Biodiversity and natural capital: investor influence on company reporting and performance^*

* Subtitle: Assessing the request for and use of company reporting on biodiversity and natural capital by asset managers and fund managers.

ABSTRACT

This paper presents the results of a multidisciplinary qualitative study concerning the influence of investors on the performance and dependencies of companies in relation to biodiversity and natural capital (BNC). For BNC, we employ four indicators: land use, water use, chemical pollution and carbon emissions. The study assesses: (i) in which way asset managers and fund managers exert influence on the efforts of companies to reduce their negative environmental impact and to improve their positive environmental impact; (ii) how this influence is perceived by the companies; and (iii) to what extent legislation requiring reporting on non-financial performance criteria supports the parties in their engagement and communication. Interviews were conducted with multiple investors and companies to assess in a detailed way the interaction between these parties.

Key findings include that BNC is considered material by half of all interviewed investors, that they employ available legal options in their engagement strategies, and that they use the information disclosed by investee companies pursuant to mandatory reporting law. However, company respondents indicate that investors are only interested in BNC when it is clearly and directly linked to (reduced) financial risks. These respondents stated that BNC performance as well as transparency strategies do not have any material influence on investors. Another central issue flagged by respondents is the lack of comparable and standardised information regarding BNC themes such as corporate water use, land use and chemicals. Common methodologies and standards to tackle these issues are still missing.

Based on our findings, it can be concluded that tangible strategies for successfully tackling BNC issues are absent. The approaches developed so far are not clearly enough linked to (financial) risks and opportunities in the past, present or future. The perceived effect of EU Directive 2014/95 on tackling BNC issues is also low and environmental profit & loss accounts are unable to clarify the financial relevance of BNC. Establishment of a clear nexus between BNC and financial risks and opportunities is a necessary precondition to advance BNC in future.

KEYWORDS:

• Institutional investors
• investor engagement
• ESG
• transparency
• methodologies on biodiversity and natural capital reporting

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

* Subtitle: Assessing the request for and use of company reporting on biodiversity and natural capital by asset managers and fund managers.

1 According to the Order in Council, external verification is not limited to whether the non-financial statement is included in the management report, but also entails a check of whether the content of the statement is correct (EU 2014, L 330).

2 Articles of association may dictate otherwise.

Additional information

Funding

We are grateful to the financial support of the Dutch Environmental Assessment Agency (Planbureau voor de Leefomgeving, PBL), which made this study possible.