Pivotal Future’s Post

🦋 Speaking with companies, funds, investors, and insurers over the past few months, it’s clear that how people are thinking about nature and biodiversity data is rapidly evolving. Read more via the link below. #nature #biodiversity #risk #commodities https://lnkd.in/dMaQtY_i

“What kind of financial instrument is a biodiversity credit?” This question led me to the newsletter issue #12: an exploration that goes beyond the asset/commodity comparison (full article in the comments 👇). Tl;DR 🔎 Asset vs commodity properties Functionally, biodiversity credits fall somewhere between assets and commodities. In theory, environmental credits should function as commodities. In practice, the early maturity of biodiversity credits shows: low standardization, high complexity, illiquidity, unclear market rules and no fungibility. So far, biodiversity credits function more like assets stuck in the body of a commodity. 🥅 Different visions of biodiversity credits *Outcome-based philanthropy* Mostly represented by conservationists, scientists and often both Indigenous Peoples and local communities. It’s driven by science, outcomes and supply. *Full-stack financialization* Mostly represented by the finance, tech and policy folks. It’s driven by “reality”, systems and demand. 🌅 The ultimate nature asset vision Although not a “biodiversity credit scheme”, I believe The Landbanking Group represents this vision best. To pull this off, TLG is building the MRV aggregation, legal, market transaction, science, data management & assetization layers. High risk, high reward. 📏 Biodiversity unit The source of standardization for biodiversity credits & beyond. *High-level unit standardization* The default outcome when led by large consortiums (e.g. International Advisory Panel on Biodiversity Credits, Biodiversity Credit Alliance, WEF). Most likely end outcome: agreeing on a common set of metrics, not a unit. *Low-level unit standardization* The most publicly pushed solution is Savimbo's species-centric, commodity-first approach. They’re promoting a methodology-agnostic unit that, in theory, should make the buyers’ lives easier while still allowing credit schemes to differentiate themselves with their unique biodiversity measurement methods. 💡 Lessons 1. Obviously, terminology doesn’t matter. On-the-ground social and nature outcomes do. 2. Nature finance shouldn’t lead to increased inequality (e.g. land grabbing, further land ownership concentration, etc.). 3. No matter what you believe the biodiversity market should be, it would benefit from more standardization. Especially around biodiversity unit. 4. As expensive and slow as it is, scientific integrity is a non-negotiable. 5. As always, environmental markets follow policy. And a final (painful) personal lesson over the past years: folks who are trying to make things better are also in the perfect position to make them worse. Thank you to the countless amazing folks who shared their expertise on the subject. 🙏 P.S. This is a 400-word summary of an 17-pager. If you’re missing context - I suggest you look at the actual article :) Would love to hear your thoughts though! Bloom Labs #biodiversitycredits #assets #commodities #naturefinance #biodiversitymarket #biodiversity

Nature-related metrics vs ITR: “why?” is now well understood, but the “how” remains a challenge to many. Emanuela (Emmy) Hawker developed a useful discussion about the need for standardization of metrics vs the risk of oversimplification, as well as a need to project future performance, not just today’s pressures on biodiversity. The article also draws useful comparisons between biodiversity footprinting and ITR which is forward-looking and increasingly standardized thanks to initiatives such as the TCFD and GFANZ. I believe biodiversity footprinting would also gain more traction from such market convergence efforts. Perhaps it is time to set up the “Portfolio Alignment Team” of biodiversity footprinting, presumably under the very legitimate auspices of the TNFD. The article also discusses weaknesses associated with ITR-type metrics. I thoroughly disagree with some of those criticisms. They have been raised many times since 2021, both by the TCFD and GFANZ, through technical working groups and via several rounds of consultations. Yes ITR is complex but it captures many considerations and it is not a black box by design; it is sensitive to assumptions but they are sensible and can be buffered; some data is missing but can be infilled with decent accuracy. And, no, portfolio aggregation is not absurd when done right, and the science of TCRE factors is not uncertain. Those limitations are well understood, they have been addressed and ITR will continue to improve. Alternatives have been looked into and they present at least as many, if not more, downsides. Eg sector-specific metrics do not aggregate well at PF level; carbon footprinting is simple but counter-productive for target setting, etc. What is regrettable is that ITR methodologies have differed long enough for models to stray too much. This was the purpose of the PAT and GFANZ WGs. Let’s avoid such a situation in the biodiversity space where there is, also, no time to waste before converging.

Investors and stakeholders are becoming increasingly aware of the impact of land use and biodiversity risks on portfolio companies. According to Sustainalytics, the average difference in returns between high and lower biodiversity risk companies can be upwards of 40 percentage points over just four years. Shockingly, we lose one soccer field sized forest cover every second! Check out the report linked below for more information on how to incorporate ESG factors into your investment strategy. #ESG #sustainability #investing https://lnkd.in/d_i3jN-U

Still struggling to keep up with the latest biodiversity data offering for financial institutions? Lazard Asset Management made two excellent lists in a 2023 paper, one focusing on aggregated biodiversity indicators, and one on what they call “contextual information”. 🔎 I strongly encourage you to have a look at my Nature Intelligence Newsletter issue focusing on tools & databases for financial institutions for a clear framework to understand such data https://lnkd.in/eYc-hD_9. Basically, 4 types of data are currently available: 1️⃣ Impact & dependency “databases” 2️⃣ Impact & dependency measurement approaches 3️⃣ Sector screening tools 4️⃣ Location screening platforms ➡ Lazard AM first table focuses on category 1️⃣ Impact & dependency “databases” (and cite a 2️⃣ Impact & dependency measurement approaches, the GBS). It however also includes Moody, RepRisk and MSCI (see below for this last one)’s offering which are 4️⃣ Location screening platforms. And several indicators do not really fall in any of the 4 categories, but are focused more on qualitative information, e.g. on biodiversity controversies (Sustainalytics’ offering for instance).   ➡ Lazard AM second table also focus on data beyond my 4 categories, mostly on risks related to pressures (e.g. Water Risk Filter) or on companies’ policies (CDP, WBA). I would have moved IBAT to the first table, and it’s a 4️⃣ Location screening platforms. Similarly, the Biodiversity Risk Filter is a combination of 3️⃣ Sector screening tools and 4️⃣ Location screening platforms.   🆕 What’s new since 2023? Many things but I’m going to focus only on two updates: MSCI has launched a 1️⃣ Impact & dependency “databases” using the PDF and #MeanSpeciesAbundance (MSA) metrics. Bloomberg is launching an 1️⃣ Impact & dependency “databases” using the BII (Biodiversity Intactness Index) metric. Still unclear? Have a look at Finance for Biodiversity's guide on measurement approaches and feel free to ask questions in comments!

🌿 **Embracing Biodiversity in Investment Strategies** As the world increasingly recognizes the financial risks associated with biodiversity loss, it's crucial for asset managers to integrate biodiversity data into their investment analysis. At Inrate, we've been leading the ESG rating field for two decades, providing actionable insights to help manage biodiversity-related risks and evaluate investment impacts on natural capital. Our comprehensive data solutions empower you to: - Identify and manage biodiversity risks within your portfolio - Assess the impact of investments on natural ecosystems - Integrate biodiversity considerations into your decision-making process By leveraging these insights, asset managers can not only gain a competitive edge but also demonstrate leadership in incorporating environmental, social, and governance (ESG) considerations into their strategies. Together, we can drive positive change and ensure sustainable growth. #Biodiversity #ESG #Sustainability #Investment #Inrate

2024 is the year for companies to act on #biodiversity loss. Morningstar Sustainalytics' Gayaneh Shahbazian examines the urgency for investors, tools that companies can use to develop a nature strategy, and the power of #investmentstewardship. #naturedisclosure #naturefinance