Double Materiality of Biodiversity-related Risks: From Direct to Supply Chain Portfolio Assessment

Abstract

The worrying deterioration of biodiversity and ecosystems urges us to look closer at their links with human activities and, in particular, economic activities. This is a two-way relationship: economic activities depend, directly or indirectly, on ecosystem services, but they can also harm the ecosystems on which they depend. We propose an approach to evaluate the double materiality of biodiversity-related risks on an asset portfolio which will be useful to address the expectations of the market and the requirements of regulations such as Article 29 of the French energy-climate law or the Corporate Sustainability Reporting Directive (CSRD) coming into force in 2024 for financial institutions and large companies. This approach is available to address direct as well as supply-chain related risks. It has been applied to a portfolio based on the Stoxx 600: 42.7% (resp. 31.4%) of a portfolio based on the Stoxx 600 has a strong or very strong direct (resp. indirect) dependency on biodiversity and that 59.9% (resp. 44.64%) has a strong or very strong direct (resp. indirect) impact on biodiversity. The lower dependence and impact on biodiversity shows the importance of the weight of the different holdings in the portfolio. The integrated oil and gas, clothing and electricity sectors are particularly sensitive as they have both a very high dependency and a very high negative impact on biodiversity. Also, the method developed in this paper allows us to explore the biodiversity footprint and the dependencies on nature associated with organizing the Paris 2024 Olympic Games. The Olympic Games in Paris in 2024 provide a distinctive perspective on the environmental effects and interdependencies of large-scale event planning. Using a country-sectoral approach, this study assesses the environmental impact of several important industries, including event management, energy, hospitality, transportation, technology, and construction. Each industry contributes to pollution, resource depletion, and greenhouse gas emissions while also depending on ecosystem services like water supply and climate regulation. The basic supply chain risks for an event of this magnitude in France are highlighted, particularly in sourcing materials like timber and metals from regions with uncertain sustainability practices. Nonetheless, the organizers have striven to avoid relying on suppliers from distant countries. Circular economy techniques allowed for 66 % of building materials to be reused. Enhancements in water management, most notably the cleanup of the Seine, have had a positive effect on biodiversity. The commitment to a legacy and sustainability strategy has significantly contributed to minimizing environmental pressures and reducing dependencies on natural resources.

Keywords: biodiversity, environmental regulation, impacts, dependencies, ecosystems, sustainable finance, ESG, ecosystem services