Bio-Value-at-Risk: A Concept to Assessing the Implications of Biodiversity Risks on Portfolio Management using Geospatial Analysis

14 Pages Posted: 16 Apr 2024

See all articles by Jan-Alexander Posth

Jan-Alexander Posth

ZHAW School of Management and Law

Peter Schwendner

Zurich University of Applied Sciences

Patrick Laube

Zurich University of Applied Sciences (ZHAW) - Institute of Natural Resource Sciences

Tomasz Orpiszewski

Zurich University of Applied Sciences

Date Written: July 02, 2024

Abstract

Finally, nature risks like biodiversity and carbon footprints have been recognised as important business risks. Beyond immediate physical risks, transition risks include scenarios with disruptive consequences. Sustainable finance regulation calls for a transparent reporting of these risks. However, the full integration into the corporate risk framework, company valuations, and portfolio management needs a consistent quantitative treatment with discriminating precision down to company level. The crucial point is the objective of enabling allocation decisions between two competing companies from the same industry. This paper proposes a bottom-up scenario-based aggregation of company impacts measured by geospatial analysis rather than a top-down breakdown from global exposures. We overlay geospatial ESG variables mainly from global remote sensing products with the spatial footprints of asset-level data. In contrast to other approaches, the footprints of local operations are translated into a financial loss quantity for each single operational site before they are aggregated across the company. As the scenarios can be defined consistent across companies, statistically justified portfolio risk measures can be evaluated that enable portfolio risk management by a selection of individual investments and credit decisions rather than an exclusion of whole industry sectors. We illustrate our approach for the case of biodiversity risks and choose the mining sector as there is significant scientific literature on its environmental impacts and on remote sensing to detect these impacts.

Keywords: Nature risks, biodiversity loss, scenarios, bio-value-at-risk, asset-level data, geospatial data, remote sensing data, risk management, spatial finance, sustainable finance

JEL Classification: Q32, G32, L72

Suggested Citation

Posth, Jan-Alexander and Schwendner, Peter and Laube, Patrick and Orpiszewski, Tomasz, Bio-Value-at-Risk: A Concept to Assessing the Implications of Biodiversity Risks on Portfolio Management using Geospatial Analysis (July 02, 2024). Available at SSRN: https://ssrn.com/abstract=4784271 or http://dx.doi.org/10.2139/ssrn.4784271

Jan-Alexander Posth

ZHAW School of Management and Law ( email )

Gertrudstrasse 8, P.O. Box
Winterthur, 8401
Switzerland

HOME PAGE: http://www.zhaw.ch/de/ueber-uns/person/posh/

Peter Schwendner (Contact Author)

Zurich University of Applied Sciences ( email )

School of Management and Law
Gertrudstrasse 8
Winterthur, CH 8401
Switzerland

Patrick Laube

Zurich University of Applied Sciences (ZHAW) - Institute of Natural Resource Sciences ( email )

Wädenswil
Switzerland

Tomasz Orpiszewski

Zurich University of Applied Sciences ( email )

Gertrudstrasse 8
Winterthur, 8401
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
293
Abstract Views
1,508
Rank
200,247
PlumX Metrics