Does biodiversity matter to business?

The World Economic Forum’s Global Risks Report 2022 cites biodiversity loss as one of the top five threats facing the world over the next 10 years. It’s second only to climate action failure and extreme weather events on the list of perils facing our planet.

Yet while business is increasingly focused on mitigating the climate threat through net-zero targets, biodiversity is still very much an afterthought for most organizations, if it’s even on their radar at all.

We all understand implicitly that the natural world around us has value. Unfortunately, however, we often struggle to connect that understanding with the economic goals and activities of our organizations. Nevertheless, the two are inextricably linked.

A topical example of how biodiversity generates both social and economic value are the PCR tests used by governments globally to fight the recent COVID-19 pandemic. I was particularly familiar with PCR, which stands for polymerase chain reaction, from my days in the laboratory when I was a research geneticist - it's a technique for replicating DNA, and can be used to quickly and accurately diagnosing infectious diseases. PCR relies on an enzyme called DNA polymerase, which is found in all living organisms. We only have access to this technology today because a particular form of polymerase was found in bacterial organisms living in the deep oceans in extreme conditions (around hydrothermal vents).

In greater harmony with nature

This month, the United Nations Biodiversity Conference (COP15) convened governments around the world that are party to the Convention on Biological Diversity to agree to a new set of goals for nature over the next decade. I believe that businesses can play a crucial role in supporting governments to achieve these goals and helping our society to live in greater harmony with nature going forward. What’s more, it’s in their own interest to do so.

Here are five important reasons why biodiversity matters to business:

1.     Without biodiversity, businesses would not exist. Biodiversity is essential to all the processes that support life on Earth. People depend on natural ecosystems to be able to breathe fresh air, drink clean water, eat nutritious food and fight disease. Businesses, in turn, need healthy people to work for them and to buy their goods and services. We still know little about the interconnected nature of biological systems, and their dependence on one another.

2.     Our global economy is highly dependent on the natural world. According to the Organisation for Economic Co-operation and Development, biodiversity and ecosystem services such as climate regulation, pollination, and water purification are worth more than one and a half times global GDP. Conversely, biodiversity loss is highly detrimental to GDP, resulting in socio-economic problems such as reduced crop yields and fish catches, financial damage caused by flooding, and the loss of potential new medicines derived from natural sources.

3.     Biodiversity loss could be a material risk for all businesses. Biodiversity risks are not just confined to heavily impacted sectors such as agriculture, forestry and mining. Depending on the make-up of their value chains, businesses in every sector rely on natural capital or impact it in some way. Beverage companies, for example, need reliable supplies of fresh water. To produce clothes, textile manufacturers rely on cotton, which can severely degrade soil quality. Any disruption caused by a deterioration in natural resources could heavily undermine these companies’ business models and expose them to substantial operational, financial, and reputational risks.

4.     Businesses that cause adverse biodiversity impacts could lose access to capital. Investors can already see the direction that regulation is moving in, and they like to stay ahead of the curve. So, they will want to avoid exposure to businesses and assets that could be negatively affected by future biodiversity regulation. They will also want to benefit from the significant market opportunities that are expected to arise from investing in “nature- positive” businesses.

5.     Biodiversity could be a huge financial opportunity for new business models. A total investment of US$8.1 trillion is required between now and 2050 to successfully tackle the interlinked climate, biodiversity, and land degradation crises, according to a report by the United Nations Environment Programme. As a result, new business models will likely emerge that are financially rewarded for the protection, preservation and restoration of nature. Businesses that invest in nature-based solutions that support human, animal, and planetary health while enhancing quality of life and creating jobs are expected to outcompete in the market.

Toward biodiversity disclosure

Businesses should expect to face greater scrutiny over their impact and reliance on nature in the years to come. They should also prepare to disclose information about how they are adopting business practices consistent with the sustainable use and management of natural capital, including air, water, land, minerals and forests.

In this context, a major development came in June 2021 with the launch of the Taskforce on Nature-related Financial Disclosures (TNFD). The TNFD is developing a foundational framework for reporting on nature, in the same way that the Task Force on Climate-Related Financial Disclosures developed a foundational framework for reporting on climate.

Companies that report under the TNFD framework will have to consider the biodiversity risks they face and how these will impact on their financial performance over the long term. Nevertheless, the TNFD is not due to release the final recommendations for its framework until September 2023. So, what can businesses do in the meantime to support the efforts of COP15 while waiting for the global framework to be agreed?

In my view, they should adopt this five-step approach:

1.     Educate – Familiarize leaders across the business with biodiversity concepts, tools and frameworks.

2.     Enlist – Get involved in biodiversity think tanks and initiatives, such as the TNFD or the Science-Based Targets Network, or local organizations.

3.     Estimate – Bring in new skills to help map biodiversity risks up and down the value chain. 

4.     Enforce – Set science-based targets and build internal accountability for biodiversity across the business. 

5.     Explain – Disclose what they are doing to identify, measure and manage biodiversity risk.

Over the coming decade and beyond, biodiversity will undoubtedly present huge and complex challenges for businesses along with major opportunities. Those that engage with the biodiversity agenda at an early stage – and proactively collaborate with others – will likely be best placed to both address the challenges and seize the opportunities that arise.

 Disclaimer:

 The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.