LONDON (Reuters) - Norway's sovereign wealth fund plans to back a shareholder proposal demanding PepsiCo ( PEP ) conduct a biodiversity risk assessment to gauge how vulnerable the soft drink and snacks giant's operations are to biodiversity loss.

The decision by PepsiCo's ( PEP ) seventh-largest shareholder adds to signs that biodiversity-related risks to businesses are rising up the agenda for investors.

It also challenges the PepsiCo ( PEP ) board's recommendation to shareholders that they reject the proposal at the annual general meeting on Wednesday.

"The board should account for material sustainability risks facing the company, and the broader environmental and social consequences of its operations and products," the fund, which pools revenues from the Norwegian state's oil and gas production, said ahead of the meeting.

PepsiCo's ( PEP ) board said a biodiversity assessment is unnecessary and not in the best interests of PepsiCo ( PEP ) or its shareholders, pointing to the company's existing reporting and initiatives to support sustainability.

The $242 billion maker of Pepsi soda, Doritos and Lay's crisps and Quaker oats has a goal of spreading regenerative farming practices - meant to prioritise soil health and protect biodiversity - across 7 million acres by 2030.

The proposal by Green Century Capital Management says that while PepsiCo ( PEP ) has taken "commendable" initiatives on sustainability, it may be exposed to unnecessary risks if it doesn't fully assess its dependency on natural systems and seek to limit impacts on the business.

"PepsiCo ( PEP ) must assess and mitigate activities leading to biodiversity loss in its supply chain or risk becoming uninvestable," the shareholder said.

German asset manager Allianz Global Investors also last week said it would back the biodiversity proposal.

In its published voting intentions, Norway's sovereign wealth fund also said it would vote against the compensation of PepsiCo's ( PEP ) named executive officers.

The fund has voiced concerns about what it sees as excessive CEO pay at U.S. companies, and voted against PepsiCo ( PEP ) executive compensation last year too.

The fund will also vote against the reelection of PepsiCo ( PEP ) chairman and CEO Ramon Laguarta, as it believes the roles of chairperson and CEO should be separated.

(Reporting by Helen Reid; Editing by Ros Russell)