Sustainable Fitch Shows Rising Interest in Biodiversity ESG Reporting

mountain view with trees and flowers

(Credit: Flickr)

by | Sep 6, 2023

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mountain view with trees and flowers

(Credit: Flickr)

Sustainable Fitch’s recent report, Biodiversity in ESG: Focus on Impact Grows, shows increased prioritization of biodiversity in ESG reporting, especially amidst continued concerns surrounding ecosystem degradation and natural capital.

Most companies’ ESG strategies include climate or net-zero goals, but the report explains how many companies have started to incorporate “nature positive” biodiversity investing as well.

Nature positive practices include supporting projects such as reforestation, regenerative agriculture, and conservation efforts, to name a few. Nature’s essential role in the global economy has become increasingly relevant as natural capital erodes due to overexploitation, pollution, and land use. According to a Robeco survey, over half of the polled companies responded that biodiversity would be a “significant factor” in their investment policy in the next two years.

Policy has been a major driver of increased investor concern with biodiversity, most notably the Kunming-Montreal Global Biodiversity Framework, signed by over 190 countries at the UN Biodiversity Conference in 2022. Some jurisdictions, including the European Union, have started to require biodiversity reporting standards from companies. The report also explains a rise in opportunities, specifically, for investors to align with UN Sustainable Development Goals (SDGs), including SDG14, Life Below Water, and SDG15, Life on Land.

Although the last few years have seen a sharp rise in biodiversity-related labeled bonds, the Paulson Institute has identified a financing gap of about $700 billion a year leading up to 2030 in order to halt and reverse biodiversity loss. Therefore, private capital must flow into the segment even more in the years to come.

Nature-Based ESG Investing and Targets Becoming Mainstream, Potential Challenges

Industry initiatives are currently at work to bring nature-based targets into the same arena as climate targets and other major ESG categories. For instance, the Nature Action 100 initiative plans to mirror the approach of Climate Action 100+, which directs investing to corporations with the highest emissions cuts. Nature Action 100 would similarly publish a list of companies with the largest impacts on nature, along with their demands to set targets and nature-related disclosures.

The Sustainable Fitch report identifies sectors that most impact nature, including metal and mining, chemicals, food production, distribution, and retail. Importantly, the report emphasizes that, especially for these industries, offsetting is not a viable target-setting framework when it comes to nature, according to the Science Based Targets Network.

Nature-based reporting maintains some difficulties in terms of standardized metrics as it’s still a comparatively new practice. Much like the rest of ESG reporting, standardization is expected to improve as the practice becomes more widespread.

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