Nature-related risk assessments may seem overwhelming, but investors can begin by starting small.
This was the message from Ashley Gorst, senior investment stewardship manager at Norwegian sovereign wealth fund Norges Bank Investment Management, speaking at a webinar on nature-related issues last week.
“We have a tendency to think of nature as really niche,” Gorst said. “We think of it as planting trees, we think of it as bees, we think of it as all of these things that we have a personal connection to.”
However, the best way for investors to measure risks and opportunities is by being specific, Gorst said. Investors do not need to visit every single site to which they have exposure, he explained, but rather begin by thinking about individual geographies or parts of a supply chain where they invest. From this point, investors can look to scale up the process.
Speaking at the webinar about the Taskforce on Nature-related Financial Disclosures, a multi-government-backed nature reporting initiative, TNFD CEO Tony Goldner acknowledged that the vast number of metrics and data points associated with nature reporting can be “overwhelming.”
“We need to stay focused on what’s decision-useful and meaningful for investors and other stakeholders,” he said.
Although Gorst said investors should conduct stress-testing for scenarios such as a major pest outbreak or drought, he said they should not rely on all-encompassing models to provide the answers. He pointed to scenario guidance published by the TNFD for a more “creative” approach to assessing nature-related risk.
The TNFD’s guidance helps investors to evaluate whether their strategies can withstand risks and opportunities linked to biodiversity loss and ecosystem change, using “what if?” questions such as:
What if pollination collapses in key regions?
What if water scarcity rises sharply?
What if governments suddenly implement strict biodiversity rules?
NBIM, which manages the revenue from Norway’s oil and gas resources through the Government Pension Fund Global, owns almost 1.5 percent of all shares in listed companies globally, according to its website.
The fund also invests an allocation of up to 2 percent in energy and infrastructure, with direct investments accounting for about 90 percent of that mandate and renewable infrastructure funds accounting for the remaining 10 percent, global head of energy and infrastructure Harald von Heyden told affiliate title Infrastructure Investor earlier this year (registration required).
In its 2024 climate and nature disclosures report, NBIM said it had divested from 10 companies to reduce the nature-related risk of the fund, but ended up reversing eight of these divestments after companies “adequately addressed the risks.”
NBIM engaged with 13 food producers during the year with the goal to push them toward sustainable agricultural practices in their operations and supply chains.
“Engagement rather than divestment is the most effective tool here,” Gorst said.
“There are very good cases where divestment is an effective and powerful tool and should be used, but in the majority of cases, from an investor perspective, the most effective way is being a useful thought-partner with companies.”