Biodiversity is growing in importance in asset management, but has it reached full maturity?
Biodiversity has carved out a special place for itself in asset management in recent years. Investors recognize the importance of preserving biodiversity and the notion of “natural capital” to contribute to the resilience of companies and portfolios over the long term. Although specialized databases have been enriched, regulations have tightened and sectoral initiatives bring together the main financial players, has biodiversity really reached maturity in asset management?
Progress in indicators and measurement tools
For a long time, the lack of harmonized and accessible data constituted one of the main obstacles to the integration of biodiversity in asset management. Today, technologies such as observation satellites, artificial intelligence and open databases make it possible to precisely monitor the evolution of ecosystems. A notable advance in this area is the database ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure), developed by UNEP-WCMC. ENCORE makes it possible to assess the exposure of companies and economic sectors to the degradation of ecosystem services and biodiversity. By linking economic dependencies to natural resources, ENCORE helps asset managers better understand how their portfolios are exposed to nature-related risks. At Mandarine Gestion, we have been proactive in this area and three years ago developed a proprietary tool for analyzing business risks to biodiversity according to a triptych of politics / pressure data / dependencies and impacts.
Focus on emerging legislative and regulatory frameworks
Regulatory frameworks linked to sustainable finance now give pride of place to biodiversity and the trend has accelerated since 2020.
Environmental regulations introduced since 2020 globally
Source: BlackRock, investment perspectives, August 2024.
The initiative of the TNFD (Taskforce on Nature-related Financial Disclosures) is inspired by the success of TCFD (Taskforce on Climate-related Financial Disclosures) to create a financial transparency framework linked to environmental risks, in particular those linked to biodiversity.
Furthermore, the CSRD (Corporate Sustainability Reporting Directive) of the European Union imposes stricter reporting requirements for companies, particularly with regard to the disclosure of environmental impacts, including those related to biodiversity. This directive integrates the ESRS (European Sustainability Reporting Standards), which provide detailed standards for reporting on sustainability, including dependencies and impacts on biodiversity. These tools allow asset managers to more easily assess the impact of ecosystem degradation on their investments and report back to their clients.
The influence of stakeholders
Stakeholders, whether institutional investors, individual clients or NGOs, are now demanding that finance take into account impacts on biodiversity. THE Finance for Biodiversity Pledge encouraged a collective mobilization of major financial institutions.
This initiative, which brings together more than 130 financial institutions representing nearly 20,000 billion euros in assets under management, reinforces the commitment of the signatories to collaborate and share data to better integrate biodiversity into investment processes. . In this regard, the Guide to integrating biodiversity data for investorspublished by the initiative and in which Mandarine Gestion participates, provides recommendations to help investors integrate biodiversity into their investment decisions.
On the business side, the SBTN (Science Based Targets Network) is a global initiative that helps companies set science-based targets for climate and biodiversity. Its goal is to contribute to the preservation of ecosystems while improving environmental responsibility. The SBTN has nearly fifty signatories from various sectors including textiles and luxury goods such as H&M, Kering and LVMH, who were among the first to support science-based biodiversity objectives.
From natural capital to invested capital
While thematic investment funds dedicated to biodiversity are emerging, at Mandarine Gestion we have rather approached it from the angle of risk in our management processes. We identify companies that seriously take biodiversity into account, but we believe that few of them provide real solutions for a large part of their activity. Finally, French institutional investors are launching calls for tenders for investment strategies dedicated to biodiversity, with precise and relatively sophisticated specifications.
Advances in the use of biodiversity data, supported by initiatives such as the Finance for Biodiversity Pledge, databases such as ENCORE and regulations such as the CSRD, provide asset managers with essential tools to better integrate criteria linked to biodiversity in their investment decisions. With nearly 20,000 billion euros in committed assets, the movement towards sustainable finance is booming. Although obstacles remain, particularly in terms of data standardization, the trend is clearly towards increasing consideration of biodiversity in sustainable investment strategies. This approach, where the preservation of natural capital becomes a priority, promises to create long-term sustainable value for investors while protecting the integrity of the planet.
Disclaimer
This document is intended for professional clients. It cannot be used for a purpose other than that for which it was designed and cannot be reproduced, distributed or communicated to third parties in whole or in part without the prior written authorization of Mandarine Gestion. No information contained in this document should be interpreted as having any contractual value. This document is produced for purely indicative purposes. It constitutes a presentation designed and produced by Mandarine Gestion from sources that it considers reliable. Mandarine Gestion reserves the right to modify the information presented in this document at any time and without notice and in particular, with regard to the description of the management processes which in no way constitutes a commitment on the part of Mandarine Gestion. Mandarine Gestion cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that may be made of it by a third party.
The UCITS cited in this document are authorized for marketing in France and possibly in other countries where the law authorizes it. Past performance, rankings, awards, ratings and statistics are not a reliable indicator of future performance, rankings, awards, ratings and statistics. Performance is not constant over time and is not guaranteed. The risks and costs relating to investing in UCITS are described in the prospectuses of the latter. Prospectuses and periodic documents are available on request from Mandarine Gestion and can be viewed on the website www.mandarine-gestion.com. The prospectus must be given to the subscriber prior to subscription and it is necessary to check whether the investor is legally authorized to subscribe to a UCITS. The main risks of these UCITS are as follows: equity risk, risk of loss of capital, management risk discretionary, foreign exchange risk, interest rate risk and credit risk. The descriptions and details of these risks appear in the full prospectus of the UCITS concerned.
