With much of the focus on geopolitics, climate change targets and mandatory reporting, it has been interesting to see how investors are quietly continuing to mature their approach to nature-related financial risks and opportunities within their portfolios. Three developments, in particular, caught my eye this month.

The first was the publication by the world’s largest institutional investor, the Norges Bank Investment Management, of its 2024 Climate & Nature Disclosures Report. The report identifies key nature- related risks to its investee companies, from biodiversity loss to deforestation, freshwater depletion and ocean degradation, and states bluntly: “Nature degradation will affect the financial performance of companies and the economy as a whole”. In a sobering assessment, it concludes that, in its survey across 96% of portfolio holdings, investee companies scored an average of only 32% against NBIM’s expectations on the nature-related governance, strategy and risk management. It concludes with NBIM’s intention to escalate its nature-related active ownership engagements, and to seek improved disclosure and risk data from investees.

The second was the announcement by global asset management giant Robeco of its proprietary Biodiversity Traffic Light Tool, which applies criteria developed in conjunction with the World Wide Fund for Nature. The tool assesses the alignment of investee performance on nature-related risks and opportunities – both current and future. Current performance is assessed by reference to sectoral key-performance indicators . Future performance is measured against indictors including on governance of nature-related strategy (including board oversight, disclosure and time-bound targets) and ambition (commitments to protect and restore nature).

The third was the publication of by the World Economic Forum (with Oliver Wyman) a Nature Positive: Corporate Assessment Guide for Financial Institutions. It sets out 11 indicators across the ‘interim’ and ‘target’ state to assist financial institutions to assess corporate understanding of the impacts, dependencies, risks and opportunities; their ambition and targets; and credibility of transition plans / strategic integration. It helpfully (and unsurprisingly) draws analogies for all indictors to those that investors use when assessing companies’ climate exposures, ambition and strategies. It helpfully provides a sector-by-sector summary of nature risk ratings, and includes case studies of the conduct of leading investors including LGIM and ABN Amro.

These three developments demonstrate just how quickly nature is evolving – and mainstreaming – as a financial risk (and opportunity) issue relevant to institutional investor decision-making. As a consequence, Australian companies increasingly face a commercial imperative to proactively engage with nature-related impacts and dependencies, and how these translate to material financial risks and opportunities and, in turn, impact on business strategy.

To discuss these issues in more depth please get in touch with Sarah Barker at sarah.barker@pollinationlaw.com.