Nature and Biodiversity Solutions
Identify and measure
portfolio impacts
and risks

Biologicaldiversity is
rapidly declining— and becoming
a material risk
to investors.
That means
they needadvanced tools
to measure
impact andmanage risk.

Biodiversity, the foundation of life itself, is declining at an alarming rate due to human activity. From habitat destruction
and overexploitation of natural resources to pollution and the emission of greenhouse gases resulting in climate change,
biodiversity loss poses an existential threat to ecosystems, the global economy and, in turn, to investors.
The need for advanced tools to measure impact and manage risk has never been greater. We can no longer ignore how
companies are impacting, and being impacted by, biodiversity loss. Business behavior is increasingly under scrutiny:
New regulations on biodiversity are emerging, investors are taking action, and the Task Force on Nature-related
Financial Disclosures (TNFD) has launched a risk management and disclosure framework so organizations can reportand act on evolving nature-related risk.

How are investments impacted by and dependent on nature?
Biodiversity
Impact Drivers

Changes in landand sea use

LandSpecies

Climate regulation

Erosion control

Climate ChangeOceans

HabitatWater quality

Filitration

Invasive AlienSpecies

Water

Atmosphere

Soil quality

Disease control

Soil

Minerals

Disruption
protection

Pollination

Overexploitationof organisms

Pollution

Physical risks

2

Dependency onEcosystem Services

Natural capitalRaw materials

Potential loss

Litigation risks

Transition risks

Systemic risks

Source: MSCI ESG Research, December 2021, based on ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) 2021; IPBES. 2019.
“Global assessment report on biodiversity and ecosystem services.”

A framework to help you manage
nature and biodiversity risks and opportunities
Investors can start integrating nature and biodiversity into investment
decisions by choosing metrics to assess nature and biodiversity risks
and opportunities. Selecting the appropriate set of metrics is relevant toadequately assess risks and impacts since criteria can differ significantly inscope, objectives and applicability. Generally, investors can start by choosing
metrics based on two overarching questions:

1.

What is my portfolio’s potential impact on nature and biodiversity?

2. How could my portfolio be affected by nature and biodiversity loss?
As illustrated below, the data is organized along two unique paths thatfacilitate the investor’s research based on the above questions.

MSCI Nature and Biodiversity Metrics Framework

Sensitive areas anddeforestation

Nature & Biodiversity
Q
How may
companies
impactnature?
Portfolio
impact onbiodiversity/nature

Measure impact(footprint)
Drivers of naturechangeQ

Identify capacity
to mitigate impact
Governance, strategy,
risk/impact mgmt, targets
3

Whichcompanies
may be well
positioned tomitigate
negative
impacts?

QHow
cby n ould
atu
refolio be affectedort
y p iversity loss?
m iod/btialten ?
op
y’s ersitv
id

What is my porn nature tfol
act o/bi iopoim

Identify sensitive
activities

QQ
What risks
maycompanies
face?
Impact ofbiodiversity/
nature loss
on portfolio

Identify physicalrisk
Revenues/assets
exposed

Identify transition
risk
Revenues/assets
exposedQWhatopportunities
may companies
take advantageof?

Identify growth
opportunities
Revenues from productswith positive impact

Source: MSCI ESG Research, November 2023

MSCI’s Nature and BiodiversityMetrics
MSCI’s Nature and Biodiversity Metrics package and supporting guidance
framework is designed to provide our clients with multifaceted Nature andBiodiversity Solutions:»4

Evaluate company and portfolio impact on nature and biodiversity:
MSCI provides metrics that encompass activities in sensitive areas,
the drivers of nature change, such as resource/water use, greenhousegas emissions, and pollution, as well as indicators that help identify acompany’s capacity to mitigate impact.
»Drill down to better understand a company’s involvement in activities
that contribute to deforestation»

Analyze revenues generated from products that could negatively
impact nature, or nature-related controversies, such as the production/use of palm oil, soybeans, beef or timber»

Measure their biodiversity footprint»

Find out whether companies have established nature-related
governance, strategy or targets»

Assess impacts of nature and biodiversity loss on companies andportfolios: MSCI data helps you identify physical risks, such as assets
dependent on ecosystem services or revenues derived from regionswith high water risk. You also can also explore and identify transition
risks, including company revenues or assets exposed to regulatory, legal
or reputational risks based on actual or alleged involvement in adverse
impact activities.

»Discover nature-related investment opportunities in companies withrevenues from products with positive impacts on nature.

Measuring
impact withBiodiversity
Footprinting
Investors striving to quantify the impacts of their investmentson biodiversity across sectors or portfolios increasingly relyon biodiversity footprinting. This approach generally starts
by identifying the various direct drivers of biodiversity loss,
known as pressures, caused by a company. Now, the Mean
Species Abundance (MSA) and the Potentially Disappeared
Fraction of Species (PDF) metrics are integrated into ourNature and Biodiversity Solutions.

5

MSCI Biodiversity
Footprint Metrics:
Potentially Disappeared
Fraction of Species (PDF)
The PDF metric is used within life cycle
assessment (LCA) methodologies. It indicatesa company’s potential contribution to global
species extinction due to pressures which may becaused by the company. These pressures could beassociated with land use, GHG emissions, water
consumption and toxic emissions released into thesoil, water or air. Once identified, these pressures
can be modelled via LCAs into potential impacts
that alter the state of nature and conditions acrossterrestrial, freshwater or marine ecosystems.
These end impacts are then aggregated andattributed to companies.

Company assets
Objective:
Quantify company’s potential contribution tospecies extinction risk at a global level.

Output:»Absolute: PDF: unitless fraction from 0(lowest contribution) to 1 (highest).

»

Relative: PDF Intensity metric,
Total PDF normalized by company’s
revenues (USD million).

»Benchmark: PDF percentile ranking
relative to global peers (MSCI ACWIIMI constituents).

Asset locations+Company pressures

GHG emissions, water consumption, land use

6

MSCI Biodiversity
Footprint Metrics:
Mean Species
Abundance (MSA)The MSA is an indicator for measuring local
biodiversity intactness developed by the PBL
Netherlands Environmental Assessment Agency.
It measures the abundance of species relative totheir abundance in 19 an undisturbed ecosystem
and understands any reduction through six drivers
including climate change, land use, fragmentation
and road disturbance. One way of measuring acompany’s contribution to the MSA is through land
it uses, expressed by the MSA.km2 metric.
Both PDF and MSA.km2 can also be normalized,
for example, by revenue, and therefore converted
into an intensity metric, which becomes more
relevant for investors. PDF and MSA can further
be combined, indicating a company's land-use
contribution to potentially irreversible species
extinction due to changing local biodiversity
intactness.

Company assets
Objective:»Quantify a company’s potential spatial
contribution to degradation of local
ecosystem intactness»

Measured by Mean Species
Abundance of original species relative
to their abundance in undisturbed
ecosystem (300 years ago): 0(disturbed: all species lost) to 1 (fullyintact)

Output:Asset locations+Company pressures

Mean Species Abundance multiplied bysquare kilometer (MSA.km²)
Land use(asset type + size)

7Meet developing
reporting requirements
Asset managers are encouraged and may likely be required to integrate biodiversity loss into their portfolio decisions and reporting. MSCI’s research-powered
Nature and Biodiversity Solutions seek to enable investors to meet the TNFD/CSRD and French law, Article 29, reporting recommendations and requirements.

Easy to use framework helps you
understand and access nature andbiodiversity data»»

How may companies impact nature?

Broad framework helps you navigate
the complexity of nature and biodiversity
reporting»Identify sensitive activities
Measure impact»

See nature and biodiversity risks
more clearly»»

Identify capacity to mitigate impact»

Ensure the credibility of sustainability
reports and facilitate data-driven
decision-making

Impact of biodiversity/natureloss on portfolio

Access relevant nature and biodiversity
data for TNFD and CSRD reporting»

8Portfolio impact onbiodiversity/nature

Access datapoints from a double
materiality perspective with MSCI’s
metrics framework

What risks may companies face?
»Identify physical risks»

Identify transitional risks»

Identify growth opportunitiesStay ahead of the regulatory
reporting curve»

Meet evolving reporting requirementswith confidence»

Stay up to date with emerging regulations
and standards related to nature andbiodiversity reporting»

Implement TNFD recommendations andstart addressing reporting requirements
for CSRD, SFDR and Article 29Powerful screening
metrics to assess
nature andbiodiversity risks
As part of our MSCI Nature and Biodiversity Metrics package,our screening metrics to identify operations in biodiversitysensitive areas and assess deforestation risks capitalize
on MSCI’s broad coverage universe, vast data repositories
and rigorous methodology. They are designed to enable
you to address impacts on nature in your portfolios, identify
companies with operations in ecologically sensitive areas, orassess exposure to potential direct and indirect involvement
in deforestation.

9Screening exposure to
biodiversity-sensitive areas
Identify companies with physicalassets in areas of high biodiversity
relevance, such as healthy forests,
prime areas for conservation,
deforestation fronts or
species-rich areas.

How it works
1.
1

Identify companies from MSCIACWI Investable Markets Index(IMI) at risk of contributing tonature loss.

2.
2 Capture companies withoperations in biodiversitysensitive regions.

3.
3 Flag for potential involvementin biodiversity-sensitive areas,
including healthy forests, areas withintact biodiversity, prime areas forconservation, and deforestation fronts.

Biodiversity Sensitive Area Layers: Biodiversity Intactness, Prime Areas for Conservation

Biodiversity intactness

Mean species abundance: above average (>=0.56)

Prime areas for conservation(Global safety net layers by Global Safety Net - One Earth)Note: We use Global Safety Net (GSN)1 data to identify prime areas for conservation. A select set of the GSN layers is used to represent Distinct Species Assemblages, Rare Phenomena, andBiodiversity Intactness.
Source: Schipper, Aafke M., “Projecting terrestrial biodiversity intactness with GLOBIO 4”, November 3, 2019, Dinerstein, E. et al., “A “Global Safety Net” to reverse biodiversity loss and stabilize Earth’sclimate”, September 4, 2020.
1 Global Safety Net (GSN) is developed by the non-profit organization One Earth to support the goal to protect 30 percent of the Earth’s lands and waters by 2030 and 50 percent by 2050. The six
layers making up the GSN cover approximately 50 percent of the Earth’s land and can act as a blueprint to address the twin crises of biodiversity loss and climate change.
10Identifying exposure
to deforestation risks
Pinpoint companies exposed to deforestationrelated risks, including those that may directly
or indirectly contribute to deforestation. This
could be a result of direct operations in areas ofrisk, such as the tropics, or by the production orreliance on commodities considered key driversof deforestation, such as palm oil, soybeans,beef or timber.

How it works
1.
1

Identify companies in
the MSCI ACWI that are
at risk of contributing todeforestation.

2.
2 Capture companies involvedin controversial commodities,
high-risk industries operating
in deforestation fronts
and deforestation-relatedcontroversies.

3.
3 Flag for potential direct
or indirect contribution
to deforestation.

Main production locations for deforestation prone commodities and deforestation fronts

BeefSoybeans
Palm oilTimberDeforestation
Fronts

Sources: “Deforestation fronts: Drivers and responses in a changing world report”. World Wide Fund For Nature (WWF). 2021. “Global assessment report on biodiversity
and ecosystem services.” IPBES. 2019.
11

Capitalize on geospatial science to derive site-level metrics»

Using MSCI’s asset location database, we can combine asset
characteristics and geographic exposure»

Biodiversity is inherently site-based lending itself to geospatialanalysis»

Geospatial analysis allows for easy use of multiple data layers
which is applicable to the complexity and multi-faceted nature ofbiodiversity»Site-level metrics are aggregated to the issuer, portfolio, andfund level

Use Geospatial Science to Derive Site-level Metrics

Stacked layers containing different data that are all georeferenced to true geographic space isthe foundational concept of spatial analysis

12Source: Image and summary from Harder, Christian and Brown, Clint, The ArcGIS Book, Second
Edition: 10 Big Ideas about Appling the Science of Where. "Redwood, CA: ESRI Press, 2017.

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