As the graphic above illustrates, fishing is one example of how an economic activity can affect natural capital. In terms of dependencies, fishing depends on solid waste remediation by ecosystems (e.g., micro-organisms, algae, plants and animals) to break down water contaminants (e.g., microorganisms mitigate the impacts of heavy metal pollutants). When translating economic activity to pressures, or impacts, fishing assigns a “high” or “very high” materiality rating to disturbances, such as noise and light pollution, which can be a stressor to marine life ecosystems. These pressures become relevant for the mechanisms of change in state—processes that cause alterations in the state of ecosystems and impacts their ability to continue providing goods and services. For example, harmful microbes, droughts or flooding may lead to changes in marine life species populations.
After considering materiality ratings, we identify which economic activities are likely occurring within a taxonomy of over 1600 standardized business segments that a company can be involved in.3 By connecting business segments and economic activities, we can determine potential biodiversity risks at the business segment level. This information can then be aggregated to the company and portfolio levels. Comparing this business segment perspective on potential biodiversity risk with a more simplistic sector-based perspective, we find that the former allows for a more nuanced analysis. Even when using very granular sectors, a sector-based approach places each company in only one sector.
Many companies operate in multiple business areas, leading to potential over or underestimation of biodiversity risks. Comparing the granular sector approach with the segment approach, the table below shows how a materiality assessment can change when considering the revenues of a global equity benchmark. 83% of revenues identified as having very high pressure by the sector approach remain classified as such. The other 17% of revenues are assessed with lower materiality, with changes for highly (H) material risks even larger: 19% of revenues that under a sector approach are deemed highly material see their materiality increasing to the highest bracket ‘Very High’. Using revenue streams allows for a more nuanced view of potential biodiversity risks. In cases where data is lacking, this approach helps evaluate parts of businesses that would otherwise lack information based solely on sector classification.
Source: am.gs.com
