Biodiversity loss a material financial risk: ACSI

Biodiversity loss is a material financial risk for Australian companies that could wipe out up to $27 billion from the Australian economy annually by 2050, according to a report by the Australian Council of Superannuation Investors (ACSI).

ACSI has released a report, Biodiversity: unlocking natural capital value for Australian Investors: November 2021, which outlines the way in which biodiversity loss presents physical, transition and systemic risks to businesses.

The report outlines industries with high dependency on biodiversity through operations include fisheries, forestry, agriculture and aquaculture; food, beverages and tobacco; heat utilities; construction, while industries with high impacts on biodiversity in their operations or value chains: Food; infrastructure and mobility; energy; fashion. Together, these account for approximately 90% of global biodiversity loss, the report notes.

"[Biodiversity] is broader and has defence impacts than climate change," said ACSI CEO Louise Davidson. "Some biodiversity loss, for example, is undoubtedly caused by climate change. Some is driven by other things. It is considered a s sperate piece of work to climate change, because otherwise, there's the risk that we only look at biodiversity that's caused by CC, and we don't want to miss the larger piece.

"There might be other pollutants, there might be pesticides/herbicides , and the growth of the built environment, which are not necessarily climate related, but have the ability to impact severely on biodiversity."

"The first step from an investor perspective is to understand the impact, even if it is climate related, that biodiversity loss in and of itself may have on the risk profile of a company," Davidson said.

The report notes that putting a value on natural capital, which includes soils, water, oceans, biodiversity and landscapes, is a "crucial step" to assessing associated investment risks. While mechanisms for market valuation, metrics and scenario testing are less developed for biodiversity than they are for climate, they are expected to progress rapidly.

Davidson pointed to the International Financial Reporting Standards (IFRS) Foundation announcement at COP26 of the creation of the international Sustainability Standards Board (ISSB), which will develop the IFRS Sustainability Disclosure Standards. She also pointed to the forthcoming Taskforce for Nature Related Financial Disclosure (TNFD) framework, which takes a similar approach to evaluating financial risks of biodiversity as the Taskforce for Climate Related Financial Risk (TCFD).

"At COP26 the announcement on ISSB - which I think is a terrific step forward - and the focus on climate through TCFD, that has demonstrated the value of having a robust reporting framework that allows comparability across different organisations," Davidson said.

To understand these risks, the report recommends Australian investors plan and educate around their biodiversity risks; undertake corporate engagement with companies to understand the current state of biodiversity risk and opportunity; manage portfolio risks and opportunities within their own portfolios; shape policy and framework development, and monitor and disclose targets.

"Our role henceforth is two-fold - to start considering and identifying the companies that we think have a big biodiversity risk and initiating discussions with those companies about this matter being clearly on the investor agenda, and something we would be seeking to have some further engagement on," she said. "On the other side, we will be supporting members in preparing themselves to start looking at their own portfolios and management of risks and opportunities around biodiversity."

Image courtesy of Timothy K on Unsplash

Read more: BiodiversityAustralian Council of Superannuation InvestorsIFRSLouise DavidsonTaskforce for Climate Related Financial RiskInternational Sustainability Standards BoardTaskforce for Nature Related Financial Disclosure