Biodiversity: reliable indicators and tools to locate impacts
Biodiversity: reliable indicators and tools to locate impacts
How to evaluate the impact and dependency of financial assets on biodiversity, considering their location ? During the second Biodiversity workshop at Candriam, experts and analysts debated the analytical tools, potential biases, and best practices to better integrate these issues into investment decisions and risk management.
After the First Workshop: Biodiversity Working Group’s Second Session on Financial Asset Impact and Dependency Evaluation
Following the initial workshop that introduced the topic, the second session of the Biodiversity Working Group, hosted at Candriam, gathered several domain experts to address a complex question: How to effectively assess the impact and dependency of financial assets on biodiversity, considering their location? The workshop focused on the use of cartographic tools, local data, global methodologies, and challenges related to the diversity of indicators. The participants shared their experiences, highlighted the current limitations, and explored potential avenues for sustainably integrating biodiversity concerns into financial practices.
The Central Role of Location and Associated Risks
Elouan Heurard, an ESG analyst specializing in Biodiversity at Candriam, opened the workshop by highlighting the example of water dependency, a key issue in sectors such as utilities. “Electricity production sites are heavily reliant on water, and the projected increase in water consumption over the coming years could exacerbate tensions,” he explained. Projections from the World Resources Institute show that regions like Spain, already facing increasing water stress, will see their resources further diminish by 2050. These physical risks, related to water scarcity, require a combined analysis of the geographical and economic data of the affected countries.
Participants also emphasized the local dimension when evaluating biodiversity risks. “Each country has its own characteristics and vulnerabilities. The case of a copper mine in Panama is a striking example: popular mobilization led to the loss of the operating license for the company, resulting in a massive drop in their stock value,” they illustrated.
To avoid such scenarios, identifying protected areas, fragile ecosystems, and affected local populations is crucial. Yassir Khabbach, Director of Research at Iceberg Data Lab and a new speaker in the workshop, explained that their model includes precise maps from Natura 2000, UNESCO World Heritage, and Ramsar, with future developments aiming to integrate IBAT (Integrated Biodiversity Assessment Tool). “This allows us to position each asset relative to sensitive areas, such as oceans, desert regions, or protected spaces,” he said.
A Plethora of Indicators for a Comprehensive Approach
One of the workshop’s consensus points is that biodiversity cannot be reduced to a single indicator. “Biodiversity is a complex issue,” emphasized Alix Chosson, ESG analyst specializing in Climate and Environment at Candriam. “We must maintain this complexity, which enriches the analysis, while making our conclusions accessible to investors.” Julie Raynaud, an independent consultant in sustainable finance, agreed: “The idea that a single indicator could suffice is an illusion. It’s natural for several models to coexist, each offering a complementary view.”
Among the tools discussed, some are used to measure physical dependencies, such as water stress or proximity to protected areas. Others, like the Globio model, assess environmental impacts on a global scale. In this regard, Yassir Khabbach noted, “The goal now is to eventually model environmental impacts on a local scale, which leads us to explore the interoperability between the Globio model and other models using geospatial data (like the InVest model) that can enrich it.”
Candriam, on its part, has developed a methodology based on nine themes, including water, endangered species, and pollution. These themes allow cross-referencing biodiversity issues with corporate management practices to assess sustainability. “By comparing a company’s exposure to these issues with its management practices, we can anticipate financial risks,” explained Alix Chosson.
The Limitations and Biases of Current Models
While models and tools are proliferating, their use also raises ethical and methodological questions. Florent Rebatel, ESG Analyst – Environment/Biodiversity at CDC, warned about a lack of clarity: “We must be clear about what we measure and what we don’t. The data currently available on the market covers only a fraction of what we hope to address in the future.”
Another challenge lies in the diversity of units of measurement, such as MSA (Mean Species Abundance) or PDF (Potentially Disappeared Fraction). These indicators, while effective for certain aspects, are not always compatible. Yassir Khabbach pointed out, “The more we dilute the message, the harder it becomes to adopt it for building a long-term strategy. This is why Iceberg Data Lab calculates environmental impacts using a single unit, MSA (Mean Species Abundance), to align with the Convention on Biological Diversity (CBD), Global Biodiversity Outlook (GBO), and the latest scientific research and publications.”
The contextualization of biodiversity impacts is another issue. “A raw ESG data point has no value without context,” reminded Alix Chosson. “If a company truly wants to understand its risks, it must go beyond standard indicators and dig deeper into its analysis.”
Towards Better Integration of Biodiversity Risks
To improve the assessment of impacts and dependencies, several avenues were explored. A comprehensive evaluation of these issues can only be achieved through a double materiality approach, which considers both the impacts an economic actor has on sustainability issues and the risks these sustainability issues pose to its activities. “The two aspects of double materiality are linked, because the more impacts a company has on its environment, the more likely it is to face risks (strategic, operational, reputational) that will translate into financial impact,” explained Alix Chosson.
Restoration and compensation are also crucial topics. Florent Rebatel suggested drawing inspiration from ADEME’s recommendations on carbon compensation, adapting them to the biodiversity issue. “It is important to communicate clearly about what is actually being implemented, not to offset one impact with another, and to ensure that projects undergo rigorous certification. The geographic mix of supported projects is a key question: while the impacts we’re trying to offset are often localized, funding international projects can also contribute to North-South flows.”
Finally, speakers stressed the need to raise awareness among financial actors. “Data and tools are just the beginning,” concluded Julie Raynaud. “It is essential that investors understand that a careful and nuanced analysis is required to avoid past mistakes, such as those seen in the climate domain.”
Integrating biodiversity into financial asset management requires a combination of indicators, methodological transparency, and a focus on local contexts. While current tools offer valuable insights, their use remains imperfect, particularly regarding granularity and dialogue between models. As Florent Rebatel summarized, “Dependence on biodiversity is not a risk to avoid, but a reality to integrate intelligently.” In this sense, the workshop laid the foundation for collective reflection to develop best practices in this evolving field.
Content written by Max Morgene.
