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Asset managers call on ESG data providers

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A joint statement from BNP Paribas Asset Management, Federated Hermes Limited, Mirova, Robeco and Storebrand Asset Management has been published, entitled The urgent need for better ocean-related data to make informed investment decisions.

The statement calls on ESG data providers to enhance data offerings on ocean-related risks and opportunities at project and issuer-level.

“Introduction: Financial institutions are increasingly aware that alongside climate change, inequality and biodiversity loss are creating risks to businesses and increasing systemic risk for the financial system. The ocean is the world’s largest ecosystem, covering 71 per cent of the earths’ surface and playing host to an estimated one to two million species. Its annual economic value is estimated at USD2.5 trillion and millions of jobs depend on it. At the same time, biodiversity and ecosystem services are also the basis of countless new business opportunities. But today, the ocean’s health is being severely threatened by human activities.

The Kunming-Montreal Agreement (2022) has provided governments and non-state actors with frameworks for action that include overarching goals and targets, such as to protect 30 per cent of the planet’s lands and inland waters, as well as of marine and coastal areas, by 2030. The agreement recognises the vital role that we as investors can play to halt and reverse biodiversity loss. The focus now needs to move to translating the commitments made in Montreal into concrete meaningful actions. In 2023 a new international agreement on the conservation and sustainable use of marine biodiversity of areas beyond national jurisdiction (BBNJ) was adopted – highlighting the vital importance to ensure ocean biodiversity is considered within a just and equitable future.

This group takes stock of Target 15 in the Montreal agreement where governments for the first time have explicitly committed to require all large and transnational companies and financial institutions to assess and disclose their dependencies, impacts, risks and opportunities on nature, through their operations, supply and value chains, and portfolios. To help investors make informed decisions, and investment in, companies and activities that are causing or resolving this significant harm to ocean biodiversity and allocate capital in a way that provides solutions to protect biodiversity, credible data, consistent with international standards, are crucial. This will allow investors to:

–          Embed ocean-related data into our own analysis and assessments

–          Highlight areas of ocean-related risks and opportunities within our portfolios to improve our decision making

–          Engage on ocean-related topics with our investees

–          Identify and allocate capital for ocean-related opportunities

–          Improve ocean-related literacy within our workforces

This group of investors is strongly encouraging ESG data providers to further develop ocean-related data points and tools, and provide innovative ways to capture our investee’s dependencies, impacts, risks and opportunities related to ocean to support the implementation of the Kunming-Montreal Agreement.

Annex: Non-exhaustive list of suggested metrics and assessments to highlight ocean-related risks and opportunities at project and issuer-level.

Expectations to data providers:

As a guide in understanding the data needs of this group, ocean-related data principles (list not exhaustive) are suggested below:

·       Performance indicators: understand compliance against IMO or MARPOL regulation, data points reflecting real impact using physical units (ex. km2 of sea use change).

·       Supply chain: ability to check the potential sourcing of endangered species by food retailers. The data points must factor in the entire supply chain, as large investors are usually more exposed to downstream ocean-related supply chains.

·       Local context: FAO fishing areas, fishing effort in high seas, arctic route trips.

·       Asset level locations: fishing ships, shipping boats, aquaculture sites, ports, hotels.

·       Ownership data: to reflect the ultimate owner, need to link vessels to operators, hotels to hotel chains, fishing vessels to fish processors, estimate seafood supplier links to food retailer/services.

·       Sector estimates: sector assessment grids should make it possible to make estimates tailored to the specificities of each sector.

We also recommend the following when considering the format of the data:

·       Ease of use, for a variety of purposes: integration into the investment process, communicating about impact on marine biodiversity, providing more extensive reporting, etc.

·       Flexibility and transparency: the methodology must be compatible with the public taxonomies, guidance and internal environmental assessment systems already in use (e.g. EU Taxonomy).

·       Application scope: the approach must be applicable to companies active in the main market indices (listed equities and fixed income funds). Ideally the method should be compatible with other asset classes (listed and unlisted equities, fixed income funds, infrastructure, real estate, etc.).

As large investors with high ocean-related exposure, we have identified the main ocean-related sectors (list not exhaustive) where we find major data gaps in understanding risks and opportunities as:

·       Aquaculture – algae / seaweed / seafood

·       Coastal and deep-sea mining

·       Coastal and marine tourism

·       Desalination

·       Dredging and coastal protection

·       Marine bioprospecting / biotechnology

·       Marine renewable energy

·       Offshore oil & gas

·       Ornamental marine products

·       Ports

·       Shipping

·       Wild capture fishing

For some of the sectors mentioned above, the below flags the data gaps (not exhaustive) in better understanding risks and opportunities present:

·       Based on its business/project activity, what risks does it pose on the ocean? – flagging any activities that have negative impact on the ocean and contribute towards ecosystem degradation. For example:

o   Pollution (wastewater, air, noise, plastic, ghost fishing gear) and invasive species

o   Fishing practices – Assessment of company’s fishing methods, does it undertake any sustainable practices, Overfishing and destructive fishing practices

o   Aquaculture – Evaluation of company’s operations; habitat modification, use of chemicals, feed sourcing, waste management, disease outbreaks

o   Shipping and transportation – Fuel used/emissions, measures to prevent oil spills and marine pollution

o   Coastal development – Exposure to coastal infrastructure projects, impact on habitats, mangroves and coral reefs

o   Energy sector – Offshore oil and gas extraction rates, offshore windfarm development and capacity, impact of energy extraction on marine biodiversity and habitats

·       Based on the business/project activity (including Capex, Opex), what are the opportunities? –  flagging any activities that either minimise risk posed on the oceans or help restore. For example:

o   Does the issuer invest in any conservation activities linked to the ocean or minimise its impact? Flag any policies and guardrails in place to minimise negative impact.

o   Any investment in innovation undertaken by the issuer to help mitigate above risks?

o   Current working conditions and human rights of employees and local communities and how are these considered?”

This group writes that it is “inspired by the great work of their ocean-related partners and stakeholders, such as Planet Tracker, FAIRR, UNEP FI, WBA, TNFD, SASB, Minderoo Foundation, IUCN, WWF, GRI, CDP or The Economist, just to name a few”.

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