How asset managers are quietly revolutionising the use of biodiversity data

5th Jul 2024

By Frazer Hembrow

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How asset managers are quietly revolutionising the use of biodiversity data
How asset managers are quietly revolutionising the use of biodiversity data

What’s the connection between cod, cacao, and semiconductors?

They tell a story about how far financial markets have come in their relationships with nature, and how much progress is still to be made.

The Newfoundland cod fisheries collapsed in the early 1990s, resulting in Canada’s largest ever industrial layoffs and a nightmare scenario for public and private investors. It all boiled down to inaccurate stock assessments and over-exploitation, driven by a lack of ecological data and understanding of fish populations. There was no coherent theory of the industry’s fundamental dependencies and impacts on ecosystem health. The resulting moratorium on cod fishing is still in place.

Fast forward to today. What have we learned? Well, everything and nothing. Due to the converging crises of climate change and nature loss, our economies and supply chains are more exposed to nature-related risks than ever before. African cocoa plantations are in serious trouble from overlapping pressures such as viral disease, ecosystem degradation, illegal mining, and loss of growing areas. But this isn’t just a problem for agriculture. Wider natural and environmental issues are hitting production of critical goods like semiconductors too – due to their exposure to water stress and scarcity risks.

But here’s the positive difference to the 1990s: we’re now seeing louder and better-informed debates about how markets should uncover and mitigate these risks, and a real and growing conviction to start turning things around for nature. Consider the growth of soil health and regenerative production methods as mainstream issues for agriculture investors, or the emergence of more systematic methods for assessing water risk across portfolios and asset categories. There is a genuine desire to understand and change.

Asset managers are now moving quickly to develop engagement strategies and reporting capabilities for nature-related portfolio risks, and this has created a new wave of demand for nature and biodiversity data. Data is integral to the drive for greater transparency and disclosure across their investment portfolios. It’s a steep learning curve for the industry to understand ecological concepts and impact drivers, but they’re making progress.

But this is just the start. Asset managers know that biodiversity isn’t just a disclosure and risk management topic. Their attention is turning to nature-based assets and solutions as investment categories in themselves – exemplified by the rapid rise of natural capital strategies.

Ecosystem health is a value generator – not just a risk factor

The growth of natural capital investment has unlocked a whole new attitude to biodiversity outcomes – and the data required to evidence them. Asset managers are tying together a diverse array of nature-linked and biodiversity-led investments across forestry, regenerative and sustainable agriculture, agroforestry, infrastructure, real estate, and other alternatives, often intersecting with nature-based carbon solutions.

There’s a basic but powerful set of hypotheses behind these natural capital strategies, especially when it comes to land-based assets. Namely: healthy ecosystems enhance resilience, productivity, and land value, and mitigate exposure to climate- and nature-related shocks. Naturally resilient value chains will be less exposed to climate risk, and give investors access to non-correlated returns. As markets begin to more effectively value and price natural capital and ecosystem services, the earliest movers who have built up portfolios of nature-based assets, and enhanced their value, will realise the greatest returns.

But natural capital is a nascent category, and these remain hypotheses. Like all hypotheses, they need testing and critical analysis. Before mainstream institutional investors and asset owners commit to nature-based investments at the scale we need, they want to see evidence of the trend relationships between the state of nature and asset value across all these diverse categories. The upside is that there’s a really clear business case for asset managers to generate the kind of high-quality, multi-year data on biodiversity outcomes required to answer these questions. Pioneering natural capital investors are already getting started with outcome monitoring and verification, because they know it will deliver competitive advantage at multiple stages of the investment lifecycle, including:

  • Improving quantitative fund theses and portfolio diversification by adjusting for nature risk
  • Enhancing diligence and investment decisions by considering opportunities for nature uplift as well as downside impacts
  • Evidencing positive outcomes and performance on nature issues to LPs and other stakeholders
  • Proving trend relationships between nature-focused operating strategies and growth in asset value (e.g. from productivity, resilience, long-term profitability, etc)
  • Presenting verified, truthful data to the market at the point of divestment

But here’s the catch: high-accuracy data on biodiversity outcomes has historically been really hard to get.

The natural capital data gap: true and auditable evidence of site-level state of nature

Any investor who’s looked into monitoring biodiversity outcomes in their portfolio will have bumped into some fundamental challenges. There is a huge shortage of verified, high-resolution data on the state of nature in all its complexity across species, habitats, and ecosystem functions. On the one hand, legacy methods for on-the-ground ecological surveying are slow, expensive, and not scalable. On the other hand, there are some things you simply can’t do without in-situ observation – satellites can’t see below tree canopies, or identify species and their abundances. There’s no single data source that can do everything – not eDNA, not satellites, not bioacoustics. They are all good for different things. So you need to combine them, and have ways to sample, process, and analyse the primary data they produce, that are magnitudes more efficient and scalable than has historically been possible.

That’s where Pivotal comes in. We’ve revolutionised how biodiversity data is collected and analysed, and natural capital investors across the world are using our solutions to make nature outcome monitoring more accessible, scalable, and trustworthy than ever before.

We’re the only partner capable of integrating data from remote sensing, drones, high-resolution cameras, acoustics, camera traps, eDNA, and more, within a single analytics platform. Our proprietary machine-learning enabled analytics engine works alongside our global network of remote ecosystem experts, to speed up data analysis and remove the need for on-site ecologists. Our biodiversity data platform presents high-accuracy, auditable data through a modular suite of straightforward, common-sense nature metrics that don’t require specialist knowledge to understand. Visualise, communicate, extract, and disclose biodiversity outcomes at site level, or across your portfolio, at the click of a button.

At the heart of our mission is a simple idea – that finance for nature should be based on real outcomes, not promises or projections. That makes us the perfect partner for asset managers to evidence the positive outcomes of their nature investment strategies, and realise the value growth potential of natural assets.

Interested to learn more? Get in touch.