Institutions struggle to find biodiversity investments in Asia
Investors seeking to improve the impact of their investments on biodiversity and natural capital face a shortage of investment options in Asia, and long delays in building a clear picture of how their portfolios perform, experts have told AsianInvestor.
“Biodiversity or natural capital as an investment theme is still in its early stages, and we have seen only a handful of institutional-grade opportunities to date,” said Suzy Yoon, senior consultant, acting head of sustainability at Jana Investment Advisors, in Sydney.
While demand for the sector varied considerably with investor type, most interest still focussed overwhelmingly on carbon emissions, she noted.
Jana Investment Advisors
“In relation to ‘impact’ in general, the level of demand of the varying impact themes differs per client type and is often determined by the organisation’s underlying purpose and mission. From an investment opportunity perspective, climate does remain the topic of focus,” she said.
In December 2022, the UN Biodiversity Conference, produced the Kunming-Montreal Global Biodiversity Framework (GBF) in which signatory governments commit to demonstrating progress towards meeting targets, and updating strategy and action plans, and which has been dubbed “a Paris [climate] agreement for nature”.
Yoon said the framework is likely significantly to drive both supply of and demand for investment opportunities.
In December, Sandra Silea, associate director, ESG and stewardship, at AustralianSuper highlighted the need for co-ordinated action among asset owners to improve disclosure over how their investments impact biodiversity and natural capital.
“For systemic issues like biodiversity and natural capital, collaboration with other institutional investors can enable [AustralianSuper] to have greater influence on ESG and stewardship issues,” she told AsianInvestor at the time.
BETTER DATA NEEDED
But one of the impediments facing investors is a paucity of reliable data and the long timescales required to fill the gaps.
The Sustainable Development Investment Asset Owner Platform (SDI AOP), which counts $1.5 trillion in asset owner AUM and was co-founded by AustralianSuper, is working to enhance its coverage of biodiversity and natural capital, in its taxonomy, which analyses 10,216 equity and bond issuers to identify those whose products or services contribute to the UN Sustainable Development Goals (SDG).
The project was launched in early in 2023, but will not become fully available to investors until the third quarter of 2024.
James Leaton, head of research at SDI AOP, told AsianInvestor that identifying what data was needed, finding it, and ensuring a scoring process is reliable and accurate, all posed challenges.
One problem, he added, is that that the companies developing new products and services aim to protect or improve biodiversity, or natural capital more generally, are typically small and privately owned.
“They tend to be smaller niche companies, so we leverage the knowledge from across the SDI asset owner investment teams to help us understand what is coming through in the private markets,” he said.
These include companies focussed on new technologies or working to substitute alternative materials for plastic, and those working on nature-based flood defence and other climate change adaptations, as examples.
SDI AOP
Leaton also pointed to the difficulty of measuring natural capital contributions across a wide investment universe.
The SDI AOP uses revenues associated with a company’s products and services to identify companies that contribute positively to the UN Sustainable Development Goals, quantifying their contribution in this way.
(Separately, it uses revenues to measure the contribution of products/services at odds with achieving the UN SDGs).
MEASUREMENT CHALLENGES
Leaton noted that this focus on revenues can provide accurate measures for companies specifically focussed on addressing biodiversity.
By contrast, where companies have a broad portfolio of products, revenues related to those advancing biodiversity may be a small part of the whole, and the total impact on natural capital is, therefore, harder to quantify.
Accurate data is an essential pre-requisite to improve investor outcomes, concluded an August report by the Taskforce on Nature-related Financial Disclosures (TNFD), a UK-based organisation whose members collectively account for more than $20 trillion in assets.
The task force has developed a set of disclosure recommendations and guidance to help organisations towards nature-positive outcomes.
“The availability of accurate, comparable and decision-useful nature-related data is an essential pre-requisite to address the global challenge of accelerating nature loss, to help organisations become more resilient in the face of nature-related risks, to deliver sustainable development for local communities and to facilitate the flow of capital to nature positive outcomes,” the report authors noted.