Franz Knecht

BES – Biodiversity and Ecosystems Services: Challenge for SRI Rating and Corporate

Performance Reporting

Selected Results of a Study for the Swiss Federal Office for the Environment (FOEN)

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TBLI, Zurich, 08.11.2012 *

Franz Knecht, Managing Partner, CONNEXIS Strategy Consultants and ESG Advisory, Basel (CH)

[email protected] - Tf. +41 79 4159302

mailto:[email protected]

Biodiversity in a Nutshell:

1. Biodiversity consists of three elements: Diversity of species Genetic diversity Diversity of (supporting) eco systems 2. Preservation of Biodiversity in two dimensions: Protection of biodiversity Sustainable use of biodiversity and eco systems 3. Action on three levels: Local National Internationallokal, national und international

BES - Challenge for SRI Rating and

Corporate Performance Reporting - [email protected]

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Loss of Biodiversity & Degradation of Eco Systems

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Biodiversity – Dependency and Impact on Industries


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Upcoming Regulation on BES is ahead

The Convention on Biological Diversity (CBD) - entered

into force on 29 December 1993 - with three main objectives:

Conservation of biological diversity

Sustainable use of the components of biological diversity (e.g. ecosystem services)

Fair and equitable sharing of the benefits arising out of the utilization of genetic resources

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CBD’s 20 Aichi Targets Achieving BES Some of high Economic Relevance


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Target 3: By 2020, at the latest, incentives, including subsidies,

harmful to biodiversity are eliminated, phased out or reformed in order to minimize or avoid negative impacts ...

Target 7: By 2020 areas under agriculture, aquaculture and forestry are managed sustainably, ensuring conservation of

biodiversity.

Target 11: By 2020, at least 17 per cent of terrestrial and inland water, and 10 per cent of coastal and marine areas, especially

areas of particular importance for biodiversity and ecosystem services, are conserved....

Target 16:By 2015, the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization is in force and operational, consistent with

national legislation.

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Objectives of the Study for FOEN: Creating a Base Line for Discussion by

1. Understanding SRI rating agencies’ application and practice of BES aspects in their corporate rating approaches

2. Reviewing BES relevant information publicly disclosed by Switzerland based companies (with a global biodiversity footprint)

3. Collecting the concerns of companies about

BES- indicators:

how used today and in (possibly) applied in near future,

Opinions about BES foot-printing, and

what matters most to companies/sectors.

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Study Part 1: BES Practice of SRI Rating firms:

(active in Switzerland)

Findings: BES SRI evaluation schemes use different approaches,

often combining two or more of them, e.g.:

Application is focussed on high and medium impact sectors: i.e. the usual suspects extraction, agro, food, tourism

Assessing the level of inclusion in corporate guidelines and policies, and the supply chain

Investigating information about general perception but also IPR or compensation aspects (i.e. anticipating PES)

Identifying the grade of transparency and level of compliance with international agreements and conventions (so called norms based rating)

Evaluating how BES is actively covered in plain risk and/or ESG management systems, action plans and measures

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Diversity of BES Indicator Systems used in different Rating Approaches

1. The BES indicator systems identified show SRI sectors’ attempts to identify so called ‘materiality’ by looking at:

accounting standards,

market prices,

regulatory liabilities and their consequences

strong signs of demand or

expectation by influential stakeholders

2. Assessment of externalised effects

3. Assessment of positive or negative social effects

4. Assessment of impact on tangible economics

5. Assessment of sector specific risk indicators

6. Assessment of BES topics with an effect for the whole sector

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BES Trends Addressed by SRI

Example: MSCI 2012 ESG Trends to Watch: Accounting for Natural Capital (Research News, Linda-Eling Lee, Global Head of MSCI ESG IVA Research)

The rapid degradation of ecosystems and depletion of natural resources will weigh on the long-term sustainability of major economies around the world.

Assessing countries' ability to protect and harness their endowed resources will be a crucial step to integrating country-level risks into investment decisions.

Currently, in over two thirds of the 156 countries in our data-set, the consumption/production levels have already exceeded their bio-capacity.

We anticipate that these countries' attractiveness as investment destinations will increasingly be called into question ...



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We know about the Facts – but what about the Range of Consequences?

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As far as the Indexes on Nature show Consequences ask for tough action ...



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Study Part 2: Selected Industries’ Practice -> Swiss based + Global BES-Footprint

Selection of Sectors 1. Agro, Food, Retail & Pharmaceutical

The companies in these four sectors have one in common: they are in many ways directly and indirectly depending - not only impacting – on biodiversity and ecosystems.

2. Extraction & Metals Manufacturing:

The companies in these two sectors impact directly thru raw materials and supply chain on biodiversity and ecosystems, but they do not depend on them.

3. Finance : Banks & Insurance

The companies in the financing and insurance sector are indirectly impacting on biodiversity and ecosystems through their financial products and the investment decisions they influence or finance upon third party requests (e.g. project finance).

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Example: Findings Food & Retail Sector

1. Awareness: Overall significant BES awareness according to perceived range of impact:

Holistic focus: many biodiversity aspects are addressed

Specific focus: few biodiversity aspects are addressed

Ubiquitous focus: unspecific biodiversity aspects are addressed (water use)

BES with CSR & reputation inclusion: companies with a global value chain strategy are aware of social and reputation conflict potential

2. Policies and systems as well as reporting capacity and content: from complete to very limited, and not all refer to GRI.

3. Stakeholder involvement: according to the companies’ own awareness about their relevance, importance and exposure to stakeholders.

4. For benchmarking and comparing purposes: system thinking needed re:

-> Business model: B2B, B2C, horizontal or vertical integration, and

-> BES boundary conditions and exposure: regulation, standards, NGOs.



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Q1. What is the Actual Use of BES Indicators?

Findings (all sectors) 1. The answers indicated the respondents’ level of preparedness as well

as exposure and/or contribution to the BES-debate.

2. All sectors showed a certain common understanding about what to use as indicator and how to get the accurate information.

3. As the critical factor appears the complexity of the value chain.

Conclusions a) Normalisation/standardisation process regarding the development and

implementation of BES indicators has to intensify and accelerate.

b) Aggregation, comparability and analysis of indicators (e.g. for a national or international stakeholder debate) can best be done if sector preferences and traditions are somehow in line and brought to a common understanding regarding cause and effect loops.



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Q2. How to present a BES-‘Footprint’ in the

future? Findings (all sectors)

1. The term BES-Footprint seems of critical importance for gaining a holistic picture of an overall (corporate) BES impact.

2. Some respondents found it desirious to normalize BES similar to carbon and water on corporate level.

3. A BES-Footprint on a product group – compared to corporate or total value chain focus – was seen to be the most feasible.

Conclusions

a) BES-Footprint as term is not generally accepted by industry.

b) The acceptance of footprinting on product group and in some sectors (R) also on value chain level may be an opportunity.



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Q3&4. What are BES topics of importance for

each company, what is of influence to a sector? Findings (all sectors)

1. BES topics of importance base on the history (experience with ESG in a wider context) of a company and in a sector.

2. Of equal importance to all is a need for data: more general data and more topic-related data, including how to get it.

3. Regarding sector importance was named the variety of the today accepted (GRI) and some recently discussed topics (PES).

Conclusions

a) There is a broad and differentiated understanding about what is important and what matters to each sector.

b) Companies seem better prepared for debating corporate BES topics about the (near) future then about today’s impacts.

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Last but not least: Two quotes from 2008



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Thank you for your interest! Franz Knecht, Lic.iur. (MLaw) CONNEXIS AG, Strategy Consultants CSR&ESG Advisory St. Jakobs Strasse 108, CH-4052 Basel Tel: +41 79 4159302 [email protected] - www.connexis.ch

References upon request: •Arcadis •CAT Alliance •COWI •URS •Finance Sector •Swiss Government •UNEP FI

Swiss citizen, born 1953, Master in Law of the University of Basel, additional education in legal practice and proceedings, economics, banking, marketing and communication, environmental management systems (lead auditor ISO 14001), and sustainability reporting. Professional experience: 2 years as lawyer, 4 years as VP for business associations, 12 years several management positions as VP in banking (SBC/UBS), 13 years founding and managing partner of CONNEXIS AG, sustainability consulting for finance, manufacturing, service and public sector. CONNEXIS’ work embraces a wide and growing area of topics like CSR/ESG risks and economic/financial effects, SRI rating solutions as well as ESG Due Diligence for capital transactions, integrated sustainability reporting, green IPOs and responsible supply chain management solutions. Clients are mainly from the private sector and are based in Europe, but the outreach of the projects is often global. The sectors covered are finance, manufacturing, service and governmental, EU and international institutions.

mailto:[email protected]

http://www.connexis.ch/

Economy & Finance

Franz Knecht