Norges Bank Investment Management (NBIM), which oversees Norway’s $1.4 trillion sovereign wealth fund, has highlighted the significant impacts and dependencies on biodiversity linked to its investees’ sectors, in its first step towards adopting the TNFD’s recommendations.
The analysis applied the Exploring Natural Capital Opportunities Risks and Exposure (ENCORE) tool, designed to support financial institutions in assessing their risks and dependencies at a portfolio level by cross-mapping production processes and ecosystem services.
“The majority of sectors in our portfolio include business processes with high or very high direct impacts on the natural environment,” it said.
“Industrials, energy, food and beverages, and utilities sectors appear to have high or very high impacts through water use and ecosystem conversion in particular.”
Production processes within four sectors – consumer staples, consumer discretionary, basic materials, and utilities – heavily depend on natural capital assets and ecosystem services, such as flood and storm protection, pollination, bioremediation, and pest control, NBIM found.
“While sectors such as technology, telecommunications, and healthcare appear to have fewer processes that involve high ecosystem dependencies, this assessment does not cover companies’ value chains,” the investment manager said.
“There may therefore be significant dependencies that are not included here.”
“Many processes across the sectors we invest in rely on access to water resources and healthy, biodiverse ecosystems,” NBIM said.
“Loss or degradation of these assets could disrupt these processes, potentially leading to financial losses for companies in these sectors.”
A company’s damage to ecosystems could also result in financial losses for other firms in the portfolio, the investment manager warned. NBIM holds about 1.5% of all the world’s listed companies.
“Obtaining an overview of how business processes in different sectors impact and depend on natural ecosystems is an important step towards better understanding how the companies in our portfolio are exposed to nature-related risks and opportunities,” NBIM added.
RIPPLE EFFECT
While the investment manager relied on both external datasets and company-reported information to carry out the disclosure, it stressed that more accurate insights into location-specific risks, dependencies, and impacts are needed.
“We will continue to develop our practices and reporting as we gain access to better data across our portfolio and learn more about the interplay between our investments and the natural environment,” the investment manager said.
NBIM, a Taskforce on Nature-related Financial Disclosures (TNFD) Taskforce member since 2021 and among the 320 early adopters unveiled at the annual World Economic Forum meeting in Davos, has a portfolio of over 8,800 companies listed in 72 different markets worldwide.
After investment manager Manulife IM released its first TNFD-aligned nature disclosure in mid-January, the move of NBIM is set to spark market interest.
“As the largest owner of public equities, this will have a major positive ripple effect through the financial investment markets,” said TNFD co-chair David Craig on LinkedIn.
By Sergio Colombo – sergio@carbon-pulse.com
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