13 September, 2023 / News
Guide to help investors engage on limiting nature loss released
First Sentier Investors outlines approaches to assessing freshwater and forest risks in portfolios
First Sentier Investors has launched a nature and biodiversity guide to help institutional investors assess materiality and responses to nature and biodiversity risks in their portfolio companies.
Focusing specifically on freshwater and forests, the guide – Investors Can Assess Nature Now (ICANN) – is designed to provide a step-by-step outline for investors to undertake nature-related company assessments and develop engagement approaches to biodiversity risk, bridging the gap between the framework outlined in the upcoming Taskforce on Nature-Related Financial Disclosures and the practicalities of navigating the data available.
“There is growing global momentum to address nature and biodiversity risks, however the topic is still relatively new for many investors,” said Kate Turner, global head of responsible investment at First Sentier Investors.
“While there is a data challenge, knowing what tools are available and when to use them can also be a roadblock. This guide provides an outline of the available resources for assessments, including raising alternate ways to navigate data issues.”
The guide maps a due diligence framework for appraising and engaging on three critical issues.
First, investors should identify sector exposures and gain understanding of material nature pressure areas. For example, companies that produce or process forest-risk commodities such as soy, beef or timber, financial institutions that procure forest-risk products, or organisations that lend to or invest in these activities and commodities can all be considered exposed to agriculture-driven deforestation risk.
The second stage includes company prioritisation and assessments, including due diligence, metrics to look for and country-level assessment. Before jumping into detailed company-level assessment, the guide suggests that investors try to narrow down the number of target companies by prioritisation, based on country-level, sector-level data and utilising available nature-related databases.
Finally, investors should engage with companies, outlining how to interpret the data and which questions to ask. Investors have unique priority topics and areas based on their strategies, asset classes and material exposure to certain geographic areas or sectors which will also influence how engagement objectives are mapped out.
The questions posed in the company engagement framework can also provide helpful insights for companies to better measure and disclose their nature-related risks, opportunities, dependencies and impacts, and to develop their own policy or position on nature.
Despite the fact that the metrics and targets will be more complex for nature and biodiversity than for climate disclosure, and corporate data is still in its early stages, Joanne Lee, responsible investment specialist at First Sentier Investors and author of the guide, commented that “we cannot let perfect be the enemy of the good”.
“Although many investors still do not have easy access to asset-level location data or supply chain data of a company, there are other ways to conduct due diligence, enough for investors to start identifying areas material to their own risk management as well as the company’s business and its impact.
“In time, we will see data improving as more investors and companies begin to focus on biodiversity and nature. As allocators of capital, investors have the opportunity to help improve nature-related data and company practices.”
A part of the Mark Allen Group.