversity Road Map is now published.
Ilmarinen's approach to integrate biodiversity
Ilmarinen already considers biodiversity in its activities and aims to develop it´s approaches further:
1) Building understanding
First, we explored what an international investor can do to take account of and promote biodiversity and what biodiversity initiatives and investor cooperation opportunities exist. Although the topic is complex for investors and practices are still developing, we identified several already existing ways to take biodiversity into account in investment activities.
2) Portfolio assessment
We analyze our investment portfolio to understand what types of investments are most significant from biodiversity perspective. In our portfolio, the materials sector has the highest risks and impacts according to the assessment. Going forward, we will also compare results against an appropriate benchmark and develop new investment and portfolio management policies.
3) Investment policy and portfolio management
Based on our portfolio analysis, we aim to study and design actions that can help in addressing nature loss. For example potential approaches we may apply include, engagement with our investees so that they evaluate and report their biodiversity related risks and impacts, e enhanced due diligence, establishing investment selection criteria for biodiversity, supporting meaningful nature positive AGM proposals or, for example, excluding activities that are particularly harmful to biodiversity.
For the investor, potential assessment and reporting standards are evolving rapidly and we aim to report our progress to the best industry standards. To begin with, we report our portfolio on dependencies and impacts on biodiversity and nature capital. In the future, one possibility is, for example, to use the Taskforce on Nature-related Financial Disclosures Framework, which takes into account nature, in the same way as we use the Task Force on Climate-Related Financial Disclosures reporting framework for climate change.
- Enhanced risk based due diligence on identified high dependency sectors, starting from materials sector.
- Own reporting.
- Increased activity specific requirements – e.g. certifications.
- Engagement – e.g. increased reporting, governance & management.
Karoliina Lindroos, Head of Responsible Investment at Ilmarinen, p. 0102843563
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