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The New Frontier of Sustainable Finance
Biological diversity is rapidly declining — and becoming a material risk to investors. That means they need advanced tools to measure impact and manage risk.
The variety of the Earth’s living species is declining at an alarming rate due to human activity, from habitat destruction to the emission of greenhouse gases resulting in climate change. Biodiversity loss poses an existential threat to ecosystems, the global economy and, in turn, to investors.
At MSCI, we have spent decades developing metrics and data for global investors to measure risks and opportunities related to climate change and environmental, social and governance (ESG) factors. We have applied that experience and expertise to the biodiversity space, building new tools that overlay our ESG data onto geospatial data to isolate risks and identify opportunities resulting from this erosion.
Learn how to integrate biodiversity into your investment decisions with our Biodiversity Screening Metrics.
Economic risk from biodiversity loss could emerge at the company or portfolio level. Biodiversity and climate change are inextricably linked. Biodiversity loss reduces nature's ability to absorb greenhouse gases — forests, wetlands and oceans annually absorb 5.6 gigatons of carbon. Climate change, in turn, takes a bigger toll on nature.
Companies are coming under more scrutiny: Regulators are intensifying their focus on the destruction of ecosystems and the Taskforce on Nature-related Financial Disclosures (TNFD) is developing a standard framework to report related risks. Investors inevitably will be encouraged or mandated to integrate biodiversity loss into their portfolio decisions.
Sources: MSCI ESG Research, World Economic Forum and PwC. 2020. “Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy.”, Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). 2020. "The Global Assessment Report on Biodiversity and Ecosystem Services."
With our ecological foundations deteriorating, we can no longer ignore how companies are impacting, and being impacted by, biodiversity loss. As this destruction intensifies, more regulators, investors and companies are taking action.
The European Union is taking steps to mandate that products sold in the EU be deforestation-free and has mapped out a comprehensive plan to protect nature that includes biodiversity-related disclosure requirements for companies and investors.
Investors are forming coalitions for action, including the Partnership for Biodiversity Accounting Financials, the Finance for Biodiversity Pledge, Nature Action 100 and the Coalition for Private Investment in Conservation.
Groups such as the TNFD, the Science Based Targets Network, and Exploring Natural Capital Opportunities, Risks and Exposure are developing new biodiversity risk accounting metrics and tools.
Biodiversity loss is a complex topic with data challenges. There is no general consensus yet on how to measure its impact and risk.
However, MSCI’s broad coverage universe, vast data repositories and rigorous methodology equip investors to address nature-related risks and make biodiversity part of their strategies.
MSCI ESG Ratings cater to those looking to integrate ESG data to help identify potential risks or opportunities in their portfolios. We review companies’ exposure and management of biodiversity-linked Key Issues such as biodiversity and land use, raw material sourcing, and toxic emissions and waste.
MSCI ESG Controversies helps investors identify companies involved in controversies related to illegal logging, soil pollution or financing of projects of environmental concern.
Other tools such as MSCI ESG Sustainable Impact Metrics and MSCI SDG Alignment help investors identify companies with the potential to counter biodiversity loss through products focused on areas such as sustainable agriculture or pollution prevention.
Our biodiversity metrics within the net-zero solutions can be used to measure companies’ exposure to and impact on biodiversity, helping investors identify companies involved in high-impact industries and operations from a biodiversity perspective.
Investors gain greater clarity and focus by layering in our proprietary geolocation data to help pinpoint an organization's operations with our Biodiversity-Sensitive Areas and Deforestation Screening Metrics. Investors can address risks in their portfolios or manage their reputational risk related to biodiversity by identifying companies with operations in ecologically-sensitive areas or with exposure to potential direct and indirect involvement in deforestation.
Investors can also capture green opportunities by identifying green revenues from products that are positively impacting biodiversity.
MSCI ESG Business Involvement Screening Research provides information on global equity and fixed income issuers involved in specific business activities that could be linked to biodiversity loss such as the production of biocides, palm oil or fossil fuels.
Our MSCI EU Sustainable Finance Module includes Sustainable Finance Disclosure Regulation (SFDR) Adverse Impact Metrics and EU taxonomy data and metrics for over 10,000 corporate equity and fixed income issuers to support and simplify reporting requirements. It may also help clients navigate regulatory reporting requirements such as the new EU SFDR and Article 29 of the French Law on Energy and Climate, which requires all financial institutions to disclose biodiversity-related risks using the concept of double materiality.
Overall, MSCI provides access to over 300 metrics related to biodiversity and natural capital, designed to help investors identify and measure the impact of potential portfolio risks, report to their clients and stakeholders, and engage with companies.
With MSCI’s Biodiversity-Sensitive Areas and Deforestation Screening Metrics, investors can address biodiversity risks in their portfolios or manage their reputational risk by identifying companies with operations in ecologically sensitive areas or with exposure to potential direct and indirect involvement in deforestation. These tools combine thousands of asset data points, overlayed with our proprietary location-specific biodiversity metrics to add greater clarity and focus for investors.
enables investors to identify companies that have physical assets located in areas of high biodiversity relevance such as healthy forests, prime areas for conservation, deforestation fronts or species-rich areas.
pinpoints companies exposed to deforestation-related risks, including those that may directly or indirectly contribute to deforestation. This could be a result of direct operations in areas of risk, such as the tropics, or by the production or reliance on commodities considered key drivers of deforestation such as palm oil, soy, beef or timber.
Biodiversity underpins global economic activity. While investors are at various stages of integrating ESG factors into their decision-making, they may experience more downside-resilient and future-ready investments by considering biodiversity factors within ESG factors.
Nature-related risk moves to the forefront of sustainable finance.
The growing stakeholder awareness of biodiversity and nature loss as business risks places pressure on companies to report on and mitigate such threats. The launch of the TNFD framework could further elevate these expectations. Our analysis shows that current corporate disclosure practices vary.
Nature-related risks and opportunities are becoming more important for investors and regulators, and with the emergence of reporting frameworks such as TNFD, biodiversity funds may soon receive greater attention. We assess the current landscape of pure play biodiversity-labeled and broader biodiversity-related funds.
What are the five things you should know about the TNFD framework, find out here.
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