Calculating value of biodiversity: BNP Paribas Asset Management

Biodiversity and the value of ecosystem services are a critical part of a healthy global economy, with investors working to calculate risk and opportunity on investment portfolios.

BNP Paribas Asset Management has named biodiversity as one of its key thematic priorities, and is undertaking a number of projects to pursue biodiversity related topics across its different areas of sustainable investing.

Biodiversity is a key topic of discussion during the forthcoming Responsible Investment Association Australasia (RIAA) Australia 2021 conference, on May 7.

FS Sustainability is the media partner for the event.

Jane Ambachtsheer, global head of sustainability at BNP Paribas Asset Management spoke with FS Sustainability about the global fund manager's developing approach to managing biodiversity risk and opportunity.

BNP Paribas Asset Management is focusing on an indicator called the Corporate Biodiversity Footprint to assess the impact of its portfolios on biodiversity. This indicator relies on a metric expressed in square kilometers - mean species abundance (MSA), which measures what species were contained within a specific ecosystem prior to the disruption of human activity, and comparing it to the ecosystems' current health.

The indicator can help understand which environmental pressures, such as land use, climate change, nitrogen deposit and others are most contributing to the negative impact of a given company or of a given portfolio. Even if the direct causality is sometimes hard to estimate, Companies operating within ecosystems that have been degraded through the timespan in which the entity has operated, have a degree of responsibility as well as dependency on the ecosystem, Ambachtsheer said.

"One of the challenges with biodiversity is that it's super location specific," she says. "The benefit of mean species abundance is that it's one metric that you can apply to a sector. Through a data collaboration we have undertaken with a small number of managers and an external provider, we are in the process of using the Corporate Biodiversity Footprint for our portfolios against the MSCI World index to see the results, and that work will be ready by the end of the year."

BNP Paribas Asset Management is also evaluating its investments for exposure to water and deforestation risk, and has calculated that their water footprint as 25,000 cubic metres of water used per million euros in sales.

"We've started to go to fund level and we can compare the water intensity of the fund to its benchmark and we've taken the opportunity to identify companies with active exposure that are relatively high water intensity and exposure to water stressed regions," she notes. "We can then more structurally flag those as risks and opportunities for engagements, doing analysis and company meetings with the portfolio managers."

Ultimately BNP Paribas Asset Management will integrate their biodiversity analysis, water usage and deforestation analysis into their multi-pillar approach to sustainable investing - ESG analysis, stewardship activities, including voting on deforestation proposals at AGMs and engaging with companies over concerns on deforestation, plastic pollution and pesticide use; responsible business conduct expectation, and focusing on the future and behaving as "future makers," which will include developing funds that tilt toward companies that are acting to minimise depletion of ecosystems and acting to rehabilitate existing damage.

"We are looking at opportunities in the listed equity space to address ecosystem challenges," Ambachtsheer said. "We can also think about cities as an ecosystem, because they are both a major contributor to pollution and carbon emissions and a major opportunity."

BNP Paribas Asset Management is also seeking to leverage investment in unlisted assets, she adds.

"We're also exploring natural capital in the unlisted space," Ambachtsheer says. "For example, natural carbon sinks as a part of the solution. They are under-invested in, and we have a structural opportunity in terms of the role we could be playing in investing there, and also looking at the risks and the role of carbon offsets, in terms of evaluating the quality of offsets and the robustness of the accounting framework and traceability of those offsets."

Ambachtsheer notes that Australia has a unique role to play when it comes to ecosystem services and natural capital because of the combination of highly sophisticated institutional investors, the fragility of Australian ecosystems, and the impacts that Australians have felt from natural disasters.

Photo by Brian Garrity on Unsplash.

Read more: biodiversityBNP Paribas Asset ManagementJane AmbachtsheerResponsible Investment Association Australasia