By Alexandra Mihailescu Cichon, Executive Vice President, RepRisk
As a World Climate Summit partner and ESG risk expert, RepRisk is an active member of the World Climate Foundation’s broad network of like-minded organisations from private and public sectors, partnering for future and contributing to high-level discussions on climate and biodiversity risks. This year, RepRisk will present its key findings at Investment Session 1B of World Climate Summit on November 13 alongside COP27 in Egypt.
Sustainable electrification – a threat to biodiversity?
Biodiversity – the wide range of animals, plants, and microorganisms on earth that underpins the health of the planet in complex ways – is inextricably linked to climate change. While climate change is one of the main drivers of biodiversity loss – rising temperatures affect rainfall patterns, cause extreme weather events, and alter what can grow and thrive within ecosystems – habitat loss and the destruction of ecosystems disrupt nature’s processes that regulate carbon and protect against a warming climate.
You cannot discuss one without the other.
Global efforts to address climate change have been focused on lowering greenhouse gas emissions. While the electrification of high-emitting sectors like transport and industry promises to move us away from fossil fuels, climate solutions are complex, and pulling a lever in one area can cause unanticipated challenges in another. As the world’s dependence on batteries increases on the road to electrification, demand for precious metals contained within them is expected to skyrocket, escalating the threat to biodiversity.
By 2050, demand is expected to increase by a factor of up to 19 for cobalt, 20 for lithium and 31 for nickel, and challenges in rapidly scaling the supply of materials from current sources are expected in the short term. This will put increased pressure on countries like the Democratic Republic of Congo (DRC), the world's leading source of mined cobalt, which supplies approximately 70% of global production. The DRC is one of the most important countries for biodiversity in Africa, home to a number of endemic species including the okapi and bonobo, and contains over 50% of Africa’s tropical forests. As demand for cobalt rises, mining is expected to impact biodiversity in the region through deforestation, species depletion, and land degradation.
Importance of biodiversity to finance
Insights from RepRisk’s new Geospatial Analytics dataset show that 17% of global mining projects sourcing critical battery metals are located within immediate proximity (1km) of an environmentally sensitive site, putting them at risk. The development of extractive projects often results in direct habitat clearance and degradation, with immediate consequences on nearby species. Businesses and financial organisations, including banks and insurers, have nature dependencies and impacts on biodiversity through their financing, investing, and operating activities. Banks impact nature, for example, through the decisions they make about which extractive projects they finance and where – and investors, through their investments in mining companies directly, or indirectly in supply chains. But our interdependence on natural capital across all industries means that safeguarding biodiversity and safeguarding long-term financial security are one and the same.
The World Economic Forum estimates that approximately USD 44 trillion – or half of the world’s GDP – is either moderately or highly reliant on nature, with sectors including construction, agriculture, food and beverage most directly reliant on the extraction of resources or the provision of ecosystem services such as healthy soil and clean water. With biodiversity loss increasingly recognised as being a material risk for business, and mounting pressure on investors to disclose their biodiversity-related dependencies and impacts, decision-makers are ready to align their strategies and develop risk management approaches to address nature-related risk.
Data innovation to safeguard biodiversity
Through collaboration with the Integrated Biodiversity Assessment Tool (IBAT) Alliance, RepRisk has recently integrated data on over 285,000 environmentally sensitive sites, 65,000 extractive sector infrastructure projects, 15,000 owner and operator companies, and 15+ years’ worth of corporate ESG risk incident data. The resulting dataset, RepRisk Geospatial, is the first and only source of information on a company’s involvement in extractive projects near Protected Areas and Key Biodiversity Areas.
For the first time, it is possible to screen entire portfolios for companies with mining or oil and gas operations near environmentally sensitive sites.
What’s more, it is possible to overlay a long history of ESG risk incidents – RepRisk’s qualitative research on ESG risks – to provide insights on specific incidents at these project sites and linked to project owner and operator companies. These incidents include “E” risks such as waste discharge and pollution; “S” risks like impacts on local communities; and “G” risks such as corruption. Combining proximity data and ESG risk incident data evolves the conversation around impact and provides useful insights that help businesses and financial organisations understand when to engage with companies, when to shift exposure, and when to divest. Previously, data that would allow decision-makers to understand the location and impact risk of extractive projects on the ground was virtually unattainable due to the enormous amount of manual research and coordination it would entail. This recent innovation solves common pitfalls around data quality and availability to shed light on biodiversity risk.
Nature doesn’t disclose anything
Nearly 80% of the mining projects within the RepRisk Geospatial dataset are located within 30 kilometers of environmentally sensitive sites. Many impacts, such as pollution and noise disturbance, extend well beyond physical site boundaries. As demand for minerals is expected to rise in support of the energy transition, it will become critical for those operating, financing, and investing in the mining sector to drive sustainable practices and biodiversity conservation.
Nature doesn’t disclose anything. To understand the impact on nature, decision-makers need the right tools and information to measure, assess, and mitigate biodiversity risk. Using geospatial proximity and impact data together provides unprecedented insights to prevent nature loss. And this means that businesses and financial market participants can take the bold steps required to address shifting risk during the transition, and ensure we keep moving in the right direction.
"We have partnered with the World Climate Summit to help us connect with decision-makers at this very critical time for biodiversity loss. The business and financial communities have recognised the important role they have to play and there is a real urgency to act now. WCS offers us a forum to share ideas, strategies, and solutions, and we are excited to present findings from our new Geospatial dataset to help inform decisions that can get us started today.”
Alexandra Mihailescu Cichon, Executive Vice President, RepRisk
For more information on RepRisk Geospatial, visit www.reprisk.com/geospatial
RepRisk North America Inc, October 2022
About RepRisk
Founded in 1998 and headquartered in Switzerland, RepRisk is a pioneer in ESG data science that leverages the combination of AI and machine learning with human intelligence to systematically analyse public information and identify material ESG risks. RepRisk’s flagship product, the RepRisk ESG Risk Platform, is the world’s largest and most comprehensive due diligence database on ESG and business conduct risks, with expertise in 23 languages and coverage of 200,000+ public and private companies and 50,000+ infrastructure projects. For more than a decade, the world’s leading financial institutions and corporations have trusted RepRisk for due diligence and risk management across their operations, business relationships and investments.
Learn More: www.reprisk.com
About the author
Alexandra Mihailescu Cichon joined RepRisk in 2013. Over her tenure, she has established and leads RepRisk’s commercial division globally, which includes client relationship management, sales and strategic partnerships, and marketing & communications teams. Alexandra Mihailescu Cichon is a keynote speaker at the Investment Session "Financial Transformation - Investor Innovation for Real Economic Impact" of World Climate Summit 2022 on 13 November in Sharm el Sheikh.