Why business must act now on biodiversity

Alison Midgley, Khadija Ali, Alenka Turnsek and Doug Johnston in EY’s Climate Change and Sustainability Services practice discusses why nature is now both a pressing concern and a major opportunity for business.

Why business must act now on biodiversity

Every business relies on nature. The real concern today is not if, but how significantly it affects your enterprise. Healthy landscapes, oceans, water systems, and biodiversity – are all vital for maintaining prosperous businesses and societies. Yet pressures on the natural world have never been higher. Humans impact over 75% of Earth’s surface and the deepest parts of the world’s oceans. Momentum to prevent further degradation of nature has gained traction in international and national policy arenas, as has the call to redirect capital flows towards activities that deliver net zero and – increasingly – nature positive.

Physical risks from biodiversity loss are accelerating

The World Economic Forum’s (WEF) Annual Risk Report has named biodiversity loss and ecosystem collapse as one of the top five issues threatening the global economy over the next 10 years. The Covid-19 crisis saw a refocus on the physical risks from nature loss, as links between nature degradation and the origin and spread of disease were brought to light. Scientific evidence tells us that in the near term, climate change and nature loss will aggravate regional food insecurity, water stress and food-borne, water-borne and vector-borne disease spread, with ripple effects across our key industries. Effects are in fact already visible for the agricultural, forestry, and fishing sectors for example, with implications for supply chains, workforces and communities in which they operate.

International and national policy momentum

Since December 2022, 196 countries, signed the Convention for Biological Diversity’s (CBD) Global Biodiversity Framework (GBF), which outlines 23 targets to protect and restore nature. Over the coming years, signatories will need to increasingly embed these into national policies and regulations, including targets to mobilise finance for companies to report on nature-related risks and impacts.

Concurrently, the EU and UK have strengthened due diligence regulations on deforestation and human impact of supply chains, and established strategies to restore biodiversity. Mandatory reporting requirements for companies and financial institutions on their climate, nature and social issues are also emerging as regulators and investors grow more sensitive to greenwashing. For example, the EU’s Corporate Sustainability Reporting Directive (CSRD), contains draft standards on biodiversity, pollution, water and social issues and requires companies to consider both the financial risks from nature loss, and the risks their operations pose to nature and communities.

The upcoming IFRS’s International Sustainability Standards Board (ISSB) will release a global baseline for sustainability reporting in 2024 and will seek to include standards on biodiversity and water.

The policy runway is clear, and financial institutions and companies may need to start to prepare for the transition ahead.

Opportunities in the transition

The real benefits of addressing impacts and risks from nature loss go well beyond compliance. The WEF has estimated that transforming the three major systems of food and agriculture, sustainable infrastructure and energy and extractives could deliver $10trn in global GDP and up to 395 million jobs by 2030.

The drive for better business practices is not only coming from regulators, but investors and the public. Employees are increasingly looking for socially and environmentally responsible employers. Consumers, regulators and investors are becoming more educated on what real action should look like in a business and supply chain, and increasingly more sensitive to greenwashing risks. The growth of the sustainable finance market, ESG-debt of which was valued at $4trn in 2021 is testimony to this. Business activities that promote regeneration and restoration have been shown to have multiple co-benefits for society, health and the climate and deliver reputational benefits to first-movers.

Tools to enable the transition

A suite of tools is becoming available to help companies understand, evaluate, and mitigate risks from nature loss and climate change.

The Taskforce on Nature-related Financial Disclosures (TNFD), which will release its final version in September 2023, provides a first of its kind methodology for corporates and finance to start to evaluate these risks to inform future Nature Strategies. The TNFD’s Knowledge Bank points to tools that can help entities understand their dependencies on nature (e.g. ENCORE), estimate where such risks may be located (e.g. Nature Map Explorer or WWF’s Water and Biodiversity Risk Filter Suite), and evaluate what this means for them (e.g. Trase Earth for high-priority supply chains, Commodity Footprints Tool). Other methodologies are also publicly available to measure biodiversity as a financial institution, set science-based targets on nature and water, and benchmark company progress on nature.

Taking action on nature

On a pragmatic level, the climate crisis is inseparable from the nature crisis. Both have implications for social wellbeing, health, and a safe and healthy environment for workforces and communities – issues that come together under this transition. However, the infrastructure to deliver nature-positive outcomes at a corporate level is still nascent compared to climate change.

Increased transparency and standardisation, driven by tools like the TNFD, are likely to lead to more useable data and the potential for new nature markets to emerge.

With that in mind, businesses should seek the following:

  1. Prepare and understand horizon risks. There are many tools available to start to understand the risks to your organisation and overlaps with climate.
  2. Take action cohesively and in a way that complements the businesses’ net-zero transition and social goals. The links between nature loss and climate change have been shown to be too strong to be solve separately. But in some cases, trade-offs must be acknowledged so that they can be mitigated to the extent possible.
  3. Look for the opportunities. The scale of the transition to a net zero economy is significant, but this means new value can be added.
  4. Be transparent about the barriers and challenges ahead, and seek alliances to enable more strategic, economy-wide transition rather than focus on disclosures alone.

There is no doubt that the whole of humanity relies heavily on nature, and it has been exploited for too long as a free commodity. Businesses, including the financial sector, will be a critical enabler to support the progress toward a whole-of-economy transition necessary to deliver nature-positive outcomes.

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