A conversation on biodiversity with Emine Isciel, Head of Climate and Environment at Storebrand

Towards Sustainability aims to broaden its focus beyond the traditional climate issues, placing equal importance on biodiversity. To explore this further, we spoke to Emine Isciel, Head of Climate and Environment at Storebrand, Norway’s largest private investor and a pioneer in biodiversity investment.

The significance of deforestation in both the climate and biodiversity crises is undeniable. Deforestation is at the heart of challenges related to climate change, biodiversity, food security, and water resources. The four biggest commodities driving deforestation and biodiversity loss are soy, palm oil, beef, and timber, which collectively account for 80% of deforestation globally.

“Thanks to frameworks  from initiatives like the Taskforce on Nature-related Financial Disclosures (TNFD), businesses and the financial sector can better assess, report, and act on their impact and dependencies on nature,” says Isciel. “This is an important step in the right direction and can help us to start integrating nature into decision-making. When we launched Storebrand’s Deforestation Policy in 2019, no major data provider could provide information on deforestation. Today, we can screen around 2,000 companies based on their deforestation impact.

“Financiers often have focused on high emitting sectors such as energy or transport,” Isciel explains. “But deforestation is now, fortunately, gaining more attention amongst financial institutions. For soy, palm oil, and leather products linked to deforestation, Europe has made access to the market much stricter. Although we support the overall aim of the legislation, tightening regulations can have unintended consequences. Many small farmers growing cocoa are now struggling to meet all the reporting requirements and to be compliant with the upcoming regulation. Worst case, they will lose market access to EU.

Isciel continues, “There’s also the Investor Policy Dialogue on Deforestation (IPDD), a dialogue-driven initiative between investors, government bodies, industry associations, and other stakeholders to combat deforestation in some of the world's most biodiverse and carbon-absorbing regions. This involves 81 institutional investors from 21 countries, collectively managing $10.5 trillion USD.”

As for the financial impact of sustainability efforts on short term returns, Isciel finds it less relevant. “The business case for biodiversity is becoming more evident for long-term financial institutions, However, there is the need to move from awareness to action. Often, the lack of data can be used as an excuse for inaction. On the other hand, more and more investors and companies are realising that their cash flows depend on ecosystem services such as pollination or water purification and trying to assess their impact and dependencies. It’s absurd to think that financial prosperity can continue while nature declines. In other words, climate and biodiversity choices also affect the financial bottom line. Of course, trade-offs are inevitable. Take solar panels, which are essential for the energy transition, yet there are issues involving forced labour.”

Transparency

“Transparency,” Isciel believes, “is key, as it’s the only way to hold investors accountable. The Paris Climate Conference and the Kunming-Montreal Global Biodiversity Framework, which is comparable to the Paris Agreement but focused on nature and biodiversity, have marked a turning point. These agreements can significantly redirect financial flows, and that’s important, given that two-thirds of finance is private. Governments need to ensure transparency, create an investment-friendly environment, and level the playing field for those doing things right,” says Isciel. “I also think the European Green Deal is a good step to support the allocation for greener solutions. One of the main innovations is the introduction of double materiality which we welcome. However, there is the need for Standards across various jurisdictions to become more uniform. In Europe, we have the taxonomy and PAIs, but globally, taxonomies are emerging up everywhere, making it challenging for asset managers with global portfolios. Taxonomies also tends to focus on climate, leaving out biodiversity.”

“Finance ministers should increase their focus on biodiversity loss. Ministries of finance have significant levers that they can pull on to accelerate the nature action that is needed to deliver on the goals and targets of the Global Biodiversity Framework ,” notes Isciel. “For that to happen and efficiently shift capital towards sustainable solutions, policy makers need to use the full range of economic policy measures available to them, including reforming harmful subsidies. You must be consistent across the board. Right now, most financial flows aren’t aligned with the Biodiversity Plan, and hundreds of billions of dollars are being moved without enough recognition of nature’s impact or our dependence on it. The 'Do no harm' principle will only succeed if all financial flows are aligned—financing green and also greening finance.”

Isciel gives the example of Norway, where a debate is raging over deep-sea mining. The Norwegian government plans to open a vast area for mining rare minerals, such as cobalt. Storebrand has already advised against it.

“As a government, you shouldn’t permit this, let alone subsidise it. Plenty of studies show the destruction that deep sea mining could cause, and scientist argue that we don’t even need the minerals to succeed in the energy transition. There must be coherence between what’s done with public and private funds.”

One of the strict criteria for the Towards Sustainability label is active ownership, which is also a key focus for Storebrand. “I think people sometimes misunderstand active ownership. To me, it’s not in direct opposition to divestment. There are, however, some red lines: coal, for instance, must be phased out as quickly as possible as advised in any IPCC scenario. With most companies, the conversation has really moved forward—it's about dialogue and collaboration and supporting companies to mitigate their risks and capitalize opportunities, not conflict. We believe we can achieve greater results when we collaborate with our peers. That is why we take actively part in investor collaboration platforms such as Nature Action 100+. Many companies recognise its value and sometimes ask for our help with assessments of new projects. If we are not successful in our engagement, we can consider escalation which can involve raising the concern at an AGM or putting the companies at our observation list. The last resort is divestment. The exclusion process is extensive.  All documents prepared on exclusion cases are anonymous and final decision is taken by senior management. They purely focus on the sustainability risk and the risk of reoccurrence, rather than financial parameters. That’s how they decide whether or not we continue to invest.”