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By Antonia Föger and Prof. Kristjan Jespersen

As our world economy continues its rapid growth, a new crisis emerges on the horizon – the alarming decline of biodiversity. Over the next couple of decades, a quarter of existing animal and plant species face the threat of extinction. The consequences of this significant biodiversity loss would not only entail profound ecological ramifications but also bring along unprecedented levels of economic risks. The World Economic Forum (2020) has revealed that more than 50% of the global GDP is moderately to heavily dependent on the balance and intactness of nature itself. 

It is therefore no wonder that governments, investors, and other actors in the financial market are increasingly concerned about their assets’ exposure to biodiversity-related risks. Despite this newfound willingness to incorporate biodiversity issues into investment decisions and portfolio management processes, assessing biodiversity-related risks and opportunities poses a substantial challenge in itself. 

As part of a case study on biodiversity risk for one of Denmark’s largest pension funds, we investigated the biodiversity-related regulatory and data landscape in the example of the mining industry, identifying data gaps and trying to form a feasible framework for biodiversity risk assessment. Here are the key steps that we took:

1. Mapping Material Metrics: As an initial step, the TNFD’s risk management and disclosure framework supplemented by the Encore materiality assessment tool were used to map out the material metric categories for biodiversity-related risk. 
2. Reviewing Regulatory Landscape: We then reviewed ESG regulations and standards to profile the overall regulatory landscape for reporting on biodiversity risk. These included mandatory standards such as the SFDR (PAIs) and ESRS (CSRD) as well as voluntary reporting frameworks including TNFD, GRI, CDSP, and SASB. This resulted in a comprehensive collection of six indicator categories and 17 specific indicators that would enable investors to make fully informed investment decisions in terms of companies’ biodiversity risk and impact. 
3. Assessing ESG Data Providers: Finally, we reached out to and analyzed nine different ESG data providers to understand the availability of the identified biodiversity indicators. The results are shown in the below Data Provider and Key Biodiversity Indicator Map. 

Our findings clearly indicate that there currently exists a significant gap in the available biodiversity data by ESG data providers. Probably the most critical and, at the same time, most underdeveloped indicators are those on biodiversity geo-exposure. While there is mediocre availability of geolocated exposure to biodiversity-sensitive areas that are mainly linked to the principal adverse impact (PAI) indicator no. 7 on biodiversity, granular asset level data to fully understand the extent of exposure is missing. Additionally, the available data does not link to legally protected or recognized areas and provides no information on exposure to the intactness of an ecosystem. Moreover, impact and pressure as well as response metrics are only limitedly available, making it difficult to quantify a company’s actual impact on biodiversity.

Alternative third-party datasets, such as IUCN Red List of Threatened Species and WWF Water Risk Filter, can play an important role in understanding biodiversity risks, especially in the context of location and asset level metrics. At the moment, however, these types of datasets are not yet integrated by ESG rating agencies, therefore requiring an increased amount of effort in collecting data from them. 

While the current data landscape may not enable investors to fully grasp and evaluate biodiversity risks and company performance, significant changes are on the horizon. Biodiversity is steadily becoming a central theme in sustainability discussions, leading to increased demand for thematic financial products. Additionally, the introduction of mandatory reporting requirements is expected to prompt companies to enhance their disclosure quality. Future developments such as Science-Based Targets for Nature (SBTN), common nature-related targets through COP 15, and EU Taxonomy minimum safeguards may contribute to a deeper understanding of impacts and financial risks. Additionally, investors can use current, imperfect scoring systems to identify biodiversity laggards or firms with inadequate disclosures and engage in constructive dialogue with them to drive best practices and better environmental outcomes

In conclusion, as the world grapples with the critical issue of biodiversity loss, the financial industry is taking steps to address these challenges. While there are substantial data gaps and hurdles to overcome, the growing recognition of biodiversity risks and the evolving regulatory landscape are driving positive changes. As biodiversity and the intactness of natural ecosystems move to the forefront of global concerns, investors are poised to play a pivotal role in integrating nature-related risks and opportunities in the investment decision process. 

About the Authors:

Antonia Föger is a recent graduate of MSc in Finance and Strategic Management (Cand. Merc.) from Copenhagen Business School. Her focus during her master’s thesis has been on sustainable finance, reflecting her enthusiasm for integrating environmental and social considerations into investment decisions and the associated challenges.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Isabella Bergström, Vendela Jonsson and Prof. Kristjan Jespersen

Climate change is one of the most defining issues of our time and human actions generate over 50 billion tonnes of greenhouse gas (GHG) emissions each year. In order to combat climate change and limit global warming, the Paris Agreement was formed in 2015, providing a framework for international cooperation. Sweden is one of the 196 nations that has signed the Paris Agreement, aiming to reach net-zero by 2045. The steel industry is one of the largest contributors to Sweden’s GHG emissions, accounting for ten percent of its total. Therefore, in order to decarbonize the nation, Sweden must decarbonize its steel industry. This has created pressure on Swedish steel companies to revise their sustainability strategies and explore new production technologies. The incumbent SSAB and the new entrant H2 Green Steel are the frontrunners in transforming the Swedish steel industry by developing the hydrogen-based steel (HBS) production technology.

To understand whether the steel industry can turn green, we decided to take a multi-level approach and analyze the micro-, meso- and macro-level factors affecting a potential transition. In particular, our study aimed to answer the following research question: “How will the potential sustainability transition of the Swedish steel industry develop and what are the respective roles of the incumbent SSAB and the new entrant H2GS in accelerating the transition?” In order to provide an answer to the research question, we took a qualitative methods approach through 15 semi-structured interviews with employees from SSAB and H2 Green Steel as well as external actors with knowledge of the steel industry, and conducted a comparative case study of the two firms.

We applied the Dynamic Capability (DC) framework, originally developed by David Teece (2008) and later improved by Strøm-Andersen (2018), to better understand what type of capabilities the firms are adopting in order to prepare for the transition. Additionally, we applied the Multi-Level Perspective (MLP) developed by Frank Geels (2002), to better understand the current state of the Swedish steel industry and the dimensions affecting the transition. By combining these two theories, we complemented the firm-level perspective with the industry-level perspective to understand the interactions between the firms and the industry. As Strøm-Andresen’s framework was used to study incumbent firms, we extended the applicability of the framework by using it to also analyze the dynamics between incumbents and new entrants in a sustainability transition. Conclusively, these theories in combination provided grounds to predict how a potential sustainability transition of the Swedish steel industry will develop, and what the roles of the incumbent and the new entrant are in accelerating it.

In the first part of the analysis, the DC perspective was applied to the respective companies, revealing that both firms adopted the DCs of learning, financing and organizational restructuring to prepare for the transition. The two firms were adopting these capabilities in different ways, where SSAB used its DCs to introduce the technology, and H2 Green Steel used its DCs to accelerate the development of it. However, some challenges were identified related to how the firms adopt their DCs, which are important for the firms to manage in order to optimally develop their DCs and successfully pursue a sustainability transition. In the second part of the analysis, the Swedish steel industry was analyzed using the MLP. The analysis revealed that the industry is affected by five landscape developments: 1) the Sustainability Movement, 2) Climate Targets & Regulations, 3) the Economic Downturn, 4) the Renewable Energy Revolution, and 5) the Energy Crisis. Moreover, it was found that the industry regime constitutes five main dimensions: 1) Regulation & Standards, 2) Customer Demand, 3) Public Funding, 4) Knowledge & Competency, and 5) Infrastructure Developments. Finally, the analysis revealed that there are currently four main technologies being developed at the niche level: 1) Carbon Capture & Storage, 2) Bioenergy, 3) HBS, and 4) Direct Electrification.

Conclusively, the findings revealed that several trigger events have led to landscape developments that have collectively created pressure on the steel industry regime to change, creating a window of opportunity for new niche-technologies to be developed. These sequences of events have led to the creation of several trajectories, some of which are aligned with the HBS development, and others that are misaligned. Conflicting pressures from a regime dimension, meaning that it is an enabler that is currently insufficient and therefore constitutes a barrier for the transition, results in a transition tension. In the Swedish steel industry, three dimensions generate transition tensions: 1. Knowledge & Competency, 2) Public Funding, and 3) Infrastructure Development. It was found that both SSAB and H2 Green Steel play a critical role in circumventing and resolving these tensions by efficiently adopting their DCs and in turn can help accelerate the transition of the Swedish steel industry.

About the authors

Isabella Bergström and Vendela Jonsson studied the master’s program in Finance and Strategic Management at Copenhagen Business School. They both have a great interest in sustainability, and after deep-diving into this topic through their elective courses and work, they felt the urge to explore it even further. They decided to investigate one of the most hard-to-abate industries – the steel industry, and how it potentially can be decarbonized. After completing their master’s degree they have both pursued a job in management consulting, and are hoping to continue to work on exploring solutions to tackle climate change by consulting clients on related matters. 

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Katryn Pasaribu and Prof. Kristjan Jespersen

Tropical deforestation has been targeted as the primary driver of agricultural-induced deforestation. Consequently, the conservation of remaining natural forests is an internationally growing concern. However, even though multi-billion-dollar initiatives have been poured out for nature-based solutions to address climate change, including the protection of forests or biodiversity, recent studies suggest that conservation is underfinancing due to the lack of continuity or a steady flow of funds for every single forested spot around the world (Barral, 2021; Bos et al., 2015; Phelps et al., 2011). Thus, the question of how to link financing for conservation and the business value chain is substantial. An ambitious research project, “No Trees, No Future – Unlocking the Full Potential of Conservation Finance,” funded by the David and Lucile Packard Foundation, seeks to design and test a rigorous methodology that addresses the linkage between the private sector’s contribution to conservation financing and their value chain.

At the same time, the current progression of the EU Corporate Sustainability Reporting Directive compels companies to disclose, identify, and describe their environmental risk and opportunities for the whole value chain, including topics such as emissions (climate change) and biodiversity. Companies are expected to develop targets and policies and to measure their accomplishments accordingly. This condition means the report should be comparable over time (historical progression), verifiable (geo-location), and understandable (measurable). With this current development in regulation, companies need serviceable methods to address the requirements. We find that the spatial footprint approach developed through the “No Trees, No Future” project affixes the two unrelated issues, conservation finance and companies’ sustainability reporting, and turns the two issues into two sides of a coin.

The methodology generally consists of a spatial analysis, a forest cover loss-to-emission conversion calculation, an assessment of carbon-based pricing impact evaluation, and an analysis of benefits-based burden-sharing guided by economic benefits. Figure 1 below explains the process of the spatial footprint analysis for conservation finance.

Figure 1. Animation of the analysis process of spatial footprint analysis for conservation finance 

The methodology starts with spatial analysis. The spatial analysis identifies the deforested spots within the agricultural concession. In this analysis, leakage or spillover conversion is not counted to have a clear-cut linkage between business activities and their direct impact. The empirical work of this research project centers on the spatial information of oil palm concession as the object of analysis. The spatial analysis results in deforested spots within the oil palm concession by overlaying the global forest cover map, annual forest cover loss map, and oil palm concession map. The next step involves translating the biomass loss from deforested spots into emissions. The deforested spots map is overlayed with the above-ground biomass map, resulting in the estimated above-ground biomass loss from the deforestation within the concession. The total emission arising from deforestation is calculated using the biomass-emission conversion rate. The third step is calculating the monetary value of the calculated emission using the carbon price mechanism; in this research, a carbon tax is used. From this third step, the dollar value of the total fund can be interpreted as the amount of conservation funds that should be allocated back to the region where the concession is in place.

Nevertheless, the oil palm buyers should not entirely be burdened by the dollar value because the burden should be distributed based on the benefits received (Hayward, 2012; Page, 2008). The conservation burdens should be proportionally shared between producers and buyers based on the economic benefits received. Thus, the buyers’ responsibility for conservation is proportionately calculated based on the market surplus received by the buyers within the palm oil market transaction. An individual buyer’s tonnage of palm oil is used to calculate the individual buyer’s shares. The last step is replicable for every chain in the whole value chain of the oil palm industry. Thus, the contribution is distributable throughout the value chain.

The spatial analysis covers the EU-CSRD requirement regarding environmental impact analysis, especially biodiversity-related issues, such as land use change impact. The forest loss-to-emission calculation covers the EU-CSRD requirement regarding climate change mitigation (emission) related issues. The emission pricing also helps companies translate their impacts in terms of monetary value, which the recent regulation requires. Thus, the spatial footprint approach addresses the reporting requirement and explores a strategy of financing mechanisms for conservation throughout business value chains.

The next question will be, will the identified fund be enough? What will be the possible implications once the “burdens” are identified? Intuitively, the identified fund is insufficient because the pricing does not factor in the value of ecosystem service loss or biodiversity loss from the forest conversion. However, this method covers proxy and emission, which is, at the moment, globally acknowledged. The possible implication, once the burden is identified for every region of oil palm producers, is sourcing shifting due to the different magnitude of the dollar value of the “burden” of each region. Without regulation in place being enforced, the dynamic of sourcing shifting may backfire on the forest conservation goal.

References

Barral, S. (2021). Conservation, finance, bureaucrats: managing time and space in the production of environmental intangibles. Journal of Cultural Economy, 14(5), 549–563. https://doi.org/10.1080/17530350.2020.1846593 

Bos, M., Pressey, R. L., & Stoeckl, N. (2015). Marine conservation finance: The need for and scope of an emerging field. Ocean & Coastal Management, 114, 116–128. https://doi.org/10.1016/j.ocecoaman.2015.06.021 

Phelps, J., Webb, E. L., & Koh, L. P. (2011). Risky business: an uncertain future for biodiversity conservation finance through REDD+. Conservation Letters, 4(2), 88–94. https://doi.org/10.1111/j.1755-263X.2010.00155.x 

Hayward, T. (2012). Climate change and ethics. Nature Climate Change, 2(12), 843–848. https://doi.org/10.1038/nclimate1615 

Page, E. A. (2008). Distributing the burdens of climate change. Environmental Politics, 17(4), 556–575. https://doi.org/10.1080/09644010802193419 

About the authors

Katryn is a postdoctoral researcher at Copenhagen Business School. Katryn received her Ph.D. in Natural Resource Economics from the University of Tennessee, her MS in Agricultural and Applied Economics from the University of Wyoming, and her BA in Economics from the University of Indonesia. Her research interests are Environmental and Natural Resource Economics, Sustainable Production, Rural Development, and Environmental Carrying Capacity. Currently, she is working on a Conservation Finance research project named “No Tree – No Future”.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Kamil Raad, Jackie Hwang and Prof. Kristjan Jespersen

Companies today are facing growing pressure to decarbonise from consumers, investors and regulators. Data management is key to this process as companies need to map their current emissions and monitor and report on these over time. As decarbonisation and sustainability more broadly affect multiple areas of a firm, the sheer volume of data can prove overwhelming—becoming a real challenge for companies. This has driven the proliferation of decarbonisation and sustainability management softwares that promise to solve the challenges companies are facing. However, with over 60 options on the market, selecting the right tool can be a challenge in and of itself. This article outlines an approach for companies to methodically approach tool selection and highlights the importance and need for companies to align their sustainability data governance and IT strategy. The findings are the outcome of a master thesis written for the MSc Business Administration and eBusiness program, under the supervision of Dr. Kristjan Jespersen.

To select a sustainability management tool, companies are recommended to follow the seven step IT procurement process shown below. For a decarbonisation tool, six steps can be followed along with requirements that were defined with practitioners across 10 industries – found at the end of this article.

Figure 1: Six-step decarbonisation tool selection process. Research Outcome.

To start the selection process, a body of stakeholders needs to be gathered which encapsulates all areas of the decision to ensure blind spots are covered. This includes the sustainability, IT and finance teams as well as end-users. The stakeholder body will participate in all subsequent steps of the process. Once gathered, the decision-making body can form the strategy for the tool, including mapping the current state of tool usage in the company, and the challenges faced in the existing sustainability processes. Based on this, a “to-be” state can be defined which will guide what is needed from the tool. The strategy will guide steps 3, 4, and 5 as requirements can be defined or prioritized based on the company’s objectives. Finally, tool options can be gathered and assessed – first using desk research, followed by sales demos and market dialogues with providers. Once done, a shortlist of candidates can be defined and official IT tender processes can be followed.

While the process may appear somewhat straightforward, the steps need to be approached diligently to ensure all the right criteria are considered. Further, a particularly crucial step in the process is setting the strategy for the tool. As it stands, this is an underdeveloped area in both practice and academia. In academia, little guidance exists on how this alignment should take shape or how it should be approached by companies. In practice, the lack of resources, the novelty of the area and the need to act quickly are driving companies to overlook strategy setting, instead opting for quick decisions. While this can be beneficial in the short term, it can limit the process efficiencies gained over the long term, as certain needs go overlooked and companies end up needing to change tools frequently. By following a structured process, strategy setting can be done quickly and effectively. Companies that do this will gain an advantage as they will not only ensure they select the right tool for the short term but also one that aligns with their deeply rooted sustainability and decarbonisation challenges.

As managing sustainability and decarbonisation data continues to grow in importance, companies need to stay aware of the tool landscape and approach decision-making in a structured manner. This will be crucial to enable well informed decisions that allow companies to maximize their tool’s utility and drive process improvements. Ultimately, this should drive improvements in the way companies manage their decarbonisation and sustainability targets. Nevertheless, for this to work as intended, greater attention needs to be placed on aligning sustainability data governance and IT strategy within the company, and both practice and academia still need to develop in this respect.

Figure 2: Decarbonisation tool selection criteria. Research outcome based on 16 practitioner interviews.

About the Authors

Kamil Raad recently completed his master’s degree in Business Administration and eBusiness from CBS where his research during the degree centred around the use of technology to support sustainability objectives. He was formerly an ESG Research Assistant at the Copenhagen Business School (CBS) under Prof. Kristjan Jespersen. Kamil is currently working in the Strategic Sustainability Consulting department in Ramboll Management Consulting, helping companies with a vast range of sustainability topics.

Jackie Hwang recently completed her master’s degree in Business Administration and eBusiness from CBS. She is currently working in Deloitte’s Digital Strategy Consulting department, helping organisations leverage technology to support business goals. She is passionate about sustainability and making an impact to help businesses use technology to become more efficient and sustainable.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Prof. Kristjan Jespersen

The following is an interview with Professor Laura T. Starks. Laura T. Starks, Ph.D., holds the George Kozmetsky Centennial University Distinguished Chair at the McCombs School of Business, University of Texas at Austin. Dr. Starks specializes in teaching courses on environmental, social, and governance (ESG) investing. Her research focuses on ESG issues, including climate finance and board diversity, as well as molecular genetics and financial decisions. Dr. Starks has received numerous awards for her research and teaching contributions. She is affiliated with various organizations, such as NBER and ECGI, and serves as the President-Elect of the American Finance Association. Additionally, she has held editorial roles for financial publications and served on various boards and advisory committees related to mutual funds, pension funds, and government pension funds.

Our conversation focuses on the recent tensions in the field of ESG, areas of research, research design and possible paths forward. Our conversation explores one of the main tensions in ESG investing which is the potential trade-off between financial returns and ESG objectives. Some investors worry that prioritizing ESG factors might negatively impact investment performance, while others believe that companies with strong ESG practices may perform better in the long run. Our conversation explores these and other important points.

You will all enjoy!

About the author

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan Jespersen is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.