Schroders’ first TNFD report finds 10% of AUM responsible for most nature risks

Asset manager Schroders says 10% of its assets under management are responsible for most of the nature-related risks to its £778.7 billion portfolio in its inaugural TNFD report.

The companies making up this 10% are typically in the materials, energy and utilities sectors – where Schroders has identified most of its nature risks, including climate change, invasive species, pollution, resource use, land use, sea use, and freshwater use change.

Materials is the most exposed sector: using its proprietary NatCapEx methodology, the investment manager estimates that public companies in this sector could face a loss of around US$0.28 per US$100 of revenue due to nature impacts.

Through the same model, Schroders has determined that utilities’ exposure stands at around US$0.21 per US$100 of revenue, and energy at around US$0.19.

Andy Howard, Global Head of Sustainable Investment at Schroders, said: “As a proudly active asset manager, we are leading by example through proactively disclosing our nature-related risks and opportunities, as well as developing our new proprietary tool, NatCapEx, to help fill the nature data gap.

“We also hope this voluntary disclosure in line with TNFD will help galvanise broader progress in corporate and investment disclosures. We will continue to engage with companies to encourage them to publish their own nature-related disclosures and shed light on this increasingly important risk and opportunity.”

Carbon emissions and land use as top nature-related risks

Through its analysis of nature-related risks, aligned with the framework developed by the Taskforce on Nature-related Financial Disclosures (TNFD), Schroders has identified that the greatest risks to its public asset portfolio come from carbon emissions, followed by land use and water use. 

These could respectively cause losses of US$0.23, US$0.15 and US$0.15 per US$100 of revenue. Combined with other nature impacts, the firm estimates that 35% of its assets are vulnerable to nature-related transition and physical risks, and 44% are exposed to sensitive locations such as those with high water stress.

To manage these risks, the investor engages companies around their nature impacts and uses its voting rights to spur action. “Our active ownership efforts seek to encourage companies to align their business models with the transition to a nature positive economy when exposed to material nature-related risks,” Schroders says in the report.

It then monitors and measures the impact of this engagement using a proprietary application.