MSCI ESG Ratings Methodology - Biodiversity & Land Use Key Issue

Methodology Document
MSCI ESG Research LLC
MSCI ESG Ratings

Methodology:
Biodiversity & Land
Use Key Issue
MSCI ESG Research LLC
October 2023
OCTOBER 2023
MSCI ESG Ratings Methodology: Biodiversity & Land Use Key Issue | October 2023
Contents Introduction ................................................................................... 3

Risks associated with this Key Issue ........................................... 4
Biodiversity & Land Use Key Issue Score .................................... 4
Biodiversity & Land Use Management Score .............................. 4
Management Score category: Policies & Disclosure Score .... 5
Management Score category: Programs & Structures Score . 6
Management Score category: Performance Score.................. 6
Controversies ............................................................................. 7
Biodiversity & Land Use Exposure Score ..................................... 7
Business Exposure Score.......................................................... 8
Business Segment Exposure Scores..................................... 9
Geographic Exposure Score ...................................................... 9
Geographic Segment Exposure Scores............................... 10
Data Sources............................................................................ 11
© 2023 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document. MSCI.COM | PAGE 2 OF 13
Introduction
This document provides essential information on the components of the Biodiversity
& Land Use Key Issue to enable users of ESG Ratings to understand how our outputs
are determined. Biodiversity & Land Use is a Key Issue in the Environmental Pillar of
the MSCI ESG Ratings model. Companies are evaluated on the potential impact of
their operations on biodiversity in their areas of operation and their efforts to
manage the environmental impact of their operations.
For additional details on the MSCI ESG Ratings Model, refer to Section 2, Data,
ratings and scores, of “ESG Ratings Methodology.”
Exhibit 1: MSCI ESG Key Issue hierarchy

3 Pillars 10 Themes 33 ESG Key Issues
Carbon Emissions
Climate Change Vulnerability
Climate Change
Financing Environmental Impact
Product Carbon Footprint
Biodiversity & Land Use
Natural Capital Raw Material Sourcing
Environmental Water Stress
Electronic Waste
Pollution & Waste Packaging Material & Waste
Toxic Emissions & Waste
Opportunities in Clean Tech
Environmental Opportunities Opportunities in Green Building
Opportunities in Renewable Energy
Health & Safety
Human Capital Development
Human Capital
Labor Management
Supply Chain Labor Standards
Chemical Safety
Consumer Financial Protection
Product Liability Privacy & Data Security
Social
Product Safety & Quality
Responsible Investment
Community Relations
Stakeholder Opposition
Controversial Sourcing
Access to Finance
Social Opportunities Access to Health Care
Opportunities in Nutrition & Health
Governance Corporate Governance Board
3 Pillars 10 Themes 33 ESG Key Issues

Pay
Ownership & Control
Accounting
Business Ethics
Corporate Behavior
Tax Transparency
Risks associated with this Key Issue

• Loss of formal and social license to operate.
• Litigation by landowners and other affected parties.
• Increased costs of land protection and reclamation.
Biodiversity & Land Use Key Issue Score

The Biodiversity & Land Use Key Issue Score evaluates the company’s level of
exposure to, and management of risks on this Key Issue. The Key Issue Score is
based on the Exposure Score and the Management Score using the formula below.
The Exposure Score and the Management Score are combined such that a higher
level of exposure requires a higher level of demonstrated management capability in
order to achieve the same overall Key Issue Score.
𝐾𝐾𝐾𝐾𝑖𝑖 = 7 − (max (𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖 , 2) − 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖 )
Where:
• 𝐾𝐾𝐾𝐾𝑖𝑖 is the Key Issue Score for company 𝑖𝑖.
• 𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖 is the Exposure Score for company 𝑖𝑖.
• 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖 is the Management Score for company 𝑖𝑖.
Biodiversity & Land Use Management Score

The Biodiversity & Land Use Management Score evaluates the company’s ability to
manage its exposure to risks on this Key Issue. It is based on an average of the
scores associated with each of the Management Score categories listed below,
modified by Controversies. These scores are derived from data points that are
scored on a 0-10 scale, with 10 corresponding to best practice and 0 corresponding
to lack of management. Refer to Section 3.3, Analyzing risk management, of “ESG

Ratings Methodology” for additional details. Sources are company disclosures
except where otherwise indicated. The following formula is used to calculate the
Biodiversity & Land Use Management Score - Excluding Controversies:
𝑃𝑃𝑃𝑃𝑃𝑃𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 + 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 =
3
Where:
• 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 is the Biodiversity & Land Use Management Score - Excluding
Controversies for company 𝑖𝑖.
• 𝑃𝑃𝑃𝑃𝐿𝐿𝐵𝐵𝐵𝐵𝐵𝐵, 𝑖𝑖 is the Policies & Disclosure Score for company 𝑖𝑖.
• 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 is the Programs & Structures Score for company 𝑖𝑖.
• 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 is the Performance Score for company 𝑖𝑖.
The following data points, without constituting an exhaustive list, are representative
of the inputs to the Management Score and are used in the Management Score
calculation:
Management Score category: Policies & Disclosure Score

• Involvement with external stakeholder groups to address the biodiversity
impacts of its operations.
Definition: Indicates whether there are external stakeholder groups that work
with the company to address the biodiversity impacts of its operations.
• Scope of third-party engagement or standard to address the biodiversity

impacts of operations.
Definition: The estimated share of operations with ecosystem protection
programs certified or assured by an external stakeholder group.
• Commitment to minimize disturbances on biodiversity.

Definition: Indicates whether the company has disclosed an explicit
commitment to minimize disturbances on biodiversity, for example following
the mitigation hierarchy of “avoid, minimize, restore and offset.”
• Commitment to reclaim habitat on disturbed land.

Definition: Indicates whether the company has disclosed an explicit policy to
eventually reclaim the habitat of all disturbed land.
• Scope of biodiversity and land reclamation policy.

Definition: The scope of operations covered by the company’s disclosed
biodiversity and land reclamation policy, where applicable (i.e., all operations
including its supply chain, all direct operations, or partial operations).
Management Score category: Programs & Structures Score

• Extent of programs to protect ecosystems.
Definition: Assesses the comprehensiveness of the company’s steps to
protect ecosystems, for example, whether the company creates ecosystem
reserves vs. isolated initiatives to protect single species, and whether such
practices apply to all major sites or only selected operations.
• Conducts biodiversity impact assessments.

Definition: Indicates whether the company conducts biodiversity impact
assessments prior to settling in new areas.
Management Score category: Performance Score

Assesses the company’s performance on quantitative metrics related to
biodiversity & land use. Expressed as a 0-10 score, where 10 indicates the
highest level of performance relative to peers on industry-specific metrics,
including oil spill intensity (volume of oil spilled/million USD sales) and
freshwater usage intensity (volume of freshwater withdrawal/million USD
sales).
Representative performance metrics:
o Oil spill volume/million USD sales relative to industry average.
o Oil spill volume/million USD sales trend.
o Freshwater withdrawal/million USD sales relative to industry average.
o Other industry-specific metrics.
Controversies
A controversy deduction ranging from 0 to 5 points is subtracted from the
Management Score - Excluding Controversies, based on the severity and type of
controversies facing the company on this Key Issue. The result is the Management
Score. The following categories of controversies are used in the assessment:
• Biodiversity & land use controversies.
• Oil spills.
• Toxic releases to water/land controversies.
For more details on how controversies are included in the MSCI ESG Ratings model,
refer to Section 3.3.2, Controversies cases, of “ESG Ratings Methodology.”
Biodiversity & Land Use Exposure Score

The Biodiversity & Land Use Exposure Score evaluates the company’s exposure to
risks on this Key Issue. It is based on the Business and Geographic Exposure Scores.
The Geographic Exposure Score functions as a multiplier on the Business Exposure
Score, with an impact ranging from -50% to +50%. The Business and Geographic
Exposure Scores are scored on a 0-10 scale, with 10 corresponding to the highest
risk and 0 corresponding to the lowest risk. Refer to Section 3.2, Analyzing risk
exposure, of “ESG Ratings Methodology” for additional details. The following formula
is used in the Exposure Score calculation:
𝐸𝐸𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 = 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 (1 + 0.1�𝐺𝐺𝐺𝐺𝐺𝐺𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 − 5�)
Where:
• 𝐸𝐸𝐸𝐸𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 is the Biodiversity & Land Use Exposure Score of company 𝑖𝑖.
• 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 is the Business Exposure Score of company 𝑖𝑖.
• 𝐺𝐺𝐺𝐺𝐺𝐺𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 is the Geographic Exposure Score of company 𝑖𝑖.
Exhibit 2: Exposure Score components
Biodiversity & Land Use

Exposure Score
Business Exposure Geographic Exposure

Score Score
Business Segment Geographic Segment

Exposure Scores Exposure Scores
Biodiversity Business Forest Area Loss,

Impacts, Controversies Threatened Species
Business Exposure Score

The Business Exposure Score is a weighted average of the Segment Exposure
Scores of a company’s business segments. Scores are weighted by the proportion of
a company’s total assets in each business segment, 1 using the following formula to
calculate the Business Exposure Score:
𝑛𝑛𝑖𝑖
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 = � 𝑤𝑤𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴,𝑖𝑖,𝑗𝑗 𝐵𝐵𝑆𝑆𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑗𝑗
𝑗𝑗=1
Where:
• 𝐵𝐵𝑆𝑆𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑗𝑗 is the Business Segment Exposure Score for business segment 𝑗𝑗.
• 𝑤𝑤𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴,𝑖𝑖,𝑗𝑗 is the weight of business segment 𝑗𝑗 for company 𝑖𝑖 based on the

contribution to total company assets.
• 𝑛𝑛𝑖𝑖 is the number of business segments of company 𝑖𝑖.
1The percentage of assets is typically calculated as the company-reported asset value of the segment divided by the total
asset value. In certain cases, industry-specific metrics are used to calculate the percentage of assets, such as power
generation, production volume or reserve value. In cases where neither segment assets nor a relevant industry-specific
proxy is available, the percentage is calculated based on segment revenue.
Business Segment Exposure Scores

The Business Segment Exposure Score of a business segment is based on a
mapping of the business segment as disclosed by the company to a corresponding
business activity. MSCI ESG Research uses the Standard Industrial Classification
(SIC) system along with industry-specific adjustments to define business activities.
The score associated with a business activity is used to calculate a Business
Segment Exposure Score. Each business activity score is determined by a simple
average of the Biodiversity Business Impacts Score and the Controversies Score of
the business activity.
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑗𝑗 + 𝐶𝐶𝐶𝐶𝑗𝑗
𝐵𝐵𝑆𝑆𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑗𝑗 =
2
Where:
• 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑗𝑗 is the Biodiversity Business Impacts Score for business activity 𝑗𝑗.
• 𝐶𝐶𝐶𝐶𝑗𝑗 is the Controversies Score for business activity 𝑗𝑗.
The Biodiversity Business Impacts Score of a business activity is assessed by

examining the business impacts that are present for that activity. Nine business
impacts such as disruption of operations, restricted access to land and resources,
litigation, etc. arising from biodiversity and ecosystem changes are considered. For
each business activity, each impact is presented as a 0 or 1 value, with 1 indicating
that the impact is present. The number of impacts that apply to each activity is
counted and scaled to a factor of 10 to calculate the Biodiversity Business Impacts
Score.
The Controversies Score of a business activity is determined by the percentage of
companies involved in a biodiversity controversy assessed as Moderate to Very
Severe among all the companies with the same primary business activity. 2 Refer to
Section 3.3.2, Controversies cases, of “ESG Ratings Methodology” for details on how
the severity of controversy cases is assessed.
Geographic Exposure Score

The Geographic Exposure Score is a weighted average of the Geographic Segment
Exposure Scores of the countries and regions in which a company operates. Scores
2
The primary business activity of a company is the industry, as defined by the SIC System, that is the largest contributor
to its total assets.
are weighted by the proportion of a company’s total assets in each geographic

segment through the following equation:
𝑛𝑛𝑖𝑖
𝐺𝐺𝐺𝐺𝐺𝐺𝐵𝐵𝐵𝐵𝐵𝐵,𝑖𝑖 = � 𝑤𝑤𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴,𝑖𝑖,𝑟𝑟 𝐺𝐺𝑆𝑆𝑆𝑆𝐵𝐵𝐵𝐵𝐵𝐵,𝑟𝑟
𝑟𝑟=1
Where:
• 𝐺𝐺𝑆𝑆𝑆𝑆𝐵𝐵𝐵𝐵𝐵𝐵,𝑟𝑟 is the Geographic Segment Exposure Score of region 𝑟𝑟.
• 𝑤𝑤𝐴𝐴𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠,𝑖𝑖,𝑟𝑟 is the weight of total assets in region 𝑟𝑟 for company 𝑖𝑖 based on the
contribution to total company assets.
• 𝑛𝑛𝑖𝑖 is the number of geographic segments for company 𝑖𝑖.
For geographic segments disclosed as regions (example: Asia Pacific), a nominal

GDP-weighted country aggregation is used to calculate region-level scores, using the
following equation:
𝑛𝑛𝑟𝑟
𝐺𝐺𝑆𝑆𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑟𝑟 = � 𝑤𝑤𝐺𝐺𝐺𝐺𝐺𝐺,𝑟𝑟,𝑐𝑐 𝐺𝐺𝑆𝑆𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑐𝑐
𝑐𝑐=1
Where:
• 𝐺𝐺𝑆𝑆𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑐𝑐 is the Geographic Segment Exposure Score of country 𝑐𝑐.
• 𝑤𝑤𝐺𝐺𝐺𝐺𝐺𝐺,𝑟𝑟,𝑐𝑐 is the specific weight of country 𝑐𝑐 within region 𝑟𝑟.
Geographic Segment Exposure Scores

The Geographic Segment Exposure Score is determined by a simple average of (1)
average annual forest area loss score, and (2) the number of threatened species
score in the country:
𝐴𝐴𝐴𝐴𝐴𝐴𝑐𝑐 + 𝑁𝑁𝑁𝑁𝑁𝑁𝑐𝑐
𝐺𝐺𝑆𝑆𝐸𝐸𝐵𝐵𝐵𝐵𝐵𝐵,𝑐𝑐 =
2
Where:
• 𝐴𝐴𝐴𝐴𝐴𝐴𝑐𝑐 is the average annual forest area loss score in country 𝑐𝑐. It is calculated
from the 5-year average annual forest area loss (1,000 Ha) per country.
• 𝑁𝑁𝑁𝑁𝑁𝑁𝑐𝑐 is the number of threatened species score in country 𝑐𝑐.
Data Sources
The following sources are used to determine the Biodiversity & Land Use Exposure
Score:
World Resources Institute, “Global Forest Watch;” World Resources Institute; UNDP
Human Development Reports; Refinitiv; MSCI ESG Research; company disclosures.
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MSCI ESG Ratings Methodology - Biodiversity & Land Use Key Issue

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Methodology Document

MSCI ESG Research LLC

MSCI ESG Ratings

Contents Introduction ................................................................................... 3

Exhibit 1: MSCI ESG Key Issue hierarchy

3 Pillars 10 Themes 33 ESG Key Issues

Risks associated with this Key Issue

Biodiversity & Land Use Key Issue Score

Biodiversity & Land Use Management Score

to lack of management. Refer to Section 3.3, Analyzing risk management, of “ESG

Management Score category: Policies & Disclosure Score

• Scope of third-party engagement or standard to address the biodiversity

• Commitment to minimize disturbances on biodiversity.

• Commitment to reclaim habitat on disturbed land.

• Scope of biodiversity and land reclamation policy.

Management Score category: Programs & Structures Score

• Conducts biodiversity impact assessments.

Management Score category: Performance Score

o Other industry-specific metrics.

Biodiversity & Land Use Exposure Score

Exhibit 2: Exposure Score components

Biodiversity & Land Use

Business Exposure Geographic Exposure

Business Segment Geographic Segment

Biodiversity Business Forest Area Loss,

Business Exposure Score

• 𝑤𝑤𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴,𝑖𝑖,𝑗𝑗 is the weight of business segment 𝑗𝑗 for company 𝑖𝑖 based on the

Business Segment Exposure Scores

• 𝐶𝐶𝐶𝐶𝑗𝑗 is the Controversies Score for business activity 𝑗𝑗.

The Biodiversity Business Impacts Score of a business activity is assessed by

Geographic Exposure Score

are weighted by the proportion of a company’s total assets in each geographic

For geographic segments disclosed as regions (example: Asia Pacific), a nominal

Geographic Segment Exposure Scores

• 𝑁𝑁𝑁𝑁𝑁𝑁𝑐𝑐 is the number of threatened species score in country 𝑐𝑐.

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