Investment manager First Sentier Investors has launched a nature and biodiversity guide for institutional investors to identify, assess materiality and responses to nature and biodiversity risks in portfolio companies.
The guide, titled ‘Investors Can Assess Nature Now’ (ICANN), provides a step-by-step outline, including which resources can be used at each step, for investors to undertake nature-related company assessments and develop engagement approaches to biodiversity risks. Focusing specifically on freshwater and forests, two areas the firm views as fundamental to both the global economy and the fight against climate change, the guide will help bridge the gap between the framework outlined by the Taskforce on Nature-Related Financial Disclosures (TNFD), and the practicalities of navigating the data available.
The guide maps a due diligence framework for appraising and engaging on three critical issues; firstly, identification of sector exposures and understanding of material nature pressure areas; secondly, prioritisation and assessments of companies, including due diligence, metrics to look for and country-level assessment; and thirdly, company engagement, outlining how to interpret the data and questions to ask.
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.
Kate Turner, Global Head of Responsible Investment at First Sentier Investors, says: “There is growing global momentum to address nature and biodiversity risks, however the topic is still relatively new for many 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.”
Joanne Lee, Responsible Investment Specialist at First Sentier Investors and author of the guide, says: “There are challenges with nature-related data and the unfamiliarity with the topic among the investor community, but we can’t let perfect be the enemy of good. Although many investors still don’t 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,” says Lee.
The firm writes that this guide is the latest initiative to deepen understanding of nature-related issues. Along with the First Sentier MUFG Sustainable Investment Institute, which it established in 2021, the firm will be evolving its work in nature and biodiversity by expanding into other drivers in this area.
“Addressing the complexities in nature and biodiversity is an ongoing journey for us. By working together, we believe capital allocators can address the challenges better. Investors can assess nature, despite not having the perfect tools, and it can start now,” concludes Turner.
