A biodiversity assessment tool for portfolio managers
Partner Organization: Asteria Obviam
Wildlife is disappearing worldwide, in the oceans, in the rivers, and on land. The main cause is simple: human activity. Financial institutions have a significative influence on the economy and the effects businesses have on the environment. However, we cannot change what we cannot measure. For this reason, we partnered with Asteria Obviam to evaluate the biodiversity impact of their portfolio.
This project aims to contribute to the adoption of more sustainable practices and promote broader societal efforts to conserve and protect biodiversity. In particular, we develop a Python tool for assessing the biodiversity impact of portfolios. To do this, after a careful literature review, we use the Biodiversity Footprint for Financial Institutions (BFFI) methodology. BFFI starts from the revenue of each company in different economic activities to measure the impact on the biodiversity of a company in three key areas: marine species, freshwater species, and terrestrial species.
We use data from Trucost and EXIOBASE to retrieve information about revenues and environmental pressures (e.g., green gas emissions, land use, water usage). Afterwards, the ReCiPe2016 framework, a harmonised life cycle impact assessment method built on extensive scientific research, is used to convert these environmental pressures into biodiversity impact. Later, the results are re-scaled from 0 to 1, where 0 represents the least harmful company in terms of biodiversity loss. We then compare the results for Asteria’s portfolio against the MSCI ACWI Index, which represents over 2’800 companies globally.
Our analysis shows that MSCI ACWI Index has overall scores that are below the median, indicating that the largest negative impact on biodiversity is not driven by the largest holdings in the index. This can be explained by a sectoral breakdown analysis, which finds that the utilities, energy, and materials sectors have the highest negative impact on biodiversity, while communication services, financials, information technology, and real estate sectors have a much lower impact. On the surface, Asteria’s portfolio has a slightly higher score compared to MSCI ACWI. However, digging deeper, this is explained by the sector exposures since within the highly negative impact sectors of energy, materials and utilities, their portfolio selects companies with a lower negative impact on biodiversity. By identifying the activities and companies with the greatest impact on biodiversity, portfolio managers can make informed decisions about how to mitigate the impact of their portfolios and reduce their exposure to biodiversity risks.
Overall, our findings suggest that our tool can be used by portfolio managers seeking to understand and mitigate their biodiversity impact. However, there are limitations and challenges to the methodology that should be considered in future research. We recommend further work to improve the accuracy and robustness of the tool, as well as the incorporation of biodiversity considerations into asset management strategies.
Company’s supervisors: Natacha Guerdat, Guido Bolliger, Dries Cornilly
Academic supervisor: Edoardo Chiarotti
Transformative Projects’ Lead: Samuel Wicki