By focusing on natural capital and biodiversity, companies can get ahead of regulation and policy changes, strengthen their reputation among consumers, employees, and society, increase the confidence of their investors and other stakeholders, and catalyze innovation that’s not only good for the planet but also the resilience of their own business models.
Although climate remains top of mind for most business leaders when thinking about environmental issues, biodiversity is the trending “E” topic of 2022.
In April 2022, world leaders were scheduled to meet at COP15, a United Nations summit on biodiversity, to adopt global targets for biodiversity under the Global Biodiversity Framework, but the meeting was postponed to October due to the lingering COVID-19 pandemic. While the world awaits the rescheduled summit, it is essential to consider the business case for biodiversity—why it is imperative for businesses to protect and conserve biodiversity. What are the risks and opportunities associated with biodiversity loss? And what are some steps businesses can take to mitigate these impacts?
What Is biodiversity (and why does it matter)?
From supply chain risks to reputational damage, from the loss of ecosystem services to the impact on human health, the effects of biodiversity loss are far-reaching, and investors, regulators, and other stakeholders are starting to take notice.
What is biodiversity?
Biodiversity refers to the variety of life found in a place on Earth or, often, the total variety of life on Earth. It includes everything from the different species of animals, plants, and microbes to the genes they contain and the ecosystems in which they live.
Experts broadly categorize biodiversity into three types:
1. Genetic diversity, including the variety of traits and characteristics found within a species.
2. Species diversity—the more than 8.7 million different species of animal and plant life on Earth.
3. Ecosystem diversity, which refers to the variety of habitats and climates on land and in water, each supporting a unique set of animal and plant life.
Why does biodiversity matter? Simply put, it’s key to our planet’s survival and to the health of people and the economy.
Economy: The World Economic Forum identified biodiversity loss as a top-five risk for the first time in 2020. More than half of the world’s gross domestic product (US$44 trillion) is moderately or highly dependent on nature and its services, such as the provision of food, fiber, and fuel. The loss of these services can have a significant impact on businesses, particularly those that rely on natural resources or are in areas that are particularly vulnerable to the effects of climate change.
Climate Change: Biodiversity in itself is critical. But it is also intertwined with more than one systemic risk. For example, preserving biodiversity is a key defense mechanism against global warming and critical to fighting climate change. Deforestation is the single largest cause of biodiversity loss and undermines our ability to battle carbon emissions, as healthy forests typically act as “carbon sinks,” a fancy name for places that absorb more carbon than they release.
Human health: Beyond the economy and climate, biodiversity is vital to ensuring human health. Food security and access to medicines are just two examples of where natural capital is critical. We also depend on biodiversity indirectly to support our health through opportunities for outdoor recreation and access to clean air.
Bottom line, unless further biodiversity loss is prevented and biodiversity-related impacts are better managed, many business activities may not just be endangered, but threatened with extinction (pun intended).
Puns aside, we know that climate is currently the talk of the environmental town. But natural capital needs to be part of the conversation. Unfortunately, biodiversity loss is occurring at an unprecedented rate. The WWF’s Living Planet Report 2020 found that biodiversity loss is accelerating, with animal populations declining by an average of 68% since 1970. The UN found that nearly 1 million animal and plant species face extinction. This loss is due primarily to human—and in particular industrial—activity, including habitat destruction, overexploitation, the spread of invasive species, global warming, and pollution.
ESG and the business case for biodiversity
Companies that wait too long to address biodiversity will not only face increasing pressure from investors, customers, and regulators; they will also miss out on opportunities to create a more resilient business.
As a beneficiary of biodiversity and a contributor to its loss, businesses play a critical role in protecting natural capital. While risks of biodiversity loss vary by sector, some industries are particularly vulnerable, including tourism, healthcare, agriculture, food and beverages, and fashion, among many others.
For example, the fashion industry is responsible for up to 10% of the world’s carbon emissions and 20% of the world’s wastewater. Valued at more than $2.5 trillion, the industry is a major economic force, but it is also one of the biggest drivers of biodiversity loss, contributing to habitat destruction, water scarcity, and pollution. Heavily dependent on natural fibers such as cotton and wool, the industry is already feeling the impacts of biodiversity loss on its supply of raw materials. Companies and consumers are looking for companies to act, and organizations are coming together to address biodiversity in fashion, including by developing tools and benchmarks to understand the impact of companies’ activities on natural capital use.
The stakes are rising across all industries, and investors, regulators, and other stakeholders are taking note. For example, biodiversity is under discussion as part of emerging EU regulations related to the environment and investors increasingly view biodiversity as a critical investment issue. We expect this will continue, which is likely to bring biodiversity to the top of the Board agenda, alongside climate.
How to incorporate biodiversity considerations into your business
All companies can start to address biodiversity today. Those that do will be better positioned to weather the challenges of a changing climate while also creating long-term value for their stakeholders.
So, what can companies do? While there is no one-size-fits-all solution, companies can take action today, regardless of industry, to manage their natural capital risks and protect biodiversity. For example, by understanding their baseline, getting to know the Taskforce on Nature-Related Financial Disclosures (TNFD), collecting data, setting goals, and monitoring progress, companies can begin to make a positive impact on the environment.
Understand your baseline
The first step is to understand your company’s starting point. This will vary across companies, but some items to consider include your supply chain, emissions, water use, and waste. Ask yourself where your company’s products come from and what role natural resources play in your business. The answers to these questions will help you understand your company’s impact on biodiversity and where you can make improvements. Several established ESG standards such as SASB and the Global Reporting Initiative (GRI) address nature-based impacts. Furthermore, the Carbon Disclosure Project (CDP) and Corporate Sustainability Assessment (CSA) added questions on biodiversity to their annual questionnaires in 2022.
Engage your stakeholders
Don’t wait for the issue to come to you. Engage your stakeholders or the people who have a vested interest in your company’s success or failure. This includes customers, suppliers, employees, investors, and the community. Ask them what they think about your company’s impact on biodiversity and how they would like to see it addressed. Use their feedback to develop a plan of action. There are several ways to collect data, including through surveys, interviews, focus groups, and environmental impact assessments. With this data in hand, you can identify trends and areas for improvement.
Get to know TNFD
Building on the framework and widespread investor and stakeholder support for the Taskforce on Climate-Related Financial Disclosures, the Taskforce on Nature-Related Financial Disclosures (TNFD), launched in December 2020. The TNFD is a coalition of businesses, investors, and countries that have come together to provide a framework for companies to “report and act” on their nature-related risks and opportunities. TNFD, supported by G20 and G7 nations, plans to test and refine its framework in 2022 and launch it globally in 2023. We expect it will become as integral to ESG reporting as TCFD, SASB, and other standards.
Set goals and targets
Public goals and commitments are important signals that companies intend to “walk the talk” with respect to their ESG strategies. Targets should be measurable and include specific actions and timelines. Science-Based Targets for Nature (SBTN) is establishing a framework for measuring a baseline, taking action, and tracking progress on biodiversity using verified targets. The initiative was inspired by the SBTi.
Monitor progress and report
Monitor your progress and report your findings. Be transparent in your reporting and share your successes and challenges (the good, bad, and potentially ugly). Reporting will help you track your progress and make necessary adjustments to your plans. When reporting, make sure to use consistent metrics to compare your progress over time.
By focusing on natural capital and biodiversity, companies can get ahead of regulation and policy changes; strengthen their reputation among consumers, employees, and society; increase the confidence of their investors and other stakeholders; and catalyze innovation that’s good for the planet and the resilience of their business models.
Over the next few weeks, we’ll be sharing more thoughts on how you can get ahead of the curve on biodiversity and take action today.
For nearly 20 years FrameworkESG has worked with companies of all sizes and at various stages of their ESG journeys to focus on the issues that matter. If you are looking to understand how your company can address biodiversity, or any other ESG issues, contact Victor Melendez, President and Chief Growth Officer.