AP4 and JPM AM Look at Biodiversity Solutions for Investors

    Stockholm (NordSIP) – In recent years, biodiversity has become a key theme for sustainable investors and the recognition of the risks attached to its loss is gaining momentum. On this background, the Swedish state pension fund, Fjärde AP-fonden (AP4), in collaboration with J.P. Morgan Asset Management, have been taking a closer look at the current state of the biodiversity data solutions landscape. On 29 April, they published a joint report, Integrating biodiversity into investment decisions, summarising their findings. Ultimately, the two organisations are seeking to support other investors, both asset managers and asset owners, in their data solution selections.

    Four experts co-author the report: Julia Ripa, Quantitative Analyst and Pontus Lidbrink, Head of Thematic Strategies and Implementation, from AP4, and Angelo Drei, Sustainable Investing Researcher, and Roland Rott, Global Head of Sustainable Investing Research, from J.P. Morgan AM.

    The authors start by exploring the materiality of biodiversity investing, explaining why it is a complex proposition, particularly compared to climate investing. They then offer an analysis and a classification of the third-party solutions available to biodiversity-aware investors, including footprinting services, scorecards and topic-specific datasets, and sensor-based approaches. The report introduces a framework for classifying the various approaches to biodiversity investing based on the investor’s capabilities, the available data tools and the portfolio’s goals. The authors also provide a helpful discussion on how biodiversity solutions can be selected and suggest potential improvements in existing and future solutions.

    “There is currently a strong momentum around biodiversity,” comments one of the co-authors, Julia Ripa (in Swedish). “The ambition of the report is for suppliers, companies, investors and asset managers to gain an increased understanding of financial and systemic risks related to biodiversity and how data and tools can be used to manage and report on such risks in the ongoing climate transition. With the results of our report, we want to contribute to a deeper knowledge and increased focus on biodiversity-related information. Even if the results take time, we see in ongoing company dialogues that there is already a noticeable and positive development,” she adds.

    The authors highlight several key findings:

    • Corporate biodiversity disclosure is sparse, and while data solution providers can already help investors interpret biodiversity data, the market is not as mature as the one for climate investing.
    • While assessing the intensity of biodiversity impact allows for comparisons across sectors and shares similarities with the carbon intensity of climate investing, there are caveats. Footprinting metrics, such as Mean Species Abundance (MSA) or Potentially Disappeared Fractions of Species (PDF), are not as generally accepted as certain carbon metrics. Moreover, current footprinting implementations are too dependent on revenues-based extrapolation, which might cause issues beyond reporting purposes.
    • There is a strong rationale for leveraging scorecards focused on better-documented biodiversity subsets or high-impact sectors.
    • There are multiple use cases beyond portfolio alignment, such as European Union and national regulations, EU Sustainable Finance Disclosure Regulation (EU SFDR), Principal Adverse Impacts (PAIs), and better corporate engagement.

    While many challenges remain, the authors remain hopeful. They point out that there is a good momentum behind biodiversity investing, noting, for instance, the recent United Nations Biodiversity Conference, COP15. They believe that improved reporting standards, regulations, and satellite imagery will contribute to making the existing solutions more accurate. However, identifying opportunities will still require specific capabilities on the investors’ side, such as fundamental research and corporate engagement.

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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