Revealing the $28 Trillion Biodiversity Risk: Exploring an Innovative Dataset

biodiversity map

(Credit: Impact Cubed)

by | Jun 7, 2023

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To shed light on the economic implications of biodiversity loss and provide actionable insights for investors, a groundbreaking biodiversity dataset has been developed by Impact Cubed. This innovative tool equips financial institutions with detailed information about the impact of business activities related to four primary biodiversity drivers: land and sea use change, climate change, natural resource exploitation, and pollution. Additionally, it includes data on Sustainable Development Goals (SDG) alignment and various operational factors such as carbon, waste, water efficiency, and PAI flags.

Uncovering Economic Risks

Biodiversity loss extends beyond ecological concerns and poses a significant economic threat. The well-being of the planet and the stability of the global economy are closely intertwined with biodiversity. Biodiversity plays a crucial role in providing essential goods and services that sustain economies and societies.

Through an analysis of four major world indexes using the aforementioned dataset, startling discoveries have been made. More than 35% of the MSCI All Country World Index (ACWI), equivalent to a staggering $28 trillion, is exposed to biodiversity risk. This exposure extends to both developed and emerging markets, with developed markets (MSCI World) at risk for more than $19 trillion and emerging markets (MSCI Emerging Markets) facing a potential risk of nearly $9 trillion.

Moreover, out of the $28 trillion market cap exposure, more than $25 trillion is associated with products and services that have a negative impact on biodiversity drivers. This highlights the substantial financial risk associated with biodiversity loss.

Challenging Misconceptions

This analysis challenges common misconceptions, particularly the notion of “dirty” Americans compared to Europeans. Contrary to this stereotype, Europe exhibits nearly double the negative impact on biodiversity per dollar of market cap compared to the United States.

Further examination reveals that around 75% of this discrepancy is driven by European companies having twice the negative exposure to land use change compared to their U.S. counterparts. This significant factor contributes to Europe’s overall higher negative biodiversity impact. The remaining 25% can be attributed to pollution levels, which are approximately 1.5 times higher for European companies compared to those in the U.S. Interestingly, climate change and natural resource use exposures are comparable between the two regions.

Unleashing Granular Data

The biodiversity dataset maps more than 2,300 business activities, providing detailed insights into their respective impacts and dependencies on the four key biodiversity drivers, as well as SDG alignment.

Unlike conventional indexes with broader categorizations, this level of granularity allows for a nuanced understanding of the diverse impacts different business activities have on biodiversity. For example, within the agriculture sector, the impacts of palm oil production can differ significantly from those of sustainable farming. Similarly, in the automotive industry, the production of alternative battery parts for electric vehicles has a vastly different biodiversity footprint compared to traditional fossil fuel-based components.

This granular view of business activities not only enhances understanding of biodiversity impacts but also enables investors to create thematic funds with greater precision and have more accurate tools for screening companies into or out of portfolios. Investors can now align their portfolios more closely with their biodiversity goals.

The analysis reveals that exposure to biodiversity-positive activities, such as “recycling equipment creation,” is significantly smaller compared to the negative impacts.

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