Investor interest in biodiversity and ecosystems (BEES) is growing, but expertise is lacking and disclosure quality remains a challenge, according to new research presented to the International Sustainability Standards Board (ISSB) during last week’s ISSB meeting round.

Project manager Jeff Stehm said: “Most investors we spoke with are interested in incorporating these related risks and opportunities into their investment decisions.”

The 29 January discussion took place against the backdrop of the board’s decision to add a research project to its workplan to gauge the prospects for possible eventual standard-setting on BEES.

Investor appetite grows, expertise lags

The staff feedback to the meeting reiterates the findings set out by the staff last year that there is strong investor interest in understanding the extent of the risks and opportunities presented by material BEES-related issues on an entity’s prospects.

Staff told the meeting that their research has found that while most investors are interested in BEES, their expertise is still developing, and interest varies geographically – it tends to be lower in Latin America and Africa.

In terms of information sources, investors report using diverse sources, including third-party data, due to limited high-quality company disclosures.

This typically breaks down between qualitative – such as pledges to reduce deforestation – and quantitative information – such as how much water a business uses in its operations.

Sectoral view of BEES

As for their approach to the issues, staff reported that investors typically focus on specific sectors and topics – say, water or land use – rather than overall ecosystem condition.

The board’s outreach has so far revealed three main areas for improvement:

  • improved and standardised disclosures (global baseline, terminology, metrics);
  • more comprehensive information (quantitative risk/opportunity data, location-specific data, supply chain information, forward-looking strategies); and
  • solutions to challenges in using available information (models, data aggregation).

Overall, board members called for more focused research that delves deeper into investor needs, tackles data and measurement challenges, clarifies key definitions, and considers the interplay between global standards and local contexts, all while keeping materiality and proportionality in mind.

Water resources central

In a lengthy contribution to the discussion, ISSB chair Emmanuel Faber identified data challenges, water resources, specific industry exposure and value at risk, and location specificity alongside materiality, as hot-button topics.

He also suggested a phased approach where the board developed new requirements as modular “blocks” that could be integrated with IFRS S1 and S2.

He said: “[I]t would be interesting in the further investigation to design a short-term agenda and a longer-term agenda. What is it that we feel comfortable that we can bring to the market in a nimble manner to complement S1?”

During the board’s 24 July 2024 board meeting, Faber also identified water resources as a crucial link between climate, biodiversity, and business models.

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