Green means go

More than half of the world’s economy—equivalent to US$44 trillion, according to the World Economic Forum—is highly or moderately dependent on nature. Here in Canada, where agriculture, forestry and fisheries alone make up 12 per cent of the economy, our ecosystems serve as a cornerstone of the country’s economic production. 

To dig deeper into the economic implications of nature and biodiversity loss, earlier this year I hosted a webinar alongside my colleagues Katie Dunphy, ESG partner at KPMG in Canada and Carolin Leeshaa, member of the Task Force on Nature-related Financial Disclosures (TNFD) and National Natural Capital Leader at KPMG Australia. Over the course of the webinar, we explored:

• The impacts and dependencies between businesses and nature
• How climate factors into the equation
• How regulation is evolving and when companies should expect to start reporting on the way their company depends on nature to function, as well as how it impacts natural systems
• The actions Canadian companies can take not only to begin protecting themselves from the risks associated with biodiversity and nature loss but also to minimize their impact on the natural environment

In this post, I’ll outline some of the detailed points we discussed.

Impacts and dependencies
To understand this space, it is important to first define a few key terms:

• Biodiversity. The variability among living organisms from all sources (including terrestrial, marine and other aquatic ecosystems) and the ecological complexes of which they are part. This includes diversity within species, between species and of ecosystems.
• Ecosystem. A dynamic complex of plant, animal and microorganisms and the non-living environment interacting as a functional unit.
• Ecosystem services. The contributions of ecosystems to economic and other human activity.
• Natural capital. The stock of renewable and non-renewable natural resources that combine 
  to yield a flow of benefits to people. This is a way to quantify the value of what nature provides to economic and human systems. 

Businesses and nature are connected in two primary ways. First, nature provides ecosystem services. Second, businesses have impacts on nature, both positive and negative. To be sustainable, businesses need to understand these impacts and their reliance on ecosystems—as well as their vulnerabilities to the loss of natural capital and ecosystem services. 

Where nature and climate meet
From a scientific standpoint, biodiversity and climate change are closely linked. Climate change drives biodiversity loss, and biodiversity loss worsens the impacts of climate change by reducing the capacity of the natural systems that help limit temperature increases or mitigate its effects. Conversely, actions that improve nature can also mitigate climate change.

What does this look like in practice?

Wetlands, an ecosystem, are 50 times more effective than forests at storing carbon. Canada has 25 per cent of the world’s wetlands, according to the Nature Conservancy of Canada. Damaging wetlands limits their ability to store carbon, which can increase the rate and scale of climate change. However, the reverse is also true. Protecting these wetlands will increase carbon sequestration capacity, thereby helping to mitigate climate change.

It is particularly important for companies that are exploring how to reduce emissions, and ultimately their impact on climate, to understand the relationship between climate and nature. As efforts to achieve net zero greenhouse gas (GHG) emissions become more widespread, it’s become clear that some types of climate solutions benefit biodiversity, while others can adversely impact nature and have an overall worsening effect on climate change. Companies looking to make an overall positive impact on the environment must consider nature and climate impacts together in their decision-making process.

The good news for businesses trying to walk this line is that there are parallels in how companies should approach climate and nature strategies. Typically, both programs consist of the same common elements in terms of education, baselining of impacts and exposures, mitigation strategies, scenario analysis and disclosure, which creates synergies and opportunities for strategic alignment.

However, as nature and biodiversity are issues just beginning to find their place on the corporate agenda, most organizations are further advanced in their climate journey than they are in their nature journey. As a result, organizations should make nature a top priority in their ESG strategies.

Reporting and regulation
With the recent release of the first two sets of standards from the International Sustainability Standards Board (ISSB), it’s become clear that supervisory bodies are increasingly factoring biodiversity and nature into their broader ESG governance expectations. The ISSB standards will be effective starting January 2024 and natural ecosystems and biodiversity will be integrated into the ‘S2’ Climate-related Disclosures Standard. The ISSB is also currently gathering stakeholder feedback on what it should prioritize over the next two years, issuing a consultation that included biodiversity and ecosystem services as one key option.

With the goal of shifting global financial flows away from activities that harm nature and toward activities that benefit nature, TNFD’s mission is to develop and deliver a practical and consistent risk management and disclosure framework for organizations of all sizes and across all sectors to report and act on evolving nature-related risks and opportunities.

The final TNFD framework, which launched on September 18, is designed to be complementary to the Taskforce on Climate-Related Financial Disclosures (TCFD), retaining the same structure, approach and language, cetred around four pillars: governance, strategy, risk management, and metrics and targets.

While still a voluntary initiative, the TNFD framework encourages early action by companies and financial institutions to begin reporting and provides a structured path to increase disclosure over time. Having said this, the framework has evolved in a direction that is aligned with the emerging regulatory and standards setting baseline such as the ISSB and Global Reporting Initiative (GRI; see below). It’s also aligned with global policy goals, such as those represented in the Global Biodiversity Framework, which was adopted by 196 governments in December 2022 at COP15 in Montreal.

In addition to the TNFD and ISSB, multiple climate frameworks and supporting tools launching this year are aligned to the TNFD’s guidelines and include requirements around nature and biodiversity:

• Science-Based Targets for Nature (SBTN) will launch their framework at the end of May 2023. 
• The GRI recently closed its public exposure draft and feedback period with the aim of launching a revised standard integrating nature in Q4 of this year. 

The direction forward
The complexity of these topics warrants early attention. Your organization should begin by critically reading the TNFD framework and exploring the key components of the Locate, Evaluate, Assess and Prepare (LEAP) approach. The LEAP approach is there to help you understand what steps to take in assessing your interactions with nature and how to monitor and disclose on it.  
 
Next, consider undertaking a four-phase nature and biodiversity materiality baseline assessment to locate your business’ interactions with nature and evaluate dependencies:

1. Understand your ambitions and scope: Identify the current level of nature and biodiversity understanding across your organization. You can then project this against how you see your market expectation evolving and understand where your ambitions lie.
2. Assess your interactions: Identify which parts of your organization you want to include in the assessment. You can liken this step to a GHG scoping exercise. Do you want to focus on just your operations, or do you want to also look further up- and downstream? It’s important to identify where your most material risks are likely to be.
3. Identify your material impacts and dependencies: Identify an initial list of material impacts and dependencies to develop impact pathway assessments. This will allow you to select relevant data sets to perform a location-based analysis. It’s important to have a clear screening criterion for each data set to ensure you are selecting the most appropriate ones.
4. Integrate and evolve: Identify and prioritize opportunities to integrate a nature-positive plan for change, prepare to disclose biodiversity and nature relevant content in regular reporting cycles, and develop a roadmap for adapting to future changes as your organization matures in this respect and the environment evolves.

The sooner you start, the better your chances of avoiding being dragged down the wrong path when assessing these elements. Please don’t hesitate to reach out with any questions, or for help getting started.