ESG Data Guide 2023

Iceberg aims to surface hidden ESG data challenges

Matthieu Maurin, co-founder of Iceberg Data Lab, argues that ESG investors overlook biodiversity transition risk at their peril.

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Environmental Finance: What is the underlying philosophy that informs Iceberg Data Lab’s approach to ESG data?

Matthieu MaurinMatthieu Maurin: Our underlying philosophy is to provide data solutions that enable financial institutions to integrate ESG in their decision-making processes, driving investment and credit decisions that allocate capital flows to more sustainable companies. Because this integration has practical consequences – dictating which companies are investable or not investable – the data must be based on science. It can’t be a black box, with some criteria that may be debatable. It also has to be granular enough to enable the development of new sustainable product offerings, certification, and so on.

At Iceberg, we combine a tech team, which is working with the ocean of ESG data available, and a team of environmental experts which is constantly checking the state of the applicable science. The combination of these two skillsets is rather unique in the market. Meanwhile, a majority of the funders and senior management team come from the other end of the table; they were bankers, investors, etc., and we therefore understand the market’s needs and develop the tools they would have liked to have had.

What we set out to do was build something that is granular enough to send a consistent signal and then integrate that ESG data into a scalable platform. That means our clients don’t have to choose between coverage and accuracy.

EF: What added value is there for an ESG analyst to add biodiversity data to their analysis of climate risk?

MM: In a complex environment, you have to focus on the most material factors. Therefore, you might consider that, if you already consider climate, should you add biodiversity? Will it provide additional insight? That was the first question we asked when we developed a biodiversity offer, and the answer is ‘yes’.

The sectors that have the most material impact on biodiversity – food, chemicals and metals and mining – are not the most impactful sectors when it comes to climate. If you’re only looking only at climate, you would be blindsided. Conversely, if you focused on food, chemicals and metals and mining, the pace of the decarbonisation of your portfolio would not be fast enough to comply with the Paris Agreement. You have to do both in parallel and be extremely careful to avoid implementing a strategy that might be climate friendly, but adverse to nature, or vice versa.

EF: In biodiversity, how might companies translate the outcomes of last year’s COP15 into actionable biodiversity metrics?

MM: COP15 has set out some overriding principles that will drive the integration of biodiversity metrics in the decision-making process. For example, Target 15 will encourage companies to report on their impacts; that will start processes to address the most material ones.

We expect to see very stringent regulations being introduced to tackle biodiversity loss. Within the Global Biodiversity Framework, the target to conserve 30% of land by 2030 will begin to address the destruction of habitat. We think that Target 7, to reduce toxic pollutants spread by excessive fertilisers and pesticides, will result in exclusion policies similar to those in climate, that exclude coal and fossil fuels.

We believe the biodiversity agenda would likely target what we name the ‘three Ps’ – pesticides, plastics and palm oil (the latter being the most meaningful driver of deforestation).

EF: The range of ESG indicators that Iceberg tracks extends now to ‘Scope 4’. Can you explain what that captures?

MM: ‘Scope 4’ includes positive impact indicators. When we calculate carbon or biodiversity footprints, we look at the damage done by the company. However, there are companies which consume resources and generate pollution but also on other hand, offer products or services that are more sustainable than the market standard and therefore contribute to reducing pressure on natural systems: a manufacturer of paper straws, for example.

As a responsible investor, if you only look at the negative impacts, you might overlook companies that ultimately contribute to reducing impacts through their value chain and therefore will be favoured by regulation and create value. However, this approach is very sensitive, because it can pave the way for greenwashing. You have to be very robust in your approach. That is why we developed a rigorous approach and found positive impact indicators for only around 20% of companies within our research universe.

EF: What ESG data gaps do you see, from your customers’ point of view?

MM: Biodiversity is still very much a new thematic and we are pleased to have developed some experience in this area, and can document impacts, dependencies and positive impact. Where there is still work to do is to express that impact and dependency from a financial standpoint.

A second frontier theme: it relates to incorporating social factors into the transition. So, a company might enable the low-carbon transition, but does it provide value-added job creation or retention? Does it mitigate transition risk from a social standpoint? Integration of social factors as a part of a response to risks created by new sustainable economic models is an important theme to work on.