Figure 14: Top 1000 FactSet companies by number of sites

APPENDIX GUIDANCE B: OVERVIEW OF IO MODELS

As outlined in our methodology, input-output (IO) models provide a pragmatic and frequently used workaround. This raises the question of which IO model should be used. At least one comparative study has been performed between different state-of-the-art IO models, which found that the carbon footprint for most major economies disagree by less than 10 per cent between the most used MRIOs. A detailed discussion on inherent IO model assumptions and limitations is beyond the scope of this paper, but we refer the interested reader to any standard text on the issue.40

Furthermore, Table 15 provides a non-exhaustive overview of existing IO models. The decision which IO model to use should depend on the following parameters:

• Available time series data: to incorporate relatively up-to-date data into the analysis, the data should not be outdated; • Coverage of countries and regions: some IO models group countries into different blocks, for example

‘Rest of the World’, which limits usability; • Industry sector classification used, as the industry classification has to be mapped to industry materiality ratings that might be linked to another industry sector taxonomy. For example, if a user wants to merge EXIOBASE with ENCORE, they first have to map the EXIOBASE industry classification to

ENCORE’s taxonomy of production processes.

Practical considerations on applying IO models

In practice, the user receives a large Nsector x Ncountries matrix from the IO table per country-sector pair, which is mapped to Nrisk indicators (using the BRF industry materiality, for example). Practically, this computation takes a long time when done for a large number of firms on the fly. However, since there is a limited total number of permutations, subject to the number of distinct country-sector pairs of the financial portfolio, the user can pre-compute the upstream risk score for each specific (sector, region) pair to each biodiversity importance or integrity indicator (see Table 8 for the full list of indicators). When doing a computation for any particular company, the user then simply has to compute a weighted average over the relevant (sector, region, biodiversity indicator) triplets.

40 See, for example, Miernyk, (W.H, 1965). The Elements of Input-Output Analysis. Reprint. Edited by Randall Jackson. WVU Research Repository, 2020, for a good introductory text. Also the (Value Balancing Alliance, 2021), contains an excellent introduction including basic descriptions as well as a comprehensive overview.