A Systematic Approach to Quantifying Nature as an Investible Asset Class

Abstract

We introduce an innovative approach to incorporating nature-related risks into investment decisions, based on two key measures of company behaviour: materiality assessment and forward-looking assessment. The materiality assessment estimates the direct and indirect impacts of companies on five major drivers of nature change (climate change, land, freshwater and ocean use, pollution, resource use, and invasive species) by utilizing data from the Encore and Exiobase datasets (Encore 2021; Stadler et al., 2018). Building on the principles of the Net Zero Investment Framework NZIF 2.0 for climate change investment guidance (IIGCC 2021), we develop a robust forward-looking assessment framework that evaluates the quality of company responses to naturerelated risks.