With thanks to the Dutch Ministry of Housing, Spatial Planning and the Environment & UNEP FI

The Ecosystem Services Benchmark

November 2009

Annelisa Grigg, Project Director, Natural Value Initiative

What do these have in common?

The Ecosystem Services Benchmark

Only tool specifically developed for investors that focuses on risks & opportunities associated with impacts and dependence on biodiversity and ecosystem services

Two primary sets of users:

Institutional investors: enables institutional investors evaluate how well a company is managing potential risks & opportunities relating to biodiversity & ecosystem services

Food, beverage and tobacco companies: can be used to develop a strategic framework for driving forward a company’s approach on the issue

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Developed with investors

•Based on the FFI-Insight Investment extractive industry benchmark

•Designed specifically to evaluate the food, beverage and tobacco

•Created in conjunction with six investors – Aviva Investors, F&C Investment, Grupo Santander Brasil, Insight Investment, Pax World and VicSuper.

The components of our analysis

Competitive advantage

Governance

Policy & Strategy

Management & Implementation   

Reporting

        

•Based on established risk management practices e,g, ISO14001

•Draws from the Global Reporting Initiative, Corporate Ecosystem Services Review, Roundtable on Sustainable Palm Oil (RSPO) Principles and Criteria, and the International Finance Corporation Performance Standard 6.

The Ecosystem Services Benchmark

Example: Governance

• Level 4: Full risk assessment of all commodities/ products against all relevant risk factors. Good understanding of value of priority products and supply chains and the associated financial exposure to business. Results integrated into a fuller risk assessment and associated action plan.

• Level 1: Lack of formal risk assessment process to identify priority products/ crops/ species for action to control risk and identify opportunities.

Risk Assessment - nature of products

Key areas of dependency and impact on ecosystem services have been identified: risk profile linked to nature of

products sold, e.g. product heavily dependent on pollination services or requires significant chemical inputs.

Analysis

•Poorly performing sectors identified

•Areas of weakness in each sector

•Results can be used to prioritise engagement activity at a sector level

Analysis

•Best in class and poorly performing companies

•Results can be used to prioritise engagement activity at a company level

•Strengths, weaknesses and areas for improvement

Ranking the companies

Undertaking the analysis

• Research based on publicly available information CSR / sustainability/ annual/ environmental reports– Other disclosures e.g. CDP, RSPO– Cross check through a google search

• Confirmed through meetings with companies (71% of companies), many of them attended by investors

• Analysis updated then sent for final review by company

• Formal communication to companies by investors

The results of our pilot study

Overall leader: Unilever

• Priorisation of crops where the company has the greatest influence and which form the greatest value

• Development of Sustainable Agriculture Standards

• Unilever outlines 11 different areas of importance for impact and performance at farm level including biodiversity, water use, soil fertility

• Brand imprinting process• Impressive sustainability targets have been

set for individual commodities (palm oil and tea).

• Extensive engagement with roundtables e.g. RSPO

Sector leaders

• Producers – United Plantations (>90% palm oil operations certified to RSPO)

• Retailers – Marks and Spencer (activities placed within the framework of a strategic plan)

• Tobacco – BAT (building blocks of a strong risk assessment process)

• Beverages – Fosters & SABMiller (biodiversity conservation guidelines for wine business/ strong water risk assessment framework)

Conclusions

• Corporate risk assessment processes frequently did not adequately address biodiversity and ecosystem services

• Disclosures on BES were often inadequate for evaluating corporate performance

• Activity to build shareholder value and ensure continued raw material supply is widespread, but it may not be proportional to corporate impact or risk

• Companies often lacked clear policy and strategy frameworks to drive action

• Supplier performance standards are in place which incorporate BES, but these are often limited in scope or voluntary in nature

• Management tools that encompass BES issues exist but often only address a small part of the company’s supply chain

1. Develop a clear policy of recognition and intent in relation to BES

2. Build capacity to engage on the issue of BES

3. Identify areas of risk and opportunity within your portfolio

4. Identify high-risk companies (companies that are failing to manage their impacts and dependence on BES) using the Ecosystem Services Benchmark

5. Engage with companies identified as high risk and ask a series of questions aimed at determining how effectively the company is managing the issue

6. Disengage from companies that are known to be infringing legal requirements and / or consistently underperforming on the issue

Recommendations for investors

Challenges & lessons learned

Lessons learned•Companies appreciated the fact we used the information they had produced, despite this, some did not engage at all•Cultural differences makes it difficult to have a one size fits all approach•The issue is one of competitive advantage for some sectors leading to a reluctance to disclose

Future challenges•How do you move away from measuring process to measuring performance?•How do you engage companies that remain unconvinced?•How do you take connect a stand alone exercise into mainstream investment decision making?

Next steps

Engagement with finance sector encouraging uptake of the tool and building capacity of the industry to engage on BES

Engagement with the companies analysed

Focusing on gaps and barriers e.g. reporting and risk assessment

Extending the analysis

Building the business case