It is becoming increasingly obvious that the challenges posed by nature loss to businesses are equally as important as those posed by climate change. With half of global GDP moderately or highly dependent on nature, and species being lost at the fastest rate in Earth’s history, it is critical that governments, businesses, and individuals reassess their relationship to nature.
Many businesses are now addressing their planetary impact and examining the risks posed by climate change, then committing to net-zero policies. Reaching net-zero for businesses involves assessing their carbon footprint and taking steps to reduce and mitigate for carbon dioxide emissions. In a similar way, organisations are now being encouraged to investigate their impact and reliance on natural resources, in a bid to become nature positive and reduce their exposure to the risks posed by biodiversity loss.
But how exactly can a business assess and quantify their reliance on natural resources and how can they mitigate for their impact upon it? It is undoubtedly likely to be a complicated process, but there are now initiatives and frameworks being developed that will act as tools to help businesses determine their reliance on nature and help them become nature positive.
Nature loss and ecosystem degradation are important to business for two main reasons – the risks that are associated with it (dependencies), and the impact of businesses upon it (impacts). Businesses need to assess their impact on biodiversity and not just natural systems, because high biodiversity within ecosystems increases their resilience and productivity, meaning that losing biodiversity could significantly affect the availability and stability of natural resources. It will be necessary to quantify both impacts and dependencies in order to assess the relationship of a business to nature.
The financial industry has begun to quantify the economic consequences of losing nature, and it is estimated that half the world’s GDP, or $44tn of value generation, is dependent on nature. Every year we are losing ecosystem services worth more than 10 per cent of our global economic output, and an assessment by the Natural Capital Finance Alliance found that 13 of the 18 sectors that make up the FTSE 100 have production processes with high or very high material dependence on nature, representing $1.6tn in market capitalization.
The degree of exposure to the risks posed by the loss of natural capital varies between industries. In industries such as agriculture, the risks of biodiversity loss are more obvious, as it can lead to reduced soil fertility, increased soil erosion, or lower productivity for example. Industries that rely directly on the productivity of an ecosystem such as fishing, forestry, or tourism are also significantly impacted by the loss or degradation of habitats. The risks can also be financial, legal, and reputational, as investors and consumers are increasingly looking for resilience to the threats posed by the degradation of nature. Biodiversity loss is ranked third (behind climate change inaction and extreme weather impacts) in the list of long term risks identified by executives as part of the Global Risk Perception Survey organised by the World Economic Forum.
Businesses themselves are a large contributor to the problem of biodiversity loss with the impact seen directly through resource use or investment that leads to overharvesting, destruction or damage to natural areas, deforestation, and pollution. More than 90% of the human pressure on biodiversity is driven by the operations of four major industries: food production (50%), infrastructure and mobility (25%), energy production (10%), and fashion (<10%). The impact of business operations on ecosystems can be a risk in itself, with reputational damage, legal action, or lower investment a possible outcome related to a negative impact on nature.
One of the greatest problems with measuring our impact on nature and assessing the risks associated with its loss is that our economic systems are not designed to assign value to the benefits delivered to us by nature (ecosystem services). The contribution of ecosystem services to the global economy (food production, carbon storage, water and air filtration) is estimated as being worth more than $150tn annually, more than twice the world’s GDP, but without an effective framework for estimating value, it is difficult to incorporate into business models. Unlike carbon emissions, where one defined metric is produced, there is currently no one figure that will give a representation of a business’ impact on natural systems. In order to address these challenges, a number of initiatives are developing new methods for assessing the nature or biodiversity footprint of your business including the Taskforce on Nature-related Financial Disclosures.
In December a landmark Global Biodiversity Framework was agreed by international governments at the COP15 meeting of the Convention on Biological Diversity. Target 15 of the agreement commits governments to require disclosure on the nature-related impacts of large businesses and financial organisations working within their countries. This means that the relevant companies will be required to assess and then disclose their impacts, dependencies, and risks associated with nature. Businesses are then expected to align with the overall target of halting and reversing nature loss by 2030, and to provide publicly available sustainability information. In order to achieve the aim, there are a number of frameworks already in development to assist businesses in achieving the transition to become nature positive.
Some governments have already introduced independent legislation towards this aim including France and the EU. In France, Article 29 of the law on energy and climate now requires that financial institutions declare exposure to climate and nature related risks. In the EU, the Sustainable Finance Disclosure Regulation requires that companies declare activities that negatively affect biodiversity-sensitive areas, and the Corporate Sustainability Reporting Directive requires certain large companies to report on sustainability issues including biodiversity.
Organisations such as the Taskforce for Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN) have adapted and repurposed their existing climate related models to build new frameworks for nature-related disclosures. The advantage of this is that businesses will be familiar with the TCFD and SBTi approach having been through the exercise for their emissions related reporting, so should be more find nature disclosures an easier process. With all frameworks the idea is to provide a rigorous methodology which sets verified targets and aligns with the Global Biodiversity Framework aim to reduce and halt nature loss by 2030.
The Taskforce for Nature-related Disclosure has already been working to create a framework for risk assessment and disclosure, which will be ready later in 2023. The process starts by assessing nature-related impacts and dependencies, which can then be used to identify risks and opportunities using the LEAP process. The LEAP approach uses four core phases of analysis; Locate (identify your interface with nature), Evaluate (examine your impacts and dependencies), Assess (calculate your risks and opportunities), Prepare (begin to respond to nature-related risks and opportunities and report to investors). The TNFD framework is very similar to the approach taken in the TCFD, so the process and principles should be familiar for businesses.
The Science Based Targets Network approach also mirrors their climate framework for target setting and reporting, but will work across a number of drivers instead of assessing against one target (1.5°C global temperature increase). Businesses will set targets against these key drivers (land/sea use change, resource exploitation, pollution, climate change, and invasives) to reduce their contribution to them. The SBTN uses a five-step process which starts with assessing impacts, then moves through setting validated targets for improvements, and on to reporting on progress against the targets. The first version of SBT for nature is expected in early 2023, focusing on business impacts on water use and pollution.
It is intended that companies will work with the TNFD framework and then set targets using the SBTN, and the two initiatives have collaborated closely to ensure they are using similar language and goals. There are a number of additional frameworks including the Natural Capital Protocol, which provides a protocol to assess impacts and dependencies on natural capital. There are also current environmental reporting frameworks which are now scoping out requirements for incorporating biodiversity assessments including the CDP and the Global Reporting Initiative. Alternatively there are independent analyst companies that are able to assist with nature and biodiversity footprint analysis, such as Nature Alpha and Iceberg Data Lab. The WWF also has a very useful Biodiversity Risk Filter which allows a business to identify a variety of natural resources risks based on global geographical locations.
Although many of the frameworks and metrics for assessing and quantifying the nature or biodiversity footprint of a business may not be fully realised, businesses can still begin the groundwork of identifying dependencies and impacts on nature. This can include examining water usage, natural resource usage, and waste production, or identifying where and how raw materials are sourced and whether these processes involve nature destruction. The interface between nature and biodiversity loss is complex, and habitats can be degraded and lose biodiversity without being destroyed, so all processes need to be examined carefully.
In order to have a positive impact on nature immediately, it is also possible to invest in natural capital projects now, prior to assessment work commencing. Habitat restoration projects are already underway on the ground and companies such as Creating Tomorrow’s Forests are acting as solutions providers to turn business investment into real world biodiversity gains. By funding ecosystem restoration projects that are already aligned with upcoming biodiversity accreditation schemes, businesses can invest directly in natural capital and get a headstart on the journey to becoming nature positive. In a similar manner, assessment by specialists such as WaterPlan can map out impacts and dependencies on water usage, and mitigate for these contingencies.
The analysis stage of the frameworks will provide a picture of how a business impacts on ecosystems, and as with net-zero, positive action will need to be taken to reduce this impact. It is expected that there will be an unavoidable residual nature or biodiversity impact after this process, due to natural resource extraction for example, and businesses may look to mitigate or offset this residual impact. The ideal solution would be to fund restoration projects in the area where the identified impact is occurring, but if this is not possible, purchasing biodiversity credits or funding habitat banks provides a useful offsetting solution. As with impact and risk analysis frameworks, the metrics and certification schemes for biodiversity credits are under development, but soon there will be a variety of schemes through which credits can be purchased, both regulatory and voluntary. Habitat banks are locations where restoration work will provide biodiversity credits to one of the certification schemes. These can be either on land owned by the habitat restoration project itself (as with Creating Tomorrow’s Forests), or through agreements between the biodiversity provider and a private landowner. In both cases, credits need to guarantee that the specified uplift in biodiversity will be maintained for a minimum of 30 years.
Another route businesses could choose to improve their biodiversity footprint is by undertaking habitat restoration work on their own premises. These could include tree planting or micro forest creation, wildflower meadows, ponds, or rain gardens. Projects should be monitored and certified in exactly the same way as a habitat bank, and an experienced habitat restoration provider should be able to report improvements in biodiversity, carbon sequestration, water management, and air quality. These ecosystems services benefits could have a direct beneficial impact on the business environment and on the health and wellbeing of employees. The higher the biodiversity in a habitat, the greater the impact on human health, so employee wellbeing could be significantly positively affected by restoration projects to which they have access.
One of the most important criteria for businesses investing in natural capital will be being able to demonstrate a return on that investment. Although ecosystem restoration projects can deliver measurable gains in key ecosystem services provision, this then needs to be linked back to the value ascribed to these services within the business. This will require a reassessment of the role of natural ecosystem services within organisations, such that resources such as water, raw materials, carbon, and biodiversity have an ascribed value. Investing in natural capital projects will, therefore, deliver quantified gains in ecosystem services which can then be equated to their value within the business. This is an exciting area for development within the business community, which should lead to businesses being truly sustainable, and business operations being linked economically to positive environmental outcomes.