The earth’s biodiversity is not only the basis of life on the planet, but also an essential part of the global economy. Biodiversity is an important topic and part of a.s.r.’s strategic pillar ‘sustainable living’. To understand the risks a.s.r. faces in the area of biodiversity and ecosystems (hereafter:nature) and its impact on nature, a.s.r. uses the framework of the Taskforce on Nature-related Financial Disclosures (‘TNFD’). Similar to the TCFD, the TNFD framework contains four recommendations for financial institutions to identify their nature-related risks. This section briefly describes how a.s.r. identifies, measures and manages nature-related impacts, dependencies, risks and opportunities for its business in accordance with the TNFD recommendations. For a more detailed description, please refer to a.s.r.’s Climate and Biodiversity Report 2023.
Governance
For information on how governance is organised within a.s.r. on sustainability-related topics, including biodiversity, please refer to section 5.1.6. a.s.r. set up a TNFD project group to report in a structured way on its impact, dependencies, risks and opportunities related to nature. The scope covers the business units that expect to have the greatest impact and dependencies on nature. These are P&C, Asset Management, and Real Estate.
Strategy
One of the methods the TNFD has made available to participating organisations is the LEAP approach. The LEAP approach involves a roadmap to list interactions with nature. The following steps are distinguished:
Locate: identify interfaces with nature;
Evaluate: determine impact on and dependencies on nature;
Assess: estimate nature-related risks and opportunities;
Prepare: prepare, respond and report on material nature-related issues.
Below are the results of the LEAP assessment conducted, outlining the main impacts, dependencies, opportunities and risks in relation to nature.
Impact and dependencies
P&C
In the P&C value chain, almost 16,5% of the insured companies are within a 1-km radius of one or more Natura 2000 sites. These companies have been selected as priority sites in terms of potential interaction with nature loss due to their proximity to a protected nature conservation area. Insured companies outside this 1-km radius are not considered to be a priority due to the relatively low impact on nature conservation areas. a.s.r. identified that about 3% of the companies who are insured by P&C have a (potential) material impact on or dependency of a biodiversity service of the nearby Natura 2000 site. This was done by using the ‘biodiversity impact ranking of company industries’ developed by the Finance for Biodiversity Foundation the Encore database and the analyses of the Wageningen University & Research (WUR).
Transition-related nature risks are especially foreseen in the medium term, as customers with a high impact on a nearby Natura 2000 site, under the influence of (government) measures to protect the ecosystem services of the nature site, will have to pay more to be able to produce, or have to significantly adjust their production process or relocate their business. This may lead to higher costs with possible loss of sales and, in the longer term, possibly even business closure. For a.s.r., this means a possible change in risks or loss of premium income.
a.s.r. foresees physical nature risks, especially in the medium term, as customers who are highly dependent of a service from a nearby Natura 2000 site suffer damage to buildings or face loss of sales and, in the long run, possibly even business closure because the Natura 2000 site can no longer offer the service (properly). For a.s.r., this means a possible increase in claims and/or loss of premium income.
Asset Management
a.s.r. has worked on a methodology to approach the impact of the investment portfolio on biodiversity loss, using data currently available. The methodology entails a biodiversity score, consisting of a key issues and sensitive areas assessments using MSCI ESG data. To take into account the local aspects of measuring impact on biodiversity, a.s.r. incorporated location specific information on operations of the companies assessed. The analysis provides an overall biodiversity score that ranges between 0-10, with 10 being the score with the lowest negative impact. The coverage of the analysis is 99% of a.s.r.'s listed equities and 96% for a.s.r.'s listed corporate bonds.
The understanding of the drivers behind biodiversity loss is crucial for comprehending impact and formulating effective mitigation strategies. The main driver of biodiversity loss within the a.s.r. investment portfolios are:
Changes in land and sea use;
Overexploitation of organisms;
Climate change;
Pollution;
Invasive alien species.
Besides impact, a.s.r. also has dependencies on nature. In order to gauge dependencies, industries with high or medium levels of dependency on nature have been identified using multiple research sources, including the ENCORE, UNEP-WCMC and WWF. Further analysis revealed that, 4.1% of the corporate bond portfolio and 6.4% of the equity portfolio had exposure to high-dependency companies, and 9.3% of the bond portfolio and 13.1% of the equity portfolio had exposure to medium dependency. The rest of the portfolio can be classified as companies with low dependency on biodiversity.
Real Estate
Interaction and impact with nature is related to buying property and exercising ownership of property in various locations across the Netherlands. a.s.r.’s agricultural land portfolio is located in rural areas, with around 17% of the portfolio located within a 1 km radius of Natura 2000 sites. Existing real estate also has an impact on nature. On the one hand, this can be a negative impact through pollution of light, for example, but also a positive impact by facilitating nesting opportunities or applying various indigenous vegetation on and around buildings. Around 11% of the properties managed by a.s.r. are located within 1 km of a Natura 2000 site.
a.s.r.’s activities also interact with nature through the impact that can be made within the value chain. Upstream, particularly in the construction of new properties and solar and wind farms. New construction sites may be taking away wildlife habitat, but a positive impact can also be made by using bio-based materials. This has a positive impact on nature as bio-based materials can store CO2 and reduce nitrogen emissions, among other things. Downstream, a.s.r. real estate particularly impacts the use of agricultural land that is leased. Farmers using a.s.r. agricultural land, for example, are encouraged to manage the land sustainably, resulting in a positive impact on climate and nature.
The agricultural sector in particular depends on ecosystem services. The main ecosystem services of nature for the real estate sector are rainwater discharge, nature’s self-purification capacity of air and water, flood and storm protection, use of fibre and other materials, climate regulation, use of surface water and groundwater, mass stabilisation, and erosion control.
Risk management
Risk management is an integral part of a.s.r.’s day to day business operations. Biodiversity loss is one of a.s.r.’s risk priorities in 2023. Both centrally and at divisional level at the business lines, this is a focal point and as such is embedded in the risk management cycle and risk management framework. Work is in progress on formulating key risk indicators and setting up key controls relating to biodiversity risk.
P&C
Nature risks such as an increase in the cost of claims due to physical risks caused by nature loss are included in the strategic risk analysis (SRA). Measures have been identified to mitigate the risks. These measures are regularly monitored for progress and effectiveness.
To manage risks, P&C analyses medium-term risks related to loss of nature for a.s.r.'s insurance products. P&C takes measures such as concluding short-term contracts, spreading customers across different business sectors, reinsuring the largest risks and adjusting the underwriting policy. To seize opportunities, P&C is constantly looking for possible expansions of and within a.s.r.'s product range. Through the ‘sustainable housing’ and ‘sustainable business’ platforms, a.s.r. support customers with information. Also a.s.r. collaborates within the programme of Naturalis’ research programme Kennis Natuurlijk! (knowledge naturally!) on how to further increase biodiversity.
Asset Management
Biodiversity loss can impact businesses in different forms of risks - physical, systemic and transition risks - which all have the potential to affect investment value across the short, medium and long term.
The loss of ecosystem services can lead to production disruptions for companies that are highly dependent on these services, which constitutes a credit and investment risk. This may lead to business default or decreased investment results, causing credit and investment risks for financial institutions. a.s.r. can also be confronted with a decline in the market value of the investment portfolios if crossing the tipping point of biodiversity leads to large-scale failure of ecosystem services. Furthermore, new and stricter nature related regulations are expected to be introduced, possibly resulting in stranded assets and decreased investment results. This can be considered a regulatory risk. Finally, there is reputational risk both for investee companies, and for a.s.r. itself. In terms of reputational risk for the investee companies, negative impact on biodiversity may pose negative press and attention, leading to decreased company results. Reputational risk for a.s.r. may consist of brand damage or a loss of clients; clients can choose to opt for another insurer/pension provider/asset manager.
Risk mitigation measures include the combination of top-down and bottom-up approaches: risk diversification by a spread across geography and asset classes through the Strategic Asset Allocation, and securities selection with a tilt towards companies scoring higher on ESG.
a.s.r. integrates several biodiversity-related criteria into its screening of companies. The outcome of this screening can be used in selection of companies. Companies that score higher than industry peers on ESG are given preference, which means a.s.r. invests more in these companies. For market risk, a.s.r. uses bottom-up securities selection as described above; risk diversification by a spread across geography and asset classes through the Strategic Asset Allocation, and securities selection with a tilt towards companies scoring higher on ESG. A bottom-up approach is also used for transition risks such as regulatory risk and legal liability risk. Companies with serious controversies over biodiversity loss are excluded through a.s.r.’s controversial conduct exclusion policy. For reputational risk of investee companies, risk is mitigated through securities selection and active ownership. The reputational risk of a.s.r. itself is mitigated by communicating about actions and progress on commitments and the development of targets.
Real Estate
Nature-related risks for a.s.r. stem from the dependency and impact on nature. These risks are strongly related to climate risks, as climate change is one of the five main drivers of biodiversity loss. As described earlier, there is a strong correlation between physical nature-related risks and physical climate risks. To understand the potential impact of physical climate risks and implement adaptation solutions where necessary, a.s.r. has conducted a Climate Risk Assessment for all real estate funds. For the funds ‘Rural’ and ‘Renewables’, this analysis will be completed in 2024.
For the agricultural land portfolio, a.s.r. works together with the agricultural sector on sustainable soil management and increasing biodiversity. Policies and activities being developed for these purposes can be read in the Climate and Biodiversity Report. Furthermore, a.s.r. actively supports new sustainable initiatives by making agricultural land available for the development of initiatives such as alternative (bio-based) crops, new farming techniques or alternative revenue streams for farmers. a.s.r. will directly invest in ‘landscape elements’ on the farmlands in the portfolio. a.s.r. plans to launch 10 projects in 2024 and increase the number of projects to 20 in 2026.
Nature-related risks and opportunities are part of the ESG policies of the Funds managed by a.s.r. Reporting on the progress of these objectives takes place periodically, for example in the quarterly Fund reports and the ESG Annual Report. In addition, nature-related risks are part of the impact, risks and opportunities assessment that is carried out to prepare for CSRD reporting over 2024.
Metrics and targets
In 2020, by signing the Finance for Biodiversity Pledge, a.s.r. is committed to providing insight into its own impact on biodiversity by 2024 and to set concrete targets for this relating to its investments. With the results of the LEAP assessment at the end of 2023, further work will be done in 2024 to set metrics and targets.