MSCI to Launch Tools to Help Investors Assess Biodiversity, Deforestation Risk in Portfolios

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by KnowESG,

MSCI Inc.

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MSCI Inc., a leading provider of tools and services that help investors make important decisions, said today that new tools will soon be available to help them find companies that might be contributing to biodiversity loss and deforestation.

The new screening tools combine thousands of environmental, social, and governance (ESG) data points with MSCI's own geolocation data, which helps find where a company does business. The tools, which MSCI aims to make available to investors in early 2023, include:

  • MSCI Biodiversity-Sensitive Areas Screening Metrics help investors find companies with physical assets in areas that are important for biodiversity, like healthy forests, deforestation fronts, or areas with a lot of species.

  • MSCI Deforestation Screening Metrics, which indicate companies exposed to deforestation-related risks, including those that may directly or indirectly (via their supply chains) contribute to deforestation. This could be a result of direct operations in areas of risk, such as the tropics, or by the production or reliance on commodities considered key drivers of deforestation, including palm oil, soy, beef, and timber.

Nadia Laine, Executive Director, Head of ESG Products at MSCI, said: “We have spent decades developing data for global investors to measure risk and opportunities related to climate change and ESG factors. We have applied this experience to emerging issues around nature loss and deforestation. Global biodiversity challenges, such as the spread of invasive species, land-use change, and pollution, will have very tangible impacts on how companies function in the near- and long-term future. MSCI aims to help institutional investors understand those risks on the portfolio level.”

MSCI announced that these tools will be available soon at the 15th Conference of the Parties (COP 15) in Montreal. This event is meant to set clear goals for protecting biodiversity and the natural capital of the world by 2030. Emerging financial regulations, such as the European Union Biodiversity Strategy 2023 or recent EU legislation prohibiting imported goods linked to deforestation, are also subjecting companies to increased scrutiny for contributing to nature loss, posing new financial risks for their investors.

The ESG and Climate Trends to Watch for 2023 report from MSCI ESG Research shows that companies are not ready for these kinds of regulations. As of October 2022, less than 12% of food product companies had shared a deforestation policy. According to MSCI ESG Research data, 11% of constituents of the MSCI All Country World Index as of November 30, 2022, have the potential for direct or indirect contribution to deforestation.

Sylvain Vanston, Executive Director, Climate Investment Research at MSCI ESG Research, said: “The biodiversity on our planet is declining at an alarming rate largely due to human activity, from habitat destruction, pollution, water stress to climate change-related pressures. This drop in nature's ability to provide ecosystem services is a big problem for the world economy. Important steps are being made with world leaders meeting at COP15 in Montreal, and the Taskforce on Nature-related Financial Disclosures is also aiming to redefine a standard reporting framework. But for important steps to be taken, people in the capital market need to have access to timely and reliable data so they can make better investment decisions. Understanding risks related to deforestation and certain activities in sensitive regions is an important step in this direction.”

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Source: Business Wire

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