Biodiversity

AP2 has defined this as a long-term target for its biodiversity work. The target is aligned with the global commitment required, in combination with reduced emissions, to preserve critical ecosystems.

There is not yet a consensus on the definition of “nature positive”, and work is ongoing to establish a common definition. AP2 has nonetheless chosen to use the concept as an overarching objective, whereby nature including biodiversity, ecosystems and natural capital develops in a positive direction and where AP2 contributes to this development. Once organisations working on the definition of nature positive reach a common understanding, the Fund will review its target accordingly.

The Fund has also established a more specific overarching target focusing on deforestation, which is a key driver of biodiversity loss.

Priorities based on double materiality

Given the scale and complexity of biodiversity, AP2 needs to make clear prioritisations in its work. This is done through a risk-based approach applying the principle of double materiality, considering both the assets’ dependencies on nature and impact on it.

The 2019 IPBES report, which sets out the state of research on biodiversity, identifies five main direct drivers of biodiversity loss:

• Changes in land and sea use
• Direct exploitation of organisms
• Climate change
• Invasive alien species
• Pollution

AP2 has used these drivers as a basis for its risk analysis to understand how the Fund is exposed to them through its holdings. The analysis is based on the ENCORE database, developed by the Natural Capital Finance Alliance and UNEP-WCMC. Through this analysis, described in more detail in the Fund’s Sustainability Report, AP2 has identified land-use change as the most relevant driver of biodiversity loss for the Fund. According to IPBES, land-use change is the main driver globally, and AP2 has holdings that may have significant negative impacts. Within this area, AP2 has chosen to focus on deforestation, which is also highly relevant to the Fund’s focus areas of climate and human rights.

Analysis of the portfolio’s deforestation risk

AP2 has committed to having processes in place from 2025 to identify and act on deforestation risks in its portfolio, with the aim of ensuring that the portfolio does not contribute to deforestation. A key step is to identify assets in the portfolio with a high deforestation risk. Initially, the Fund analysed all its asset classes and identified those in which deforestation is particularly relevant: listed equities and corporate bonds, as well as forestry and agricultural real estate.

AP2 has collaborated with the German think tank Climate & Company to develop a model for analysing deforestation risks in listed portfolios. This model enables the Fund to analyse its entire listed portfolio and identify companies with the highest risk of negatively impacting deforestation, both directly and through their value chains. The model has been published in a report in collaboration with Global Canopy and is also available as open-source on GitHub.

Using this model, AP2 has identified approximately 50 companies with a very high risk of negative impact on deforestation. These companies are then subject to in-depth analysis to: (i) better understand their exposure, and (ii) assess how they manage deforestation risk. Companies assessed as having very high risk and insufficient processes for managing, or where more information is required, become the focus of the Fund’s engagement efforts.

Integration

The Fund’s due diligence process for listed holdings involves an annual screening of the listed portfolio using the model described above. The purpose is to identify companies with very high deforestation risk and to engage with them. If a company, following engagement, is assessed as unwilling to move towards deforestation-free operations, the Fund may decide not to invest in the company.

Within AP2’s investments in forestry and agricultural real estate, promoting biodiversity has been ongoing for many years and is an integral part of the dialogue with external managers. AP2’s managers apply well-established, science-based forestry and agricultural systems to minimise adverse impacts. Forestry managers must be certified according to international standards, which require whole-ecosystem management and zero tolerance for deforestation. AP2 has also contributed to the development of guidelines for responsible investment in farmland, for which its managers are expected to comply.

In addition, the Fund has adopted a specific policy with zero tolerance for deforestation for its Brazilian agricultural investments. This policy requires an enhanced strategy to combat deforestation, including consideration of original natural vegetation and increased reforestation. AP2’s managers in Brazil use satellite-based monitoring, in some cases combined with biomass measurement data, to verify compliance.

For private equity and unlisted credit investments, deforestation is included in the due diligence process prior to investment and in the annual evaluation of external managers. In the most recent portfolio review, only around 4 per cent of the companies in AP2’s private equity portfolio were assessed as having exposure to deforestation risk.

Engagement

The Fund’s engagement with listed portfolio companies is based on the process described above. Companies identified as having very high deforestation risk and insufficient or unclear risk management are included in the Fund’s engagement activities, with the aim of engaging with all such companies by the end of 2025.

AP2’s expectations of portfolio companies are outlined here and in the Policy against deforestation and land conversion. Engagement activities are monitored against these expectations and are largely conducted in collaboration with other investors.

Investor partnerships

AP2 participates in several investor collaborations related to biodiversity and deforestation. AP2 is a member of the Finance for Biodiversity Foundation, which brings together investors around five commitments and contributes to the development of processes in this area. The IIGCC Deforestation Investor Group is an investor platform supporting investors in addressing financial risks linked to deforestation, including engagement where AP2 leads several dialogues.

Nature Action 100 is an investor initiative engaging with 100 companies with significant negative impacts on biodiversity. AP2 plays a leading role in one of the initiative’s engagements. PRI Spring is a collaborative initiative focusing on biodiversity, particularly deforestation, and the need for strong regulatory frameworks. The project analyses how companies with high exposure to deforestation respond to regulation and works on engagement and policy influence.

AP2 also participates in the Brazil working group within the Investor Policy Dialogue on Deforestation (IPDD), which seeks to foster dialogue on deforestation with policymakers in key countries. One of the challenges in biodiversity work is identifying appropriate metrics, measuring progress and integrating ecosystem impacts into financial decision-making. AP2 is therefore a partner in the BIOPATH research programme, funded by Mistra (an independent foundation and research funder), which aims to map, evaluate and develop approaches for integrating biodiversity into financial decision-making.

Expectations of portfolio companies

AP2 expects the companies in which it invests to take responsibility for operations and supply chains that are free from deforestation and conversion of natural ecosystems, and from associated human rights violations. This includes:

Reporting in line with TNFD

AP2 reports in line with the Taskforce on Nature-related Financial Disclosures (TNFD) in its Sustainability Report. The Fund participated in the development of the framework. An index showing where the various indicators are reported is available here.