January 2022 – The University of Cambridge Institute for Sustainability Leadership (CISL) in collaboration with Robeco has published the first nature-related financial risk use case, showcasing how the vulnerability of degraded soil extreme weather can deliver a blow to asset value.
Soil degradation is a highly material risk along value chains.
In collaboration with CISL, Robeco quantified the financial risk of land degradation to the agricultural value chain, quantifying valuation impact.
Following an extreme weather event those along the value chain connected to degrading land saw a materially negative impact on valuation:
- Farmers operating predominantly on degrading land saw their market value decline by 13 per cent
- Whilst those on healthy soils saw it increase by 6%
- Smaller packaged food companies that source from areas of degrading land saw a negative impact on valuation as high as 45 per cent.
- The smaller and less diversified a company, and the more connected to degrading land, the worse the valuation impact.
Download the use case
The analysis showcased the financial materiality of land degradation, underscoring the need for investors to incorporate factors like soil health into investment decisions. It also highlighted the need to actively engage with companies in the agribusiness sector to guide them to tackle nature-related risks in their business strategies.
Dr. Nina Seega, Research Director, Centre for Sustainable Finance, CISL said:“By assessing nature-related financial risks we move toward a financial system that accounts for nature and helps prevent catastrophic nature loss. Use cases assessing these nature-related risks are being conducted today by financial institutions with CISL, showcasing that the data and tools are already available to factor nature into lending and investment decisions.” Carola van Lamoen, Head of Sustainable Investing, Robeco:“Integrating nature-related risks in our investment decisions is an important part of our biodiversity roadmap. The case study we did with CISL will help us in our journey towards translating nature risk into valuations. We hope and trust the study supports further development of frameworks, such as those of the Taskforce Nature Financial Disclosures (TNFD), to integrate biodiversity in financial decision-making.” |
Citing this Use Case
Please refer to this report as: University of Cambridge Institute for Sustainability Leadership (CISL) and Robeco, 2022. How soil degradation amplifies the financial vulnerability of listed companies in the agricultural value chain.
Authors
The authors of the report were Daniela da Costa-Bulthuis and Stephen Verheul, both senior financial professionals at Robeco Asset Management, in close collaboration with Grant Rudgley at CISL. Andrew Voysey, Dr Nina Seega and Lucy Auden provided additional input and guidance on behalf of CISL.
