ESG Research Update
/ISS: Biodiversity matters in investing, here are some tools
May 22 was International Day for Biological Diversity, with more and more investors asking important questions about mitigating biodiversity risks in their portfolios. The financial sector plays a large role in conserving biodiversity, with biodiversity loss a tangible material risk to companies and their investors.
Most businesses are directly or indirectly dependent on an ecosystem underpinned by biodiversity - the World Economic Forum (WEF) says over half global gross domestic product is moderately or highly dependent on nature and its offerings. It the Global Risks Report 2021, biodiversity loss was ranked in the top five global risks in terms of likelihood and impact.
When investors are measuring and addressing risks, biodiversity assessment tools can be thin on the ground. ISS ESG provides some solutions, for example, its Norm-Based Research (NBR) identifies companies where conduct is not well aligned to guiding principles on environmental concerns, including biodiversity. NBR has found 74 publicly-held issuers involved in controversial conduct that has impacted biodiversity, with 20 per cent being classified as severe or very severe. Infrastructure projects were the main offenders.
Another tool is ISS ESG’s Corporate Rating, with assessments of company sustainability performance based on specific ESG criteria, which includes its biodiversity policy. An example is an analysis of high-impact industries such as construction, metals and mining, oil and gas, and real estate, whereby 90 per cent of companies do not have a robust procedure for managing biodiversity risk.
The Sustainable Development Goals (SDGs) Impact Rating is a holistic assessment of a company’s contribution to/impact on the United Nations-backed Goals such as Life Below Water and Life on Land. ISS ESG’s Pooled Engagement service supports investors in active ownership on issues including biodiversity.
Other initiatives include the Task Force on Nature-related Financial Disclosures, the UN Convention on Biological Diversity, the Network for Greening the Financial System, and the International Network for Sustainable Financial Policy Insights, Research, and Exchange (INSPIRE) announced the launch of a joint study group on Biodiversity and Financial Stability.
ISS research into gender diversity on boards
A recent report published by ISS ESG explains the ins and outs of gender diversity and performance. The report, Gender Diversity and Performance - The Links Are There, But… #itscomplicated, looks into the metrics of gender diversity and the bottom line - and everything in between.
Key points include:
Linking EVA Margin (Profitability) and Quality (P-R) to a company’s board-level gender diversity offers opportunities for additional alpha
A good strategy for risk management at the portfolio level is to avoid companies with low quality measures and a low ratio of women on the board
Those companies with minimal (a third) female board members have a higher EVA Profitability and overall higher Governance Quality Score
Higher levels of female board representation are unambiguously associated with stronger performance in the EVA Margin, however, further research is required because levels below 50 per cent produce best performance-related outcomes
Download the full release (PDF)
WEF Global Risks Report 2021
The 16th edition of the World Economic Forum Risks Report for 2021 has been published. The report discusses the threats to humans and the economy, including COVID-19’s impact on poverty and inequality, the weakening of social cohesion and global cooperation. The report includes the results of the Global Risks Perception Survey and analysis of growing social, economic and industrial divisions, interconnections and implications for global risks and responses.
Extreme weather, climate action failures and human-driven environmental damage alongside digital power concentration, digital inequality and cybersecurity failings are top of the list of risks in the coming decade, with infectious disease in the top spot.
There are five chapters on risks that we all face in the coming decade and recommendations on how we might deal with these challenges in a risk landscape as it relates to human economics.
