from gut feeling, to sustainable facts
More and more financial institutions want to incorporate a biodiversity footprint into their investment decisions. ASN Bank was the first six years ago and pioneered together with consultancy firm PRé Sustainability and CREM on how to translate biodiversity into accountancy rules. How did that go?
A smile flits across Roel Nozeman's face, and his eyebrows lift just a tad as he talks about ASN Bank being the first financial institution ever to declare their ambition of being biodiversity net positive by 2030. "Yes, it does make me proud and it brings great responsibility. It's not always easy to take the lead in such a huge and important issue, but ASN Bank has definitely done so." Six years ago, ASN Bank – traditionally already a bank focused on sustainability – became the frontrunner on biodiversity in the financial sector. The bank worked together with – amongst others - consultancy company PRé Sustainability on a model to measure the impact of loans and investments on the variety of species. Since then, ASN Bank assesses its biodiversity footprint of its portfolios once a year. Soon, they will do this quarterly to be able to steer earlier on, if necessary, as they want to reach the biodiversity positive landmark. Nozeman stresses that it is crucial to use a model together with robust sustainability policies to make sure you steer your investments in the right direction.
Roel Nozeman biodiversity expert at ASN Bank
One of the main challenges in those six years was finding investments that fit the bank’s ambition, says Nozeman. "It's actually not always easy to invest in biodiversity. The bar is high: we want to reach a biodiversity net positive target in 2030, which means that below the line we need to create more positive impact than negative impact. We must be very strict in which investments we accept. For example, any investment that contributes to greenhouse emission has a negative impact on biodiversity. If we make such an investment, we have to counterbalance it."
Stock market-listed companies also make a biodiversity footprint increase rapidly. "Those are the biggest companies with large economic activities. This comes with a high use of raw materials, emissions and discharges on surface water, all of which has a negative effect on biodiversity. But it also means that if these companies make sustainable changes – even if they lower their footprint only 10 percent – it has a huge effect."
“Due to monoculture farming, the Netherlands is one of the countries with the highest loss of biodiversity”
On the other side of the coin, ASN Bank found investments that do contribute to the wealth of ecosystems and generate a positive financial return. "Sustainable forestry to name one," he explains. "But also aquaculture. Billions of people are dependent on fish proteins, but overfishing is a real threat to biodiversity. Sustainable aquaculture companies can prevent this." Eco-tourism is another example, just like regenerative farming and agro-forestry systems. "Due to monoculture farming, the Netherlands is one of the countries with the highest loss of biodiversity. This type of farming has become unsustainable." ASN Bank sees the interest in biodiversity assessments increasing day by day amongst its peers in the financial sector. "And rightfully so," Nozeman comments. "Financial institutions should play an important role in the conservation and sustainable use of biodiversity. And even if you solely want to look at it from a financial side, it would be foolish to not to take biodiversity into account, as nature loss possesses an increasing risk for businesses. Crossing the ecological limits of our planet directly affects businesses that depend on and have an impact on nature. Until now, this has been a blind spot in risk assessment."
The Partnership for Biodiversity Accounting Financials
Finding common ground amongst financial institutions on how to measure biodiversity is an important next step towards a biodiversity-friendly economy. For that purpose, ASN Bank initiated The Partnership for Biodiversity Accounting Financials, or PBAF in short. Together with founding partners ACTIAM, Triodos, Robeco, Triple Jump and FMO, PBAF works towards a harmonized biodiversity accounting standard. Last year, the partnership grew to a group of 26 financial institutions. Nozeman hopes the development banks and the Dutch pension funds will soon come on board as well and take on protecting biodiversity as one of their priorities. "We have come quite a way since ASN Bank started putting biodiversity on the map in the financial sector. But if we really want to make a difference, the scale we operate on should be much larger. We are determined to develop scalable solutions with public and private organisations, and we keep on driving biodiversity and climate to the top of CEOs' agendas."
“We do run pilots to look at company level-usage of land, fertilizer, water, and pesticides to make more exact calculations. But that takes huge amounts of research and manpower”
Daniel Kan consultant at PRé Sustainability
The alarming reports on the loss of species make it even more important for the financial sector to take the importance of nature and its many species into account. But how do you put biodiversity metrics into your sustainability policy? How can you measure if your loans and investments are biodiversity neutral, or even better, biodiversity positive (adding to the variety of nature)?
This exactly is the speciality of Daniël Kan at PRé Sustainability, a consultancy firm that develops data-based measurement tools for sustainability policies (‘to go from gut feeling, to sustainable facts’, as the company’s website says). PRé and CREM started 6 years ago, after a request from ASN Bank to translate biodiversity into accountancy language, just like was done before with carbon footprints.
As always, the development of a model starts with making choices, Kan explains. "There are multiple layers within the definition of biodiversity. Biodiversity can be about the variety within species (this talks about DNA), amongst species (how many are there?) and ecosystems (the wider picture in which interconnection plays a big role). Our method is based on ecosystem richness, the number of species that inhabit a certain area. Yes, from the smallest insect to the largest mammal, all of them count."
“Yes, from the smallest insect to the largest mammal, all of them count”
Setting the definition gave way to the next step: understanding the impact certain products, companies or projects have on nature and its variety of species. This depends on the use of materials, water and land, and what kind of emissions and waste is left behind. "A very well-known example is greenhouse emissions. With the emission of X amount of greenhouse gas by a company, it contributes X to the warming of the earth, which changes ecosystems, alters the habitats of certain species, and leads to the decrease or possibly even extinction of species. Same goes for water. If a company uses water in an area where water is scarce, the company contributes to water stress, which leads to a change in the ecosystem, which could lead to loss of species."
“Stock market listed companies make a biodiversity footprints increase rapidly: a high use of raw materials, high emissions and discharges on surface water”
PRé Sustainability’s method is based on standardized calculations for a set of environmental pressures (here they come, take a deep breath): land-use, climate change, water use, acidification, eutrophication, ecotoxicity and smog. To get to a concrete number on the environmental pressures, PRé combines many different databases. Statistical country data on minerals, trade flows and emissions, paired with scientific impact models created by experts from universities and institutes like RIVM, the Dutch National Institute for Public Health and Environment. Kan: "To keep with the water example. Biologists with an expertise in water life have analysed how much loss of species drought causes. This depends – amongst a lot of other factors - very much on the area, with possible big differences within a country. In Egypt, 1 kilometre from the Nile, there is a lower water shortage, than 200 kilometres further, where the landscape is very dry."
“The world already experienced a global species loss of 68 percent in less than 50 years”
All data on emissions and resource use is combined with the impact factors on the list of environmental pressures. This is called the LCIA method by PRé, or easier, the ReCiPe. "And it is public," Kan is quick to add. "Anyone can see the underlying numbers and research it is based on for themselves." ReCiPe is updated every few years, to incorporate new data and new research. Although the ReCiPe method was initiated by PRé Sustainability, the latest update is now led by the Radboud University.
So far the theory, now the practice. "What is good to realize," says Kan, "is that models are not exact predictions, but are based on assumptions and generalities and thus have a factor of uncertainty. We are very open about that as well." The data used are mostly based on sector data, so for example, a company’s own specific sustainability policy would not be taken into account. "We do run pilots, so we can look on a company level." For a Peruvian grower, packer, and shipper of fruits and vegetables, PRé looks closely to their use of land, fertilizer, water and pesticides, to make more exact calculations. Kan would love to have this level of detail for all individual investments and loans. "But that would take a huge amount of research and manpower." "Of course", says Kan, "You could choose to wait to incorporate a biodiversity footprint in your investments until there are even more data available and the model is perfect. But by then it might be too late. The world already experienced a global species loss of 68 percent in less than 50 years, which is a catastrophic decline. Our model might not be perfect yet, but it does provide a good compass to see if we are walking into the right direction."
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