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Mar 09, 2021

Only a third of large companies disclose on strategic biodiversity issues, finds study

Investors and regulators demanding more information on biodiversity risks

Corporate disclosure on biodiversity is failing to keep pace with rising investor interest, according to new research. Only a third of large issuers disclose how they manage biodiversity issues related to their business activities, finds a study by Leaders Arena, a consultancy. 

The study analyzes the integrated and sustainability reports of the 100 largest companies in the US and Europe. It represents an early attempt to review biodiversity disclosure, which has not yet received the same attention as other ESG issues like climate change and human capital management.

Biodiversity refers to the variety of plant and animal life in the world. Biodiversity loss, such as the extinction of species or destruction of natural habitats, threatens societies and businesses that rely on these resources. 

The subject is closely related to climate change because rising temperatures will harm plant and animal life. Healthy ecosystems are also key to managing the level of carbon dioxide in the atmosphere. 

The majority (69 percent) of issuers reference biodiversity in their reports, finds the research. In addition, 52 percent discuss ‘nature-positive’ projects that are outside of their normal business operations, such as wildlife conservation.

But just 32 percent disclose on biodiversity issues directly affecting the business, notes the report. This could be information on the number of sites in areas rich in biodiversity or how damage to natural habitats could impact supply chains. 

While funding external projects is a good first step, investors and regulators are increasingly calling for companies to take a more strategic approach, says Miguel Santisteve, founder and CEO of Leaders Arena.

‘Despite a lack of reporting standards on biodiversity, companies can demonstrate accountability by collecting data on their biodiversity impacts, setting goals and disclosing comparable metrics investors can use to assess companies,’ he says.

‘According to our research, institutional investors holding $7 tn in equity assets consider biodiversity risks in company assessments. Given the growing relevance of this topic for investors, IR professionals should be prepared to provide an overview on their company’s biodiversity efforts during meetings with ESG-focused investors.’

Investor focus on biodiversity is growing but remains at an early stage. In a recent survey by Credit Suisse and Responsible Investor, 84 percent of investors say they are ‘very concerned’ about biodiversity loss, but 72 percent have not assessed the impact of their investments on biodiversity. 

Last September saw a step forward with the launch of the Taskforce on Nature-related Financial Disclosure. The TCFD-inspired organization aims to help financial firms and companies report their impact on nature, encouraging investment that supports rather than harms the natural world.

The EU’s Sustainable Finance Disclosure Regulation, which comes into effect this week, will increase the focus on biodiversity as an investment risk. The rules will force fund managers to disclose whether they invest in activities that negatively affect ‘biodiversity-sensitive areas’.

The topic will receive increased global attention this May at the UN Biodiversity Conference – also known as COP 15 – in Kunming, China. At the event, delegates are expected to finalize long-term goals for biodiversity up to 2050.