AP2’s biodiversity plan describes how the Fund will contribute to a positive net development for nature by 2030 and, how the Fund works towards the 2025 goal of an investment portfolio that does not contribute to deforestation.

Goals

AP2 will contribute to net positive development for nature by 2030 at the latest

AP2 has defined the above as a long-term goal for its work on biodiversity. This goal is in line with the global commitment that is required, combined with reduced emissions, to preserve critical ecosystems.

There is still no consensus on what the concept of nature positive means, and work is underway to come up with a definition. AP2 has nevertheless chosen to use nature positive as an overall vision, where nature, with biodiversity, ecosystems and natural capital, develops in a positive direction and where AP2 contributes to this development. When there is a common definition of nature positive, the Fund will revise the objective in the light of this.

AP2 has also set a more specific overall goal with focus on deforestation, which is a key driver of biodiversity loss:

By 2025, AP2 shall have a portfolio that does not contribute to deforestation

This goal is in line with the commitment to a a portfolio free from commodity-driven deforestation, made by AP2 in connection with COP26, and with the Fund’s climate commitment to net zero greenhouse gas emissions by 2045.

Analysis and materiality

Given the scope and complexity of the area of biodiversity, it is necessary for AP2 to prioritise its work. The Fund’s priorities are based on a materiality assessment, applying the principle of double materiality, where the Fund’s investments are analysed both for their dependence on and their impact on nature.

The 2019 report from IPBES, summarising the state of research in the field of biodiversity, identifies the five main direct drivers of biodiversity loss:

  • Land use
  • Exploitation of species
  • Climate change
  • Invasive species
  • Pollution

AP2 has based its materiality assessment on these drivers, in order to understand how the Fund is exposed to them through its holdings. The analysis was based on the database ENCORE, developed by the Natural Capital Finance Alliance and the UN environmental program UNEP-WCMC. Through this analysis, which is described in more detail in the Fund’s Climate and Nature Report 2023, the Fund has identified land use as the cause of biodiversity loss most relevant to AP2. According to the IPBES report, land use is the biggest driving force of lost biodiversity and AP2 has holdings that potentially have a large negative impact. Within land use, AP2 has chosen to focus its work on deforestation, an issue that is also highly relevant to AP2’s focus areas climate and human rights.

Analysis of the portfolio’s deforestation risk

AP2 has committed to having a portfolio that does not contribute to commodity driven deforestation by 2025 and is continuously working towards living up to this commitment. An important step in this work is to identify the assets in the Fund’s portfolio where there is a high risk of deforestation. As a starting point, the Fund’s various asset classes have been analysed and asset classes where deforestation has high relevance have been identified: listed equities and corporate loans, timberland and farmland.

AP2 has collaborated with the German think tank Climate & Company to develop a model for analysing deforestation risks in listed portfolios. Through this model, the Fund can analyse its entire listed portfolio and identify the companies that have the greatest risk of having a negative impact on deforestation in their operations, both directly and through their value chains. The model has been published in a report in collaboration with Global Canopy, which includes a description of AP2’s work with the model. The model is available as open source on GitHub.

Through this model, AP2 has identified around 50 companies with a very high risk of negative impact on deforestation. A deeper analysis is then made of the identified companies, to (i) better understand their exposure, and (ii) assess their management of deforestation risk. The companies that have a very high risk, and where the management is judged to be insufficient or where more information is needed to make the assessment, are in focus of the Fund’s engagement work (see below).

Integration

AP2’s process for due diligence within listed holdings entails an annual screening of the listed portfolio, using the model described above, in order to identify companies with a very high risk of deforestation and to carry out engagement work with them. If, after attempts at dialogue, a company is judged to be disinclined to work towards deforestation-free operation, the Fund can decide not to invest in the company.

Within AP2’s farmland and timberland investments, the work to promote biodiversity has been ongoing for many years and is an integral part of the dialogue with the external managers through which these investments are made. AP2’s managers apply well-established and scientifically designed forest management and agricultural systems to minimise negative impact. The Fund’s forest managers must be certified according to international standards, which requires sustainable management of entire ecosystems and zero tolerance for deforestation. AP2 has participated in and developed guidelines for responsible investments in agriculture, which are adhered to by the Fund’s managers for agricultural properties. The Fund has also adopted a special policy with zero tolerance for deforestation for agricultural investments in Brazil, according to which a detailed strategy is required to ensure zero deforestation, by adapting to the original natural vegetation and increased reforestation. AP2’s manager in Brazil uses satellite-based mapping technology, in some cases combined with biomass data, to follow up compliance.

Within private equity and unlisted credits, deforestation risk assessment is included in the due diligence made before an investment, and also in the annual evaluation of external managers. In the last review of AP2’s portfolio of investment in private equity, only four percent of the companies in the portfolio were estimated to have an exposure to deforestation risk.

Engagement

Dialogues

AP2’s engagement with listed portfolio companies is based on the deforestation risk assessment described above. Companies identified with very high deforestation risk, and where the in-depth analysis shows an insufficient or unclearly communicated management of the risk, are targeted in the Fund’s engagement, with the goal that dialogues should be conducted with all of these companies by the end of 2025.

AP2’s expectations of the portfolio companies are described here and in the Fund’s policy against deforestation and land use, and the dialogues are followed up against these. The dialogues are often held in collaboration with other investors.

Voting

AP2 also uses its voice to mark its dissatisfaction with certain companies’ handling of risks for deforestation and thus related risks to human rights.

Companies with particularly high exposure to deforestation and insufficient commitments, policies and processes to manage the risks are identified through external evaluations. AP2 indicates its dissatisfaction through its voting against companies with a score of up to 20 percent according to Forest 500 (scale 1-100 per cent) or up to 20 according to Fairr’s index for protein producers (1-100). Companies where a constructive dialogue is in progress are exempted. Before the voting takes place, the companies concerned are contacted and informed. In some cases, a dialogue can be initiated as a consequence of this information and the company is then exempted.

Collaboration

AP2 is active within several investor collaborations addressing biodiversity and deforestation.

Finance Sector Deforestation Action (FSDA) is a dialogue collaboration between investors who have undertaken to have a portfolio free from commodity-driven deforestation by 2025. Within this collaboration, dialogues are held with companies with high deforestation risk. Since 2023, AP2 has actively participated in this dialogue work, with a leading role in several dialogues.

AP2 is a member of the Finance for Biodiversity Foundation, which brings together investors around five commitments and contributes to process development in the area.

Nature Action 100 is an investor collaboration for dialogue with 100 companies with a major negative impact on biodiversity. AP2 has a leading role in two of the initiative’s dialogues.

PRI Spring is a collaboration in biodiversity that focuses on deforestation and the need for strong support in public policy. The project looks specifically companies with high exposure to deforestation and their role in encouraging thorough, effective policymaking, in line with long-term investor expectations.

AP2 participates in the Brazil working group within the framework of investor cooperation Investor Policy Dialogue on Deforestation (IPDD), which works to create a dialogue about deforestation with politicians and decision makers in key countries.

One challenge in the work on biodiversity is to find suitable metrics, measure progress and to integrate impacts on ecosystems into financial decision making. AP2 is therefore a partner for the research project BioPath, which is funded by Mistra (the Foundation for Strategic Environmental Research). BioPath, together with its partners, will survey, evaluate and develop existing and new approaches for how biodiversity can be integrated into financial decision making.

Transparency

AP2 reports according to the Taskforce on Nature-related Financial Disclosures (TNFD), in a combined report for climate and nature. The Fund has participated in the focus group in the development of this framework.