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ESG VIEWPOINT
Biodiversity Best Practiceand Engagement Approach

ESG VIEWPOINT

At a glance	The Earth’s biodiversity is dwindling at an alarming rate withcompanies contributing to the loss and facing increasing nature-relatedrisks to their business models.
Harry Ashman
Vice President,
Responsible Investment

	Nature loss poses financially material risks for asset managers and it’s
an issue also closely linked to climate change.
	In this ESG Viewpoint we explore how biodiversity risks can beassessed, outline our approach to engaging with businesses on the
topic and detail our best practice framework.

Joe Horrocks-Taylor
Senior Associate,
Responsible Investment

Issued December 2022

Engagement and voting efforts as well as expectations outlined in thisViewpoint reflect the assets of a group of legal entities whose parent company
is Columbia Threadneedle Investments UK International Limited and thatformerly traded as BMO Global Asset Management EMEA. These entities
are now part of Columbia Threadneedle Investments which is the asset
management business of Ameriprise Financial, Inc.

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Overview
The Earth’s biodiversity is dwindling at an alarming rate. Around a quarter of species
are at risk of extinction by 2050, and global wildlife populations have plummeted by 69%
on average since 1970.
The key drivers of biodiversity loss are climate change, land-use
change, pollution, direct exploitation of natural resources, andinvasive species. All five drivers are primarily fuelled by corporate
activities. Agriculture-driven habitat loss is an identified threat to
24,000 of the 28,000 species threatened with extinction, 32%
of World Heritage Sites are threatened by mining or oil and gas
operations, and 27% of total ecosystem service losses are due tochemical pollution.
Corporates both contribute to biodiversity loss and face increasing
nature-related risks to their business models due to financial
dependencies on nature. Nature contributes between US $44
trillion and $150 trillion to the world’s economy each year – theloss of nature-based services poses severe risks for business.
Pandemics such as COVID-19 are made more likely by habitat
loss, wildlife trafficking and humanity’s destruction of biodiversity,and 75% of agricultural crops, worth $2.4 trillion rely on insect
pollination which is threatened by declining insect populations.

“Biodiversity” and “nature”
Following social and industry trends, we tend to use theterms “biodiversity” and “nature” interchangeably. Biodiversity
is a term used to describe the enormous variety of life on
Earth, including plants, bacteria, animals, and humans.
It can also be used more specifically to refer to all the
species in one region or ecosystem (an interacting systemof organisms and the physical environment). Nature tends
to be far broader, encompassing all living beings as well as
the features, processes and forces that exist on Earth. Given
the presence and characteristics of both living entities andnatural processes provide risks and value to human activity,
both are relevant to us as investors, so we will use the terms
biodiversity and nature throughout this piece.

Interested in learning more? Keep scrolling or click the quick links

Why nature is a material
risk for asset managers

Issued December 2022

Learn how we assess
enterprise level exposure

How have we engaged onnature issues

Understand our bestpractice framework2Responsible Investment Solutions

A material risk for asset managers
Just like climate change, nature loss poses financially material risks for asset
managers. It can impact the underlying performance of the assets we invest in throughmultiple risk and opportunity pathways. We have built upon our experience in engaging
on and building models to assess climate change issues and seek to address boththemes in together where relevant.
Given the significant contribution of the destruction ofnatural carbon sinks and land-use activities towards
global greenhouse gas emissions, and the potential fornature-based solutions to assist physical resilience andcarbon sequestration, it is clear we must tackle bothissues in tandem. 61% of our engagements on nature
issues in the first ten months of 2022 also covered
climate change.

Pathways to a sustainable planet
Live in harmony withnature by 2050
~50% global emissions
reduction by 2030

Net zero emissions
by 2050

Halt & reverse natureloss in 2020s
Become nature positivein 2030

Net negative emissions
in latter half of century
2020

EmissionsIssued December 2022

2030

2040

2050

Nature Indicators3

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We view action to combat natureloss as a key component of ourdecarbonisation approach.

As a signatory to the Net Zero Asset Managers Initiative,
with a 2050 net zero target for our investment portfolios,
we view action to combat nature loss as a key componentof our decarbonisation approach and the twin pathways ofnet zero and nature positive guide much of our approach toenvironmental issues.
Addressing the impacts that our investments have on
biodiversity loss and managing the risks that it poses
to financial performance, is a key component of ourEnvironmental Stewardship approach. Unlike climatechange there is no one key measure of progress, and whilst
regulations and global agreements on nature issues havelong been in place, international consensus and focus on
the topic has drifted. The development of the post-2020
Global Biodiversity Framework should provide clarity forpolicymakers and corporates on the levers and level ofambition required. This will help investors to more clearly
identify risks and impacts among investee companies andinform our engagement.
We are aware that investors and broader society need to stepup efforts as the magnitude of the biodiversity crisis grows,
and we will look to align our engagement approach with the
Global Biodiversity Framework goal of reversing biodiversity
loss by 2030. Our engagement approach will also be shapedby the Nature Action 100 initiative, of which we are one ofeleven Lead Investors1. This collaborative initiative will focus
on engaging companies in key sectors with the largest
impacts and dependencies on nature to ensure they aretaking timely and necessary actions to protect and restore
nature and ecosystems.
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Assessing our enterprise-level exposure
To understand the exposure of our equity and corporate fixedincome investments to biodiversity impacts and dependencies,
we conducted a heatmap assessment using the UNEP-WCMC
ENCORE tool. This assessment identified the sectors we invest
in which have the most substantial exposure to nature impacts
and dependencies in their operations and supply chains, namely
the Food, Beverage & Tobacco, Utilities, and Materials sectors,
informing where we focus our engagement and analysis efforts.
The Dependency score ranks sectors according to how dependent
their businesses are on ecosystem services, whilst the Impact
score reflects the severity of impacts that these firms have on
biodiversity through their operations and value chain.

Table 1: Columbia Threadneedle invested GICs industry groups ranked
by their dependency and impact on biodiversity out of 24 industry
groups assessed (internal analysis based on ENCORE data)
SectorDependency rank

Impact rank

Food, Beverage & Tobacco

1

6

Utilities

2

23

Materials

32Energy4

1Household & Personal Products

57

Telecommunication Services

6

19

Transportation

73

Source: Columbia Threadneedle Investments analysis based on ENCORE data

https://www.ceres.org/news-center/press-releases/secretariat-selected-collaborative-global-investor-engagement-initiative

Issued December 2022

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We can see that many sectors we are exposed to throughour equity and fixed income investments have a very highdependency on ecosystem services, indicating that theprotection of these services is extremely important for theongoing viability of many businesses. This strengthens thebusiness case for actions to mitigate this risk, either bychanging inputs or operations to reduce dependencies or byacting to protect the provision of the relevant ecosystem service
as a whole.
In contrast, a higher percentage of our aggregate equity and
fixed income investments are in sectors that contribute to thekey drivers of biodiversity loss. Negative impacts can be a material
risk, and are an important engagement focus in view of growing
regulatory and reputational risks.
It should be highlighted that the above data is at the sector leveland does not indicate the relative performance of our specificholdings within each sector. We are in the process of expanding
our biodiversity modelling capability to measure the quality of
individual issuers’ management of these issues to help us
identify the best performers and prioritise engagement objectives.
Both our modelling and engagement draws on the best practiceframework in this paper.

Graph 1: Reliance on key ecosystem services across Columbia Threadneedle’s investment portfolios (by percentage of equity and corporate fixedincome book). Figures are indicative, based on sector-level dependency data.
30
25
20
15
10
5
0

Surface water
Very high materiality

Flood andstorm protection

Climateregulation

Ground water

Mass stabilisationand erosion control

Water ﬂow
maintenanceHigh materiality

Source: Columbia Threadneedle Investments analysis based on ENCORE data

Graph 2: Impacts on nature among Columbia Threadneedle’s investment portfolios (by percentage of equity and corporate fixed income book).
Figures are indicative, based on sector-level impact data.
50
40
30
20
10
0

Water use
Very high materiality

Water
pollutants

Soil pollutants

GHG
emissions

Solid waste

Terrestrial
ecosystem use

High materiality

Source: Columbia Threadneedle Investments analysis based on ENCORE data

Issued December 2022

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The complexity of nature-related
issues requires a clear focus on themateriality of specific issues foreach holding.

Engagement on nature issues
The complexity of nature-related issues requires a clear focus on
the materiality of specific issues for each holding, and the risks
and opportunities they entail. This approach also comes throughstrongly in the Taskforce on Nature-related Financial Disclosures(TNFD) and Science Based Targets for Nature2 frameworks. The
range of nature-related issues is clear from Graph 3 showing
the topics covered in engagement so far in 2022, across 608
engagements with 391 issuers. We have also had a biodiversity
voting policy for the past two years which enables us to reinforce
our engagement messages. This policy flags companies with thehigh exposure to and insufficient disclosure on nature-related risks
for votes against management.
A notable engagement theme is land use change and deforestation,a key driver of biodiversity loss, social issues and emissions. This
includes our work in automotive value chains3; where leather is an

important source of deforestation risk that has received far lessattention than deforestation linked to the food industry. Our workon other drivers of deforestation includes collaborations throughthe PRI’s Soft Commodities Practitioners Group4, Ceres’ Working
Group on Land Use and Climate5 and the Investor Policy Dialogue
on Deforestation6.
Our research on our holdings’ dependencies and impacts alsoemphasised the importance of water, in terms of sectors being
both reliant on and negatively impacting water-related ecosystemservices, from the provision of adequate, good quality water
resources and habitats to its natural regulation. Up to October
2022 we had engaged 183 issuers on water management andocean protection. As the physical effects of climate change
increase these will become topics of growing importance. Severalof our funds also invest in solution providers in this area, such ascompanies producing innovative leak detection and waste water
treatment services.

Graph 3. Nature-related topics covered in engagements. Jan-Oct 2022
Sustainable waste management
Ocean protection
Environmental supply chain management
Product sustainability
Pollution impacts
Disclosure & transparency
Water management
Land use & deforestation
Biodiversity
0

50

100

150

200

250

300

350

Source: Columbia Threadneedle Investments analysis based on internal active ownership team engagement data
https://sciencebasedtargetsnetwork.org/wp-content/uploads/2020/11/Science-Based-Targets-for-Nature-Initial-Guidance-for-Business.pdf
https://www.columbiathreadneedle.co.uk/en/inst/insights/esg-viewpoint-drivers-of-deforestation-putting-the-brakes-on-deforestation-in-automotive-supply-chains/
4
PRI | Sustainable land use (unpri.org)
5
https://www.ceres.org/climate/food/land-use-and-climate-working-group6
https://www.tropicalforestalliance.org/en/collective-action-agenda/finance/investors-policy-dialogue-on-deforestation-ipdd-initiative/
2
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Evolving best practice
Drawing on our analysis of relevant issuers’ exposure, disclosure and management approach, wehave developed engagement objectives with reference to the best practice framework below. As
this is a nascent issue we expect to refine this framework over the coming years.
Currently only 3%-12% of European and US companies reportanything on biodiversity, and even when companies do report,
the information is often not specific, measurable, or time-bound,making it difficult to determine business impacts. Improved

measurement and disclosure of nature issues is key forinvestors to understand risks and impacts, issuers to develop
and communicate impactful strategies and all parties for
tracking progress.

Biodiversity strategy component
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2

Ambition to be nature positive
Leading companies announce concrete ambitions to reduce, reverse and restore all negative impacts onnature by 2030 – aligned with the Mission 2030 in the Global Biodiversity Framework proposed at the UN
Convention on Biological Diversity COP15 in December 2022.

IUCN Biodiversity Positive (ongoing)

The best commitments are accompanied by clear metrics for progress tracking, and include all current andfuture operational assets and material supply chain impacts on nature. To be nature positive, businesses mustfully understand their current biodiversity footprint, set an ambitious biodiversity target and a timeline to getthere, and then commit resources to make changes and transparently report on progress.

Ermgassen et al 2022

Business for Nature – How business and finance cancontribute to a nature positive future now

Set short-, medium- and long-term targets to address nature loss
The most robust biodiversity ambitions are backed up by a series of targets covering short, medium andlong-term timeframes7 to ensure immediate action, ongoing momentum, and a clear direction of travel. Strong
targets cover the most pertinent impacts an organisation has on biodiversity through its operations andvalue chain.
We suggest that companies use the forthcoming Science Based Targets for Nature (SBTN) framework toprioritise impact areas and set targets. Targets should follow the mitigation hierarchy by successively prioritising
avoiding then reducing impacts on biodiversity, before seeking to restore and regenerate biodiversity. In linewith the SBTN biodiversity hub working guidance, companies should consider how they approach their new,on-going and historical impacts on biodiversity when setting targets.

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Best PracticeScience Based Targets for Nature – Initial Guidance
Accountability Framework – deforestation targets
Contextual Water Targets
IUCN Review Protocol for Biodiversity Net Gain

Risk and impact assessment
Companies should locate their interactions with nature, evaluate their dependencies and impacts, and assess
their material nature-related risks and opportunities to provide investors with a full picture of the issue.
Given the growing understanding and current data quality issues we expect this to be an iterative process,with companies initially conducting heatmapping exercises to identify their most material nature-related
impacts, dependencies, and risks. Ultimately the best disclosure will evolve to be a location-specific process,with companies following emerging scenario-analysis guidance to assess how their exposure to risks andopportunities will shift over the short-, medium- and long-term.

TNFD LEAP Framework
IUCN’s Guidelines for planning and monitoring corporate
biodiversity performance

Companies should use this analysis to appraise their current strategies to capitalise on opportunities andmitigate risks, with this process overseen by the Board of Directors or a relevant committee and incorporated
into the company’s regular risk management processes. The company should clearly link this assessment
process with its strategic decision-making.

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Timeframe definitions are as follows; Short term, up to 2025; Medium term, 2026-2035; Long term, 2036-2050

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Disclosure of biodiversity-related impacts, risk and opportunities
Biodiversity leaders disclose full details of their related risks and impacts on biodiversity, including upstream,
operational and downstream impacts where material. Where possible, we encourage the disclosure of past
performance and future projections to help investors understand company trajectories. In the medium-term theefforts of organisations like the TNFD and ISSB will help to streamline the use of different biodiversity metrics,
but in the short-term we still expect corporates to disclose sufficient data to enable investors to appraise their
exposure to nature-related risks and impacts, especially through the CDP Forests and Water questionnaires.

TNFD – A Landscape Assessment of Nature-related Data
and Analytics Availability
European Taxonomy
GRI metrics

We encourage corporates to extend their disclosures beyond output metrics to outcome and impact metrics,
and expect corporates to disclose how they impact on different facets of biodiversity (e.g. habitats, species
abundance, species richness).
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Develop robust policies and procedures
Policies should be developed to govern the avoidance and management of activities that may (directly or
indirectly) cause significant land use change, overexploitation of species, facilitation of invasive species orfragmentation of ecosystems. Particular care should be taken to avoid disruptive operations in protected areas(IUCN categories I-IV), key biomes or internationally recognised areas such as natural UNESCO World Heritage
Sites and to avoid contributing to reductions of any Critically Endangered or Endangered Species on the IUCNRed List of Threatened Species.

Examples of biodiversity policies and procedures:- Biomass sourcing policy- Deforestation policy- Biodiversity policy

Policies should be implemented through a clear procedural framework. For operational impacts this may
include pre-construction procedures for evaluating ecological impacts in EIAs/ESIAs and inclusion in
Environmental Management Plans, and operational procedures for setting Biodiversity Action Plans andWater Management Plans. For value chain impacts this could include due diligence processes, grievancemechanisms, whistle-blowing processes, and processes for including biodiversity impacts in product Life
Cycle Assessments.
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Disclosure of a clear biodiversity strategy
Companies at the forefront of tackling nature loss are setting a clear, quantitative strategy to address impacts
on and risks from nature loss, including links to capital allocation and material sourcing decisions. Good
quality plans include details of the specific actions companies will take to reduce risks and impacts andchanges in operations, products or spending. The most thorough plans also consider the links between climatechange and nature loss, as well as other issues like physical risks, water issues and social impacts. They arealso avoiding the trap of using offsets and nature based solutions as a quick fix to both the biodiversity andclimate crises, and are taking a well considered approach to their use, following best practice and prioritising
mitigation of impacts.

IUCN Biodiversity offsets policy
Columbia Threadneedle: Nature as an ally: tackling theclimate-nature nexus
Columbia Threadneedle: Principles for carbon offsetting

Best practice is for companies to align capex decisions with biodiversity-related goals as well as climate goals,
for example by ensuring they are not entering protected areas or causing significant damage through project
implementation. As the Post-2020 biodiversity framework is finalised it will become clearer how companies
can align their capex decision making with its goals and ensure long term compliance and resilience.
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Demonstrate how policy engagement is aligned with corporate and global goals on biodiversity
To ensure an accommodating regulatory environment companies should align their direct and indirect
lobbying efforts with their stated nature targets and the Post-2020 biodiversity framework ambition to halt andreverse the loss of nature by 2030. Best practice is to disclose any lobbying that takes place on biodiversity
relevant policies, efforts to ensure that industry associations also align with the global goal, and a process toaddress any misalignments.

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InfluenceMap assessment of Industry Association’s
engagement on biodiversity-related policy
The Investor Expectations on Corporate Climate Lobbying
are a good framework for all lobbying disclosures

Demonstrate robust and effective board oversight and governance of nature related issues
Where nature impacts or dependence are a material issue, Boards should demonstrate oversight of
biodiversity matters via an executive committee member, CEO or committee with explicit responsibility forbiodiversity that reports directly to the board. As board understanding of corporate biodiversity impacts
and risks may be more nascent than climate, a clear competency review and training programme mayneed to be implemented.

ESG Viewpoint – Should ‘doing good’ pay out? Linking
executive pay to ESG metrics

The strongest executive compensation approaches link the measures for the CEO and at least one
other senior executive specifically to biodiversity, including a KPI on progress towards a company’s
biodiversity targets.
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Social due diligence and engagement
Our expectation that companies implement robust policies for conducting human rights due diligence, adhere
to the UN Guiding Principles on Business and Human Rights and commit to ensuring Free, Prior and Informed
Consent is particularly relevant for nature-related issues. Land rights, the provision of ecosystem services andthe cultural significant of natural features should all be taken into account as part of a company’s naturerelated due diligence.

International Labour Organization Indigenous and Tribal
Peoples Convention

Companies with the most advanced approach actively seek input from all stakeholders when developing theirnature strategies and on operational decisions that may have an impact on nature. Indigenous communities
are amongst the world’s most important and effective stewards of biodiversity, and should play a key role inthese conversations.

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The role of regulation and public policy
As with climate change, the global policy environment is key for fostering ambitious
and effective action on nature loss.
Recognising pollution as a key environmental issue anddriver of biodiversity loss, we signed a letter facilitatedby the WWF, Ellen McArthur Foundation, and BCG to UN
Member States to demonstrate our support for a UN
Treaty on plastic pollution to harmonise regulations andstandards to support governments and companies tomove to a circular approach and address plastic waste.
This initiative has since advanced into a formal UN
decision to explore options for a treaty.
We are members of the Taskforce on Nature-related
Financial Disclosures Forum and have provided detailed
feedback on both draft versions of the framework whichhave been published to date. We share the widespread
expectation that TNFD will become adopted by regulators
as a mandatory framework for many issuers. In
anticipation we will continue piloting the framework withother leaders on biodiversity in the financial sector.

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With time rapidly running out to avoid the collapse of
key ecosystems the implementation of a frameworkfor nature action equivalent to the Paris Agreement’s
temperature goals and would be a great achievement.
The mechanics of how goals may be measured,funded and achieved will be vital for ensuring greater
success than the previous set of global biodiversity
goals8, which remain unmet. We will continue to engage
with companies and with the wider public debate on
this critical issue.

We are members of the Taskforce
on Nature-related Financial
Disclosures Forum.

https://www.theguardian.com/environment/2020/sep/15/every-global-target-to-stem-destruction-of-nature-by-2020-missed-un-report-aoe

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Get to know the authors
Harry Ashman, Vice President, Responsible Investment
Harry joined the Responsible Investment team in 2022 and covers engagement with extractive sectors, focusing on
climate change and natural capital. He previously worked on environmental strategy and engagement at the
Church Commissioners for England, having previously set up the Capgemini Group’s sustainable innovation andconsulting programme. He enjoys running, water sports and exploring the great outdoors with his dog, Woody.

Joe Horrocks Taylor, Senior Associate, Responsible Investment
Joe joined the Responsible Investment team in 2021 and is focusing on climate change and biodiversity. Before
joining us, Joe worked as a sustainability consultant with a range of private and public sector clients. Outside
work he enjoys playing sport, hiking and birdwatching.

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