From Diversity to Confusion? The Challenge of Biodiversity Footprint Quantification
The loss of biodiversity is one of the greatest challenges of our time. Driven by decades of human activity - from land use to pollution and climate change - this decline is now also attracting attention in the financial world. In response to these developments, concepts have been developed that measure the impact of corporate activities on nature and their dependence on it. Biodiversity footprints - quantitative metrics that describe the negative impact of a company's operations on biodiversity - have become influential tools used by investors and researchers, among others, to assess a company's impact and dependence on biodiversity. In this paper, the authors examine the biodiversity footprints of three major suppliers for a global sample of 941 companies.
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How reliable are biodiversity footprints?
With global agreements such as the Kunming-Montreal Global Biodiversity Framework and regulatory requirements such as the French Article 29 of the “Loi Énergie-Climate”, companies and investors are increasingly expected to understand and reduce their impact on nature and their exposure to nature-related risks. In response to these developments, concepts have been developed to measure the impact of corporate activities on nature and their dependence on it. Biodiversity footprints - quantitative metrics that describe the negative impacts of a company's operations on biodiversity - have become influential tools used by companies, investors, researchers and other stakeholders to assess a company's impacts and dependencies on biodiversity. In this paper, the authors examine the biodiversity footprints of three major suppliers for a global sample of 941 companies. They find significant discrepancies between the biodiversity footprints of the providers. Just as ESG scores from different agencies showed little correlation in previous studies, biodiversity metrics now show a similar phenomenon. This calls into question the reliability of the footprints, as the choice of data provider can significantly alter the assessment of a company's impact on biodiversity.
Differences in measurement lead to greater deviations
By breaking down the footprints into their underlying indicators, the authors find that although the providers take into account similar factors such as land use, pollution and climate impact, they measure these very differently. In the energy, basic materials and consumer staples sectors in particular, these differences lead to greater discrepancies. Companies with detailed and extensive sustainability reporting and a higher proportion of institutional owners tend to have more consistent footprint assessments across all providers.
Relevance of the study
The study has important implications for companies, policy makers, investors and other users of biodiversity footprints. The discrepancies between the footprints jeopardize their validity and make it difficult to make an informed assessment of a company's impact on biodiversity. This can undermine regulatory targets and investment strategies to protect nature. If decision-makers are unsure which figures to trust, capital may not flow to the companies that are most committed. Without reliable feedback and visible recognition, companies also lack an incentive to improve their practices. In addition, the reliability of scientific studies based on such metrics is compromised.