International asset manager Robeco announced the launch of its new Biodiversity Traffic Light, a new tool aimed at enabling investors to identify corporate leaders and laggards on biodiversity and nature loss performance.

According to a white paper released by Robeco alongside the launch of the Biodiversity Traffic Light, the launch of the new tool follows conversations with asset owners over the past year, revealing that investors understand that nature loss represents systemic risks for investment portfolios, but face key challenges including measuring and monitoring these risks in their portfolios, and determining how to invest accordingly beyond asset classes such as farming and forestry.

The firm added that recent developments have enabled it to develop the new tool, including the release last year by the Taskforce for Nature-Related Financial Disclosures (TNFD) of detailed sector guides defining the key impacts and metrics by industry group, followed by the release by data providers of improved datasets, often developed in collaboration with nature organizations.

According to Robeco, the new tool is a forward-looking metric to assess issuers, based on both their current nature performance and future plans, and assessing companies’ contributions to nature loss, their mitigation efforts, and their plans to transition toward a more nature-positive business model.

Robeco added that the new tool utilizes a sector-by-sector approach in its assessments, focusing on the drivers of nature loss that are most material to a given industry. The model used by the traffic light tool uses data points that are mapped against the key impacts and core metrics defined by the TNFD for that industry.

To assess current performance, companies are evaluated on KPIs capturing their material impacts on nature on aspects such as water consumption, non-greenhouse gas air pollution, and hazardous waste generation, as well as business metrics such as revenues from specific risk areas and sourcing of renewable materials. For future performance, companies are assesses on governance aspects such as board oversight and disclosure, as well as specific and time-bound targets and commitments.

The tool places companies into one of four categories, including aligned, aligning, partially aligning and misaligned, with alignment indicating that the company is performing well relative to its sector peers from a nature impact perspective, and that it is contributing to halting and reversing nature loss.

Robeco highlighted potential applications for the new tool, including enabling investors to perform positive or negative screening, adjusting portfolio weights toward companies with better biodiversity practices and away from those with poorer practices, and to assist with company engagement.

In the white paper, Robeco said:

“Robeco’s Biodiversity Traffic Light provides a framework for assessing how well companies are progressing on this transition. By identifying leaders and laggards, the tool can help investors allocate capital toward companies that are making meaningful progress in mitigating their impacts on nature.”