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With thanks to the Dutch Ministry of Housing, Spatial Planning and the Environment & UNEP FI
The Ecosystem Services Benchm...
What do these have in common?
The Ecosystem Services Benchmark
Only tool specifically developed for investors
that focuses on risks & opportunities
asso...
Developed with investors
•Based on the FFI-Insight Investment extractive industry benchmark
•Designed specifically to eval...
The components of our analysis
Competitive
advantage
Governance
Policy & Strategy
Management &
Implementation
Reporting
•
...
The Ecosystem Services Benchmark
Example: Governance
• Level 4: Full risk assessment of all commodities/ products against all relevant risk factors. Good
u...
Analysis
•Poorly performing sectors identified
•Areas of weakness in each sector
•Results can be used to prioritise engage...
Analysis
•Best in class and poorly performing companies
•Results can be used to prioritise engagement activity at a compan...
Ranking the companies
Undertaking the analysis
• Research based on publicly available information
CSR / sustainability/ annual/ environmental re...
The results of our pilot study
Overall leader: Unilever
• Priorisation of crops where the company has
the greatest influence and which form the
greatest ...
Sector leaders
• Producers – United Plantations (>90% palm oil operations certified
to RSPO)
• Retailers – Marks and Spenc...
Conclusions
• Corporate risk assessment processes frequently did not adequately
address biodiversity and ecosystem service...
1. Develop a clear policy of recognition and intent in relation to BES
2. Build capacity to engage on the issue of BES
3. ...
Challenges & lessons learned
Lessons learned
•Companies appreciated the fact we
used the information they had produced,
de...
Next steps
 Engagement with finance sector encouraging
uptake of the tool and building capacity of the
industry to engage...
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The Ecosystem Services Benchmark

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Annelisa Grigg, Project Director, Natural Value Initiative.

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  • The Ecosystem Services Benchmark
    Results from its applications to the food, beverage and tobacco sectors
    Challenges and lessons learned
  • Paclitaxel is from yew
  • Recent years have seen a significant growth in responsible investment. Increasingly links are being made between shareholder value and environmental issues.
    Some such issues are more advanced in terms of their integration into financial decision making than others.
    We have heard that biodiversity remains an issue that is poorly understand and that few companies are being asked questions about it. Yet there is a demand for such information amongst far sighted investors.
    I want to share a quote from a well known UK based food retailer “Investors are not asking the right questions about biodiversity. If they were, we wouldn’t be able to answer them.” and from a UK based asset manager “Better tools are needed to integrate biodiversity into investment analysis.”
    It was against this background that a collaboration between international environmental NGO Fauna & flora International, Brazilian business school FGV and the UNEP FI was formed. Its aim is
    To build a leadership group within the finance sector which pilots and support this toolkit. Through this to:
    Build expertise in the finance sector for evaluating risk and opportunities associated with this issue
    Build awareness of the food, beverage and tobacco sector’s dependence on biodiversity and ecosystem services
    Stimulate improved performance in the food, beverage and tobacco sectors and reward good behaviour
    Guided by a steering committee including WWF, IUCN, Bunge, KPMG, Pax World, VicSuper, Banco de Brasil, Grupo Santander Brasil, the Initiative (which is funded by the Dutch Ministry of the Environmemnt) has been working to create a toolkit for evaluating biodiversity and ecosystem services investment risk and opportunity
    The toolkit has two users
    Institutional investors: designed to enable institutional investors evaluate how well a company is managing potential risks and opportunities relating to biodiversity and ecosystem services and to engage with those companies to reduce their potential risk exposure
    Companies in the food, beverage and tobacco sectors: can be used to develop a strategic framework for driving forward a company’s approach to managing impacts and dependence on biodiversity and ecosystem services. This will enable increased quality of communications to investors, improved risk and opportunity management, and insight into how to address business critical issues that may not be routinely managed through current supply chain practice. developed to enable institutional investors to better understand the risks and opportunities associated with the impacts and dependencies of the companies in which they invest in relation to biodiversity and ecosystem services
    It is aimed at the FBT sectors, but is designed to be broadly applicable to all companies with an agricultural footprint. The focus is on companies in the agri sector because agriculture has both a significant impact on biodiversity and a significant dependence on ecosystem services giving rise to reputational, operational and financial risk. A materilaity analysis performed by F&C and a risk evaluation by Eurosif and Oekom both identified the food and beverage sectors as being high risk in relation to biodiversity and ecosystem services.
    Focus on biodiversity and ecosystem services issues associated with the management and harvesting of raw materials
    Does not consider all sustainability issues (social/ community), industrial footprint or impact of supermarket sites on biodiversity
  • Also has the support of the PRI.
    Based on a tried and tested methodology developed by FFI and Insight Investment for the extractive industry
    Developed with asset managers
    Tested with asset managers
  • Developed in conjunction with stakeholders based on established risk management practice
    Tested on 31 companies in the food, beverage and tobacco sectors
    Testing was then used to refine the tool
    Started off with a focus on performance metrics rather than process measures but then found that no companies were reporting on performance
  • The ESB is a guidance document, combined with an excel spreadsheet which consolidates and analyses the results.
  • Give one example (only mention level one and four)
    The benefits of the approach:
    Increases understanding of risks and opportunities associated with ecosystem services within the finance sector
    Enables poor performance to be identified and addressed and good performance rewarded
    Not a questionnaire and is populated based on publicly available information, minimising the burden on companies
    Provides a strategic framework on an overlooked issue that may not be evident in established management systems
    Enables identification of shared challenges that may require cross-sectoral collaboration.
    Introduces developed world and transitional economy perspective
    Limitations?
    Lack of objectivity inevitable
    Reliance on corporate information as no auditing
    Process rather than performance based activities
    No front end risk assessment
    Time consuming
    Stand alone nature of analaysis makes trade offs difficult
    Others: subjectivity, auditing and ground level performance
    A number of these issues are less important in the context of elements of the benchmark being incorporated into other analysis
  • Company reports: Summary of results provided to investors and companies analysed showing strengths and weaknesses of their approach to biodiversity and ecosystem services risk and key areas for improvement
    Dependency and impact on ecosystem services – unmanaged risk, unrealised opportunity: A briefing document for the food, beverage and tobacco sectors
    Linking shareholder and natural value: Biodiversity and ecosystem services risk management in companies with an agricultural supply chain
  • Company reports: Summary of results provided to investors and companies analysed showing strengths and weaknesses of their approach to biodiversity and ecosystem services risk and key areas for improvement
    Dependency and impact on ecosystem services – unmanaged risk, unrealised opportunity: A briefing document for the food, beverage and tobacco sectors
    Linking shareholder and natural value: Biodiversity and ecosystem services risk management in companies with an agricultural supply chain
  • Companies were selected based on the investment holdings of our collaborating investors and to give a range of companies in each sector
    The analysis represents a ‘slice’ through the supply chain
    71% of companies evaluated responded to our request to confirm the accuracy of our findings.
    ‘Name and Fame’ exercise, not ‘name and shame’
    Furthermore, our analysis showed that there was an average
    gap of 6% between the scores companies attained based on publicly available information compared to those based on undisclosed information
    Each company received a summary of its results plus recommendations for improvement. Our collaborators will be encouraging them to improve their performance over time.
  • Furthermore, our analysis showed that there was an average
    gap of 6% between the scores companies attained based on publicly available information compared to those based on undisclosed information
    Each company received a summary of its results plus recommendations for improvement. Our collaborators will be encouraging them to improve their performance over time.
  • Only one company scored in the top quartile – Unilever
    Risk assessment: only 15 (48%) companies had a well-communicated risk and opportunity assessment in place. Unilever, Dean Foods, United Plantations, M&S, SABMiller and BAT are examples of this. Aspects of risk assessment were comprehensively addressed by many of the companies assessed, for example, direct operational footprints on water and climate. However, on the whole companies are not yet undertaking a
    thorough analysis of the risks and opportunities relating to BES, which addresses all elements of risk and considers the supply chain as well as direct operations.
    Reporting: Less than half of the (48%) companies achieved level 3 or more (half marks) on the ESB’s evaluation of the quality of their reporting on BES. Even the companies most advanced in
    their thinking on BES struggled to report a complete picture of how they are managing the associated risks and opportunities. Some BES elements, such as water,
    were addressed with greater regularity than others, but frequently reporting focused on direct operations, while assessment throughout the supply chain is incomplete or absent. As a result
    it was challenging for stakeholders to determine whether a company has understood and is managing its risk exposure. We founda significant gap between what a company says it does and what it actually does (the company scored higher after our meeting on the whole).
    Policy: Although 58% of the companies evaluated disclosed a statement of management approach on single commodities, only five (16%) companies had a clear BES policy and strategy framework.
    BAT was unique in disclosing a biodiversity statement. Ambiguous policy statements that only address a proportion of the supply chain are common in all sectors. This may lead to a
    lack of clarity and enforceability of corporate requirements of suppliers. Effectiveness of risk management will vary considerably as a result. PepsiCo offers a good model to follow having
    integrated ecosystem services into a stand alone policy on sustainable agriculture.
    Standards: 45% of the companies evaluated had standards or detailed guidelines for sustainable agriculture or guidelines for sustainable sourcing that encompassed BES, only three of these
    (BAT, Imperial Tobacco and United Plantations) covered the majority of the companies’ raw materials supply.
    Activities: 65% of companies had some form of pilot programmes in place or were engaging with initiatives aimed at overcoming barriers to sustainable supply such as the Roundtable on Sustainable Palm Oil. However, often these were small initiatives at local level rather than company wide schemes that deal with issues at a scale equivalent to the company’s global footprint. Such programmes often reflected a reaction to immediate risks rather than being part of a longer-term strategic risk assessment that anticipated ‘natural resource’ crunch before it becomes a reality.
    Management tools: 17 companies (55%) had developed tools relevant to the management of BES. It is encouraging to see a range of tools develop in this area – self-assessment checklists, audit protocols, farmer
    engagement programmes, contractual incentives, commodity trackers, biodiversity action plans, and guidelines for better management practices. However, these approaches are not yet widely or uniformly employed.
  • The questions that should be asked include:
    Does your process for identifying and managing environmental risks and opportunities include an assessment of potential impacts and dependencies on BES? If not, why not?
    What risks and opportunities have you identified from this process, and what is your strategy to address them?
    What policies and standards have been set in relation to sustainable sourcing of agriculturally based products and do they address BES? If not, why not?
    What tools and incentives are in place to encourage your suppliers to adhere to internal standards and requirements related to this issue?
    What assurance processes (monitoring, auditing, self-assessment) are in place to ensure that your suppliers are meeting your internal standards relating to this issue?
    Lessons learned
    Companies appreciated the fact we used the information they had produced, despite this, some did not engage at all (approx 70% engagement rate)
    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
    Fundamental barriers
    Lack of a convincing, quantitative business case
    Lack of a robust risk and opportunity assessment process
    Lack of appropriate metrics that can be readily collected
    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?
    We are concious that that the tool is imperfect and are working closely with our collaborating investors to integrate elements of the ESB into their decision making processes. It is unrealistic to expect all aspects of the evaluation to be taken up, but incorporating some fundamental questions is essential
    We will be performing a similar exercise in 2010-11 and would welcome discussions with investors on how they could work with us on this or integrate elements of our work into their investment decision making processes.
  • Transcript of "The Ecosystem Services Benchmark"

    1. 1. 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
    2. 2. What do these have in common?
    3. 3. 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 `
    4. 4. 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.
    5. 5. 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.
    6. 6. The Ecosystem Services Benchmark
    7. 7. 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.
    8. 8. Analysis •Poorly performing sectors identified •Areas of weakness in each sector •Results can be used to prioritise engagement activity at a sector level
    9. 9. 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
    10. 10. Ranking the companies
    11. 11. 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
    12. 12. The results of our pilot study
    13. 13. 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
    14. 14. 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)
    15. 15. 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
    16. 16. 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
    17. 17. 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?
    18. 18. 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
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