Companies and their value chains are increasingly impacted by biodiversity loss

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Biodiversity loss is due to the overconsumption of natural capital and the destruction of the Earth’s resources, which restricts economic growth. The negative impact of this has serious consequences for both people and the environment.

Companies and their value chains are increasingly impacted by biodiversity loss, both through production disruptions and potential regulatory changes. AP4 continuously monitors developments in the field of biodiversity and works to identify tools and analysis models that make it easier to integrate biodiversity in investment decisions. AP4 has also identified “Living biosphere” as a thematic investment area.

“Sustainability data and analysis tools for biodiversity are not as well developed as equivalent tools for measuring the climate transition. There is no standardised method for measuring biodiversity and producing data, which makes integrating biodiversity in investment decisions a challenge,” explains Julia Ripa, Senior Analyst at AP4.

Julia Ripa, Senior Analyst at AP4. Photo: Peter Knutson

“Biodiversity is a combination of different local problems rather than a global challenge. If we compare this with climate investments, for example, greenhouse gas emissions in one part of the world have roughly the same impact as the same amount of greenhouse gas emissions in another part of the world. When it comes to biodiversity, however, nature can be different even at local level. The same impact can therefore have very different effects, depending on where it takes place. For example, a biotope in one part of the world may be sensitive to a particular activity, while another biotope in another part of the world is not nearly as sensitive.”

Another reason is that the concept of biodiversity covers several different subdivisions, such as deforestation, freshwater and marine life. This also increases the complexity of measuring and comparing companies’ impact on biodiversity and their dependence on natural resources.

A big part of the problem also lies within the companies’ value chains, which are often complex and involve a large number of suppliers at several different stages all over the world.

“It is a challenge for companies and investors to have full control and knowledge of all stages and subcontractors in the value chain. For us as investors, it is important to include the value chain in the company analysis so that we can fully understand a company’s risk,” explains Julia.

AP4 has mapped the data available for biodiversity and this has resulted in two conclusions. No data tool is currently developed enough to be used for biodiversity investments. This situation is developing quickly, however.

Some of the data sources may have a high level of detail, but their coverage then tends to be less broad and they often focus on a single industry. Conversely, if the coverage is greater, there is a lack of precision.

“We want to support those companies that are doing the most to reduce their impact and dependence on nature, in every sector and in every country. We believe that most industries are important for the future and so we do not want to divest from an entire industry. We hope that data providers will listen to and work with investors and also with each other. This is a complex and critical area and collaborating on this will help us to find sustainable solutions for the future,” concludes Julia.