Our economies, livelihoods and wellbeing all depend on nature.1 Nature’s contribution to the global economy is estimated to be USD$125 trillion per year,2 while over 50 per cent of the world’s GDP (USD$44 trillion) is moderately or highly dependent on nature and its services.3 In Canada, our economy is particularly dependent on our rich supply of natural resources, both on land and within our coastal waters.
Every industry relies on a biodiverse supply of natural resources to function; however, business practices are leading to a rapid and increasing deterioration. Unsustainable production and consumption patterns and overexploitation mean that businesses are depleting the very resources they rely on to function. No sector is immune.
For example, a drought caused by climate change can have consequences which ripple throughout the Electric Vehicle (EV) supply chain; reduced water levels can impact mining and mineral processing, computer chip manufacturing and lithium-ion battery manufacturing. Similarly, droughts constrain available water for the clean hydroelectric power generation needed to charge EVs. Lastly, for consumers, the reductions in manufacturing will increase the price of EVs available for purchase and may limit the adoption of EVs and abate emissions from transportation.
What is natural capital and biodiversity?
Natural capital refers to air, water, soil and all living forms of flora and fauna on Earth. Biodiversity refers to the richness and variety of those resources and species. We rely on thriving, biodiverse landscapes to provide the critical resources that support everything we do.
Climate and biodiversity are deeply interconnected
Climate change is currently responsible for between 11 per cent and 16 per cent of biodiversity loss, and this is likely to increase.4 Nature loss and climate change are inter-related issues that compound each other, and they must be addressed in tandem. For businesses, changing climate can have significant ramifications to supply chains and the biodiverse ecosystems that companies operate within and rely on. These changes can significantly impact an organization’s natural capital, sustainability and ultimately consumers, through downstream price increases.
Until now, most companies looking to improve the environmental impact of their operations have been focused on emissions and combatting climate change, but organizations need to also focus on biodiversity loss prevention and natural capital preservation in their plans.
Disclosure is on the way
The Taskforce on Nature-related Financial Disclosures (TNFD), building on the model developed by the Task Force on Climate-related Financial Disclosures (TCFD) and endorsed by the G7 finance ministers, will recommend new disclosures to capture nature-related risks from later in 2023 onwards. Audit committees will want to ensure management is keeping abreast of new climate-related and nature-related knowledge, best practices and regulatory requirements and that the proper processes are being put into place for compliant reporting.
And while regulators are likely to enforce adoption of TNFD- and TCFD-aligned directives in similar ways, companies should be aware that aligning with biodiversity reporting requirements is poised to be much more complicated. Whereas climate has clear universal metrics against which companies can measure their progress such as carbon neutrality and emissions, biodiversity and natural capital do not. There is also currently no biodiversity equivalent to carbon offsets, which means organizations relying on offsets to meet their climate goals will need to think very differently when it comes to biodiversity.
The role for audit committees
Boards and audit committees should be prompting management to assess biodiversity risks and opportunities across the organization, including implications for investment, accounting and valuations. To effectively assess risks and opportunities, organizations will need to rely on expertise that may or may not currently exist within the organization. Risk assessments should consider double materiality—this means assessing both the company’s impacts to and dependencies on natural capital.
Once an organization has a sense of the biodiversity risks, opportunities and impacts inherent to its operations, they can begin integrating these considerations into decision making at the project and enterprise level, as well as throughout their supply chain. To get this process right, it is important that organizations conduct a talent assessment, considering what knowledge/expertise is missing. Do the people leading the charge have an integrated understanding of climate, emissions, biodiversity and any related human rights implications? Action plans should be just and community minded. Consider how you can learn from and integrate indigenous perspectives around achieving a sustainable relationship with nature.
It is also important to take stock of what regulatory change is happening elsewhere. If your organization is not yet familiar with TNFD, it is time to pay attention. While disclosure is voluntary right now, there are clear indicators that is likely to change (e.g., the push to standardize ESG reporting – SEC and IASB reporting initiatives).
Nature-positive strategies: what are the opportunities?
Companies should aim to pursue a low-carbon, nature-positive approach to climate resilience. This means fully taking account of biodiversity considerations when developing decarbonization and climate plans. By taking a holistic, nature-positive approach to meeting climate obligations, organizations will be well-prepared to comply not only with future regulation but the growing demand by stakeholders for more transparent and robust ESG reporting. It will also help future-proof their operations and capital, presenting business opportunities in the process:
- The production of nature-based solutions is an emerging new economic opportunity; this economy could produce over $10 trillion in annual business value by 2030 and generate 395 million jobs.5
- Businesses that protect against biodiversity loss are poised to be more resilient and unlock new opportunities to attract new investment for economic growth, even for existing industries. For example, according to WEF, agriculture and food production companies could see $4.5 trillion per year in new business is on the table, just from protecting biodiversity.6
- Companies will benefit from boosted brand reputation, and companies that act first are likely to benefit from the strong brand recognition with consumers.
- Companies that put biodiversity preservation practices in place may have a better chance of shaping and getting ahead of biodiversity regulation going forward.
1 The Economics of Biodiversity: The Dasgupta Review – Headline Messages, (February 2021), pg. 1
2 Costanza, R., De Groot, R., Sutton, P., Van der Ploeg, S., Anderson, S. J., Kubiszewski, I.,& Turner, R. K. (2014). Changes in the global value of ecosystem services. Global environmental change, 26, 152-158
3 The New Nature Economy Report, World Economic Forum, July 14, 2020
4 The New Nature Economy Report
5 New Nature Economy Report II: The Future of Nature and Business, World Economic Forum, July 14, 2020
6 5 ways biodiversity matters to jobs, health and the economy, World Economic Forum, May 21, 2021
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