Ninety One today (16 October) unveiled a Sovereign Biodiversity Index, which provides a quantitative way for investors to assess nature and biodiversity risks at the national level.
Today, more than half of global GDP depends on ecosystem services – the benefits that human society derives from nature, the statement said.
Peter Eerdmans, co-portfolio manager, EM Sustainable Blended Debt said: “As sovereign debt investors, we therefore need a practical way to assess how governments impact nature and the risks stemming from biodiversity loss, as they can significantly influence economic performance and consequently a nation’s ability to service its debt. This is particularly key for investors in emerging markets, where economies often rely heavily on nature, partly because of the relative importance of the agricultural sector.”
By assessing how governments are impacting nature and biodiversity, sovereign investors can also seek to direct capital to issuers that are doing the most to safeguard biodiversity by preserving natural capital.
The Ninety One Sovereign Biodiversity Index is the third quantitative tool introduced by Ninety One to underpin its forward-looking Environmental scores for emerging countries – part of its proprietary ESG assessment framework. It follows the 2020 launch of the Climate and Nature Sovereign Index – which assesses the long-term risks relating to climate change and nature loss at a country level – and the 2021 launch of the Net Zero Sovereign Index, which assesses countries’ progress towards net zero, within the context of a just transition.
The Ninety One Sovereign Biodiversity Index incorporates a variety high-quality data sources – nature and biodiversity is a field in which data is relatively widely available and comprehensive indices already exist. For instance, Yale’s Ecosystem Vitality index (part of Yale’s Environmental Performance Index) offers useful insights and good coverage. Ninety One incorporates this into the index, building on it to include: more data, such as the Biodiversity Intactness Index, developed by the Natural History Museum; a policy pillar, which includes progress made on relevant Sustainable Development Goals (SDGs) and environmentally aligned taxes; and a greater focus on 5-year and 10-year trends for some of the key indicators, as this provides a clearer view of near-term trends, rather than metrics based on perhaps decades of environmental change.
In summary, the index comprises three pillars:
1. Quality of Nature
2. Deforestation
3. Policy
It does not currently include a pillar on ‘risks from biodiversity loss’, given the lack of suitable data.
The results
Compiling the data together, across the three pillars, provides an overall score for each country. This can be used to rank countries, although zooming in on the details and analysing the scores of each of the subcomponents is often the most useful. The top and bottom 10 sovereign debt issuers ranked by Ninety One’s Sovereign Biodiversity Index are shown below.
Rank Sovereign Score
1 Slovakia 0.84
2 Venezuela 0.81
3 Austria 0.80
4 Slovenia 0.79
5 Belarus 0.75
6 Romania
7 Democratic Republic of Congo 0.73
8 Estonia 0.73
9 Mongolia 0.73
10 Poland 0.72
107 South Korea 0.24
108 Egypt 0.24
109 Sri Lanka 0.23
110 Uruguay 0.23
111 Azerbaijan 0.22
112 Iraq 0.19
113 Saudi Arabia 0.18
114 Kuwait 0.15
115 Philippines 0.14
116 Singapore 0.06
Source: Ninety One. As at September 2024
Eerdmans continues: “Seven of the top 10 are European countries. This reflects stable and even improving trends in biodiversity intactness in some countries, which is counter to the global trend. Rewilding efforts and improved legal protections across the European Union have been relatively successful, as highlighted in a report co-authored by ZSL and BirdLife International in 2022.”
Venezuela is also highly ranked, scoring well on indicators of ecosystem vitality and ocean health. Deforestation has also been on a downward (i.e., positive) trend, with the latest data for 2022 showing the lowest amount of deforestation in over two decades. Some of these encouraging developments must be caveated by the fact that Venezuela has experienced an economic collapse, which has imposed high social and economic costs and caused many Venezuelans to emigrate.
Nevertheless, Venezuela has long had one of the highest proportions of its territory (almost 40%) as protected areas. On the other hand, illegal mining has grown rapidly under the Maduro regime. This has led to an increase in illegal deforestation and water pollution, which might not be reflected in official data yet. This underscores the importance of conducting qualitative analysis alongside index-data assessments in the context of active investment decision-making processes.
Eerdmans concluded: “At the other end of the ranking, worryingly, the Philippines’ rich biodiversity is under serious threat from a fast-growing population and high levels of poverty, which is driving the over-exploitation of natural resources. The country is showing one of the sharpest declines in biodiversity intactness and a concerning rise in the number of species at risk of extinction. Deforestation has increased and overfishing is threatening marine biodiversity.
"The government has recently enacted several laws to protect the environment, such as the National Greening Program, but protected areas remain extremely small (3.7%) and woefully insufficient.”
