With biodiversity loss becoming of equal – if not greater – importance as climate change, the UN “biodiversity COP" or COP15 aims to provide biodiversity and ecosystems with the same international protection as the global climate.
But why should businesses be taking note?
It is now standard practice for forward-thinking businesses to consider the risks and opportunities presented by tackling climate change. At the same time, biodiversity loss and ecosystem decline pose significant potential losses to companies, both now and in the future, as well as a risk for life on the planet. Looking ahead, business performance will be directly linked to the health of our natural world.
Today, over half of global GDP is dependent on nature. If disturbed by fire, agriculture, or commercial development, we risk unleashing over 300 Gigatons of “irrecoverable carbon" locked away in peatlands, wetlands, soils, and the ocean. These carbon reserves can vanish, releasing long-stored emissions right back into the atmosphere and negatively impacting our current climate and the life on Earth that depends on it. Industries such as agriculture, fashion, and food and beverages could be significantly disrupted as the ecosystem services they rely on – healthy soils, clean water, pollinators, and climate regulation – become less available and less reliable.
At the same time, businesses have an opportunity to play a big role in championing nature. Given the great influence they have on their supply chains and sectors, when a big company moves, a whole ecosystem of value and actors moves along with it. Businesses also have the attention of their consumers and can both raise awareness and nudge considerable swathes of the population towards more sustainable choices. And the pressure goes both ways; 80% of Gen Z and Millennials believe that companies have a moral obligation to safeguard biodiversity and protect nature, while investors are asking companies to show, not tell, how they are taking into account nature-related financial risk.
It has never been more clear that investing in nature today will safeguard businesses' financial security tomorrow, not to mention a secure and liveable future for future generations. Therefore, alongside climate action, companies need to invest in biodiversity as a way to future-proof their supply chains, reputation, and social license to operate – and, importantly, to remain relevant among an ever-more demanding consumer and investor base. Those who can understand and effectively work with nature instead of against it will know how to manage risk, seize opportunities, and expand as the world around us continues to transform.
The health of our global economy is closely linked to the health of our ecosystems
Let's take a step back and clarify exactly what we're talking about here.
Biodiversity is the variety of all life on earth. Species depend on each other in a mutually beneficial relationship that is called an ecosystem, and healthy ecosystems provide us with clean water and air, regulate the climate, protect our soil, and provide us with food and even medicine.
Much more than just a pretty screensaver on your iPhone, healthy ecosystems supply us with everything we need and make up the backbone of our economy. Yet despite the strong link between biodiversity and human prosperity, we haven't been doing a great job of keeping biodiversity intact. Today, about 75% of the world's food comes from our cultivation of just twelve plants and five animal species, but raising such a small variety of plants and animals in such massive quantities makes these crops and animals more vulnerable to pests or diseases, which ultimately could spell disaster for populations that rely on them. At the same time, a significant chunk of global food production is dependent on pollinators, such as bees, whose numbers are declining at alarming rates all over the world.
Biodiversity loss is beginning to hamper the ability for businesses to build resilience towards future climate shocks in their supply chains, and to secure their social license to operate over the long-term. Whether it's fresh water, clean air, soil fertility, or other basic ecosystem services we rely on, the species that help to maintain the delicate balance of local ecosystems are at greater risk than ever before. And when these species start to disappear, the effects become rapidly visible. Pandemics and other health risks, for example, are no longer primarily a result of exposure to local sources of pollution, but due to broader pressures on ecosystems – from the depletion and degradation of freshwater resources to the impacts of global climate change on local communities.
Companies too are already feeling the financial impacts of biodiversity loss. Inaction on corporate water stewardship is proving to be billions of dollars more expensive than “water action." Ironically, one of the best ways to protect our water supplies is through healthy ecosystems that provide water storage, flow regulation, filtering, and flood and drought protection.
Whether they realize it or not, companies rely on biodiversity and related ecosystem services as a core prerequisite for their ability to do business. Pharmaceutical companies look to nature to develop new medicines. Tourists flock to natural parks and beautiful beaches. Fishermen feed billions per day from the world's oceans. Clearly, our business models rely on the natural world.
Yet as ecosystems decline, businesses are facing significant risks, including higher raw material costs, the need for more chemical fertilisers, increased exposure to potential natural events (i.e. droughts, floods, landslides), and a backlash from consumers and investors alike. Despite all of this, the way most industries and companies operate today is by chipping away at the very landscapes and ecosystems they rely on. Most of the corporate world still lacks commitments to ending deforestation, for instance, despite it being more easily measured than other natural capital risks.
Working alongside rather than against nature helps to protect critical ecosystem services, such as fresh water from the Huayabamba river in the Alto Huayabamba Conservaton project area. Image credit Marco Gutiérrez-AMPA.
While corporate pledges to protect biodiversity and natural capital remain rare and scattered, they are steadily increasing. Biodiversity is fast becoming a focus area among fashion and textile companies, for example, with over 50% of businesses in these sectors recognizing it as a priority risk, and nearly 60% having made public commitments to address it – not least due to investor pressure.
A significant cohort of banks and asset managers are starting to bring biodiversity conservation into their funding considerations too. Many financial institutions are also signatories of the Finance for Biodiversity Pledge – one of many financial sector initiatives – which now counts nearly 90 organisations with over US$14 trillion of assets under management.
These signs are part of a larger trend where supply chain-driven corporate investments in nature are expected to increase significantly over the coming decade. This can be seen with a growing number of corporate funds for nature from companies such as Apple and L'Oréal, which are typically underpinned by company-wide commitments related to net zero carbon emissions and/or biodiversity or nature-positive goals. As one specific example, Kering, the parent company of Gucci, Alexander McQueen, Saint Laurent, and many others, has committed to having a net-positive impact on biodiversity by 2025, stemming from the understanding that they need to protect the farms and forests from which they source their raw materials.
Other innovative funding approaches for nature and biodiversity are also cropping up. One example is the Landscape Resilience Fund, co-developed by WWF Switzerland and South Pole, which combines public, philanthropic, and private funding to support meaningful climate adaptation and biodiversity conservation in rural landscapes. Another is the Coalition for Private Investment in Conservation, which works to deliver a material increase in private, return-seeking investment in conservation. Meanwhile, biodiversity credits backed by evolving methodological frameworks are providing a way to channel mandatory and/or voluntary investments into measurable biodiversity benefits, with each credit representing the transaction unit of an area under conservation.
With bigger financial commitments, broader scopes, and the backing of company-wide biodiversity and climate targets, these funds and initiatives will contribute significantly to the private capital available for investments in biodiversity conservation.
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In 2010, under the Aichi Biodiversity Targets, world governments agreed to eliminate, phase out, or reform subsidies that harm biodiversity by 2020. But subsidies harmful to biodiversity persist. The OECD estimates that globally, the subsidies for fossil fuel and agriculture that are potentially the most harmful to the environment amount to more than USD 800 billion per year.
On the other hand, there are several biodiversity-friendly policy instruments that over 120 countries have successfully implemented within their borders. The most common ones are taxes, fees and charges, tradable permits, environmental-motivated subsidies, payment for ecosystem services, and biodiversity offsets. The Colombian private sector, for example, is being pushed to act by the government's mandatory guidelines that require planned development projects – such as mining infrastructure and railroad, maritime, seaport, or airport projects – to design projects to offset residual biodiversity impacts.
Yet while these mechanisms exist, there is still a lot to be done in the way of successful implementation. Taking biodiversity offsets as an example, while many countries have early- stage policies intended to compensate for residual and unavoidable impacts of development projects, there can be little evidence of implementation or enforcement.
Our hope is that COP15, currently taking place in Montreal, will lead to the adoption of an ambitious and all-inclusive Post-2020 Global Biodiversity Framework – a 10-year strategy to guide the work of governments and engage the global community in building a future where people coexist in harmony with nature. While the discussions at forums like COP15 suggest that public policy will take an increasingly active approach in protecting biodiversity, public funds have so far proven to be insufficient in halting biodiversity loss. We desperately need the private sector to help close the financing gap for protecting and restoring nature by 2030.
The Alicante River Canyon project protects many unique species by developing productive restoration activities focused on the recovery of forests and water sources.
Nature-related disclosure – whether voluntary or mandatory – is likely to become the norm over the next few years. These include Initiatives such as the Science Based Targets for Nature (SBTn) and the Taskforce on Nature-related Financial Disclosures (TNFD), which are laying out the methodologies and frameworks for companies in voluntary markets, and the EU Taxonomy, which will require the private sector to report publicly on nature-related risks and impacts.
The SBTs for Nature go beyond climate action to provide systematic approaches to reduce the risk of nature loss across four key areas: freshwater, biodiversity, land, and oceans. These new SBTs are being developed by the Science Based Targets Network – a large consortium of organisations along with the same founder organisations as the Science Based Targets Initiative for climate (WWF, UN Global Compact, WRI, and CDP).
Following in the footsteps of the successful Taskforce on Climate-related Financial Disclosures, the TNFD was released in March 2022. The ultimate goal of the framework is to promote reporting and acting on nature-related risks, and to support a shift in financial flows towards nature-positive outcomes. It is closely related to the SBTs for Nature as it incorporates similar steps towards assessment and action.
The EU Taxonomy – a new classification system to establish a list of sustainable economic activities – includes criteria linked to the “sustainable use and protection of water and marine resources," as well as the “protection and restoration of biodiversity and ecosystems." From 2022, financial market participants and companies will be required to disclose such information, although disclosure on all six environmental objectives - including the biodiversity-related ones - will only be mandatory from 2023 onward.
The Pierce Conservation District Reforestation project improves water quality and restores salmon habitat while also improving urban spaces.
Ultimately, your corporate value chain would be nothing without biodiversity and the clean water, fresh air, and the other ecosystem services it provides. Investors know this too, and many are starting to factor in biodiversity loss and net gains into their investments portfolios to evaluate the resilience of investee companies.
At the same time, public funding and policies remain insufficient to protect companies from the risks that biodiversity loss poses. Preserving and restoring nature is no longer the responsibility of NGOs, governments, and other public institutions. Private companies must step up to the plate and improve their ability to measure and understand their effects on biodiversity while also increasing their efforts and financing to protect and restore it. A good place to start is by quantifying and even disclosing your company's nature-related risks, impacts, and dependencies, and using this as a foundation to set clear biodiversity goals and identify ways to reduce biodiversity loss within your sphere of control. In parallel, companies can also invest in nature-based solutions or biodiversity credits that are creating measurable biodiversity benefits, today.
The companies who decide to act today will have a headstart in future-proofing their supply chains, reputation, and social license to operate – all while earning brand leadership positions in the global quest to restore nature.
South Pole recommends the above approach for companies to build a future-proof relationship with nature.
That’s why we have experts who know exactly what is relevant for corporate leaders.