Addressing biodiversity risk: A new and urgent challenge for corporations and financial institutions

The nature crisis has reached the boardroom. After years of companies being focused on how their activities influenced climate change, biodiversity loss is now also in the spotlight.  And this couldn’t be more needed – over a million species may be facing extinction, wildlife populations have declined on average by 69% in less than a lifetime, and in the time it takes to say ‘deforestation’, another chunk of forest the size of a football pitch is lost. The private sector has played a significant role in the biodiversity crisis, jeopardising its own stability – $44trn of value generation, representing more than 50% of global GDP, is moderately or highly dependent on nature, biodiversity and the services it supports.

The Kunming-Montreal Global Biodiversity Framework, adopted by 196 governments just last month, commits the world to act collectively and immediately to halt and reverse biodiversity loss by 2030. In response, the world’s largest companies and their investors are scrambling to understand the impacts that they are having on nature and their dependencies on the services provided by healthy species and ecosystems. But the complexities of measuring and analysing physical and reputational risks related to nature loss can make climate change look like a walk in the park.

Measuring the impact of business activities on the climate is relatively straightforward. There is a universal metric – the emission of a tonne of carbon dioxide equivalent – that companies can use to understand their contribution to climate change. Measuring the spatial consequences of emissions is a bit trickier and depends on the locations of a company’s operations and value chain. There is a relatively clear link between concentrations of greenhouse gases in the atmosphere and the extent of likely sea-level rise or extreme weather events.

Biodiversity loss is considerably more complex. There is no single agreed metric to measure the impact of a company on biodiversity like there is for climate change. Impacts and dependencies of a company on biodiversity are very location-specific and require the measurement of the loss of a multitude of services provided by nature (e.g. water, productive soils, pollination, seed-dispersal). These services are much harder to measure and are often subject to complicated inter-relationships.

But regardless of the complexities, companies and financial institutions are beginning to accept that the risk of nature loss imposed by their activities is a challenge that demands fast, global solutions. There is a growing expectation among shareholders, regulators and customers that companies understand their dependencies and impacts on nature and begin to address them.

That expectation is enshrined in the new GBF. Its 15th target calls on large companies and financial institutions to “regularly monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity along their operations, supply and value chains and portfolios in order to progressively reduce negative impacts on biodiversity, and increase positive impacts.”

While target 15 calls for voluntary action, mandatory requirements are emerging for such disclosures. In 2021, France introduced Article 29 of its Energy and Climate Law, requiring that financial institutions report on their biodiversity-related risks. The EU’s new Corporate Sustainability Reporting Directive, against which companies will have to begin to report from their 2024 reporting year, contains provisions requiring disclosure on “all major environmental factors, including their impacts and dependencies on biodiversity”.

These expectations are also to be found in the major sustainability reporting and target-setting frameworks that companies voluntarily use. The Global Reporting Initiative is concluding a consultation on a revised biodiversity standard. The CDP – formerly the Carbon Disclosure Project – is introducing new questions on biodiversity this year [2023]. And the Taskforce on Nature-related Financial Disclosures (TNFD) is following in the footsteps of its predecessor, the Task Force on Climate-related Financial Disclosures, having already released a robust –  beta version of its nature-related risk management and disclosure framework. And the Science Based Targets Network will soon release its methodologies for companies to set science-based targets for nature.

All of these regulations and disclosure frameworks need data. And companies need to know where to start – what metrics to collect and from where.

To help companies and investors begin to understand their biodiversity risk, WWF has developed a freely-available online tool: the WWF Biodiversity Risk Filter. Building on WWF’s leading water risk assessment tool – the WWF Water Risk Filter – this new biodiversity risk assessment tool combines information on the locations of a company’s operations and those of its supply chain with more than 50 of the best available global datasets covering issues such as water scarcity, wildlife and ecosystem health, soil quality or the state of pollinators. These datasets are overlaid and integrated to provide a physical and reputational biodiversity risk assessment of corporate operations and supply chains to identify hotspots.

The assessment allows companies to explore and compare the underlying risks across their operations and supplier sites worldwide, and financial institutions to identify their investment risks.  Crucially, it helps large multinational companies visualise the locations and operational areas where they have high risk – these places or operations can then be targeted for deeper analysis, and opportunities to reduce the biodiversity risks that are most relevant can then be capitalised on. Such actions could include shifting to more biodiversity-friendly production practices, investing in the conservation or restoration of biodiversity, or addressing specific pressures on biodiversity.

Gathering location data is a crucial step where most action is required by investors and companies to build an accurate picture of the biodiversity risk they face and take appropriate measures to address their exposure.

Once this information is available, the tool offers an invaluable first stage in identifying and assessing biodiversity risk exposures. It also dovetails with existing and emerging frameworks for disclosure.

At WWF, we recognise the urgent need to help companies and investors understand their nature-related impacts and dependencies, and to help them achieve their sustainability commitments. We also understand that the perceived complexity of these impacts and dependencies is currently a barrier to action.   The WWF Biodiversity Risk Filter is a significant step forward in addressing this barrier, enabling the private sector to take the steps that are so urgently needed to address our economy’s impact on the natural world, and move towards a resilient and stable economic system that benefits all.

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