Mapping biodiversity risk metrics in finance: A comparative analysis of MSCI and LSEG using the ENCORE framework

Biodiversity loss, caused by factors such as habitat destruction, pollution, climate change, overexploitation, and invasive species, poses significant risks to ecosystems, businesses, and economies. This research paper examines the interaction between biodiversity risks and the integration of these risks into financial decision making through the availability of biodiversity metrics. The biodiversity metrics available through MSCI and LSEG were mapped against the ENCORE (Exploring Natural Capital Opportunities, Risks, and Exposure) impact factors to understand what risks and opportunities can be measured and used for decision-making. The findings reveal gaps in biodiversity coverage, particularly when looking at the environmental factors of non-GHG air pollutants, soil pollutants, and water pollutants. The analysis was done using the MSCI ACWI index (Morgan Stanley Capital International All Country World Index) dataset, comprising of more than 2800 international companies. The results showed that ENCORE environmental factors significant to industries had 35% coverage in MSCI, and 24% in LSEG. Furthermore, the variation in data coverage between the two sources identifies an opportunity to expand our understanding of environmental issues by using complementary data to analyze one factor such as freshwater ecosystem and GHG emissions. This research sheds light on the current gaps between the measurement of biodiversity issues and business reporting.