Short term solutions to biodiversity conservation in portfolio construction: forward looking disclosure and taxonomy-based metrics

Demand is increasing amongst investors to create portfolios that encourage positive outcomes for biological diversity. The evolution of investment strategies for transitions to zero carbon over the last two decades provides insights that will assist in shaping strategies for biodiversity-positive investments. Many emerging approaches to capture company impact and dependence on biodiversity focus on nature-related threats to an organisation by looking at the composition of local ecosystems and sustaining ecosystem services. Other approaches have a different objective function, focusing on minimizing an organisation’s contribution to risks of species extinction by using data sets such as the IUCN’s Red List of Threatened Species. However, in both cases, many of the threat assessments that could link corporate activities to impacts are incomplete and omit critical information, and the models that use these links are largely untested for use in portfolio construction. If the investment community focuses on biodiversity without sufficient forethought, there is a risk of entrenching metrics with significant flaws. In this paper we suggest that until such time as species threat assessments are complete and the metrics to which they contribute are fully developed and tested for use, interim approaches to guide investments can leverage off disclosure-based or taxonomy-based approaches developed for climate investing. We present and discuss two potential such metrics, a Biodiversity Management Quality metric and a Biodiversity Revenues metric.