Investors have been offered guidance on assessing their portfolio exposures to deforestation in the inaugural flagship study from ISS ESG’s Natural Capital Research Institute. ISS ESG, the sustainable investment arm of ISS STOXX, established the institute last year to improve understanding of how nature affects businesses and investments and to help institutional investors incorporate nature-related considerations into their investment decision making. The study suggested that investors should take a tailored approach to deforestation risk exposure analysis that takes account of multiple layers of exposure, and utilises three key data typographies: dependency, impact, and performance data. ISS recommended use of dependency assessments to help investors identify financial risks arising from deforestation and impact assessments to understand how their portfolios affect forests. “Institutional investors are aware of deforestation risks within their portfolios,” the report read. “Although challenges persist, opportunities are growing rapidly – more discussions are occurring around asset-level data, substantial guidance for businesses and investors around deforestation continues to become available, nature data architecture grows, and regenerative agriculture and sustainable land management practices expand.” The research additionally highlighted that institutional investors are increasingly considering the interconnected of biodiversity loss and climate change challenges, the need to better understand associated dependencies and impacts, and to assess related risks and opportunities in their portfolios.
