Analyzing Companies’ Impact on Biodiversity

Feb 10, 2025

Assessing a portfolio’s risks and opportunities related to biodiversity is complex. Morgan Stanley’s Biodiversity IQ helps investors analyze at the industry, company and asset levels and identify exposure to positive solutions.

Key Takeaways

The majority of companies and institutional investors surveyed consider biodiversity important to business models and portfolio analysis.
Morgan Stanley’s Biodiversity IQ tool helps institutional investors assess companies’ dependences, impact, risks and opportunities related to nature.
Voluntary and mandatory corporate disclosures on sustainability, and specifically biodiversity, may increase in coming years.

Biodiversity loss, often framed as an environmental issue, actually has a substantial economic impact. The Morgan Stanley Institute for Sustainable Investing’s new report, "Analyzing Portfolio Dependencies and Impacts on Nature with Morgan Stanley's Biodiversity IQ Tool" shows that approximately 25% of companies across geographies, especially in sectors such as consumer staples and consumer discretionary, have some exposure to biodiversity risks and opportunities.

Among global companies, 72% globally see one or more of the drivers of biodiversity loss (which include detrimental changes to the use of land, fresh water and seas; overexploitation of resources; climate change; invasive species; and pollution¹) as a risk to their business models by 2030, according to an Institute survey of 303 decision makers at corporations. Among institutional investors, the majority say they want to better understand companies’ impacts (88%) and dependencies (79%) on nature, according to another Institute survey. But it has historically been difficult for institutional investors to know where to begin in assessing their portfolios for such exposure.

To help address this, Morgan Stanley developed the Biodiversity IQ tool, which draws on open-source and commercial datasets to analyze investment portfolio dependencies and impacts on nature at the industry, company and asset levels, as well as exposure to positive solutions.

Understanding the connections between corporate activities and biodiversity loss is an increasingly important lens for investors.

Courtney Thompson

Managing Director and Head of Sustainable Products and Solutions at Morgan Stanley

“Understanding the connections between corporate activities and biodiversity loss is an increasingly important lens for investors and builds on the practice of integrating climate considerations into investment portfolios,” says Courtney Thompson, Managing Director and Head of Sustainable Products and Solutions at Morgan Stanley. “Forward-thinking investors will need a shift in mindset to consider complex supply chains and other nature-related impacts and dependencies that may not be easily quantifiable or comparable in the near term.”

For example, depending on the sector, investors may need to consider a food producer’s links to deforestation, or soil and water pollution related to the manufacturing of chemicals or plastics. A company’s operations could also be dependent on nature, perhaps to pollinate crops like cotton, rice or sugar cane, or to purify water needed to make pharmaceuticals or animal feed. Elsewhere, companies may offer exposure to positive solutions, such as sustainable palm oil production, agriculture or forestry practices and conserving water.

A single measure is unlikely to capture everything for biodiversity and still be useful for investors in decision-making. Instead, investors should think of sector, company and asset level data as a starting point for assessing risks and engaging with portfolio companies.

Andrew Ford

Executive Director and Head of the Sustainable Insights Lab at Morgan Stanley

Biodiversity IQ Makes Complex Analysis Actionable

Unlike climate risk, biodiversity risks are location-specific and harder to quantify. “Investors want to be able to assign a single value to a complex issue like biodiversity, similar to carbon emissions data for climate impact,” says Andrew Ford, Executive Director and Head of the Sustainable Insights Lab at Morgan Stanley. “However, a single measure is unlikely to capture everything for biodiversity and still be useful for investors in decision-making. Instead, investors should think of sector, company and asset level data as a starting point for assessing risks and engaging with portfolio companies.”

For instance, investors can use the Biodiversity IQ tool to see mining locations in the Amazon in South America. If they hold companies with assets in the region, Biodiversity IQ can help them consider those assets’ activities in the local ecosystem and their proximity to protected areas, which may guide analysis or engagement on topics such as pollution, water consumption and land usage.

KBA: Key Biodiversity Area WDPA: World Database on Protected Areas Source: Morgan Stanley Sustainable Insights Lab, Integrated Biodiversity Assessment Tool (IBAT), S&P Global, Global Energy Monitor, Spatial Finance Initiative.

The Future of Biodiversity Disclosures and Analysis

Challenges remain in analyzing a company’s impact on biodiversity, including lack of a single and standardized metric and difficulties assessing exposure in value chains. But over time, new regulations and voluntary commitments may increase the quantity, quality and nature of corporate disclosures on biodiversity topics.

In October 2024, the Taskforce on Nature-related Financial Disclosures (TNFD) announced that more than 500 companies and financial institutions had committed to aligning their voluntary reporting in 2024 or 2025 with TNFD’s recommended core metrics. For financial institutions, this covers $17.7 trillion in assets under management (AUM), more than one-third of global AUM.

In addition to voluntary efforts, a range of EU regulations could begin to require corporates to disclose or act on sustainability topics, including many relevant to biodiversity. These regulations also have global relevance, as some apply to companies with EU revenues over set thresholds.

Questions?

For any questions related to the report, please reach out to the Institute for Sustainable Investing team at globalsustainability@morganstanley.com.

Sources & Disclosures

Sources

¹ Kunming-Montreal Global Biodiversity Framework

Disclosures

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CRC 4212303 02/2025

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