Biodiversity is a must for profitable business
For those who are ahead of the game, basic ecology is not enough.
Companies want to achieve more and constantly set higher targets for themselves. Carbon neutrality targets have become carbon negative targets for many companies, and the term “nature-positive” is being increasingly used in the biodiversity discussion.
There is an urgent need for action on biodiversity. Being defined as the sum of species, genetic diversity, ecosystems and evolutionary processes, a significant proportion of Earth’s life forms and living environment is threatened with extinction. According to the latest WWF Living Planet Report, humanity has wiped out more than 60% of all wildlife on Earth. This is not only a moral concern, as the decline of species, ecosystem services and natural capital assets directly threatens the performance of businesses at a similar scale as the climate crisis.
To turn the tide, corporates need to be involved in biodiversity action on a broad scale and quickly. Few business leaders, however, have yet paid full attention to nature-related risks and dependencies on nature and ecosystem services. This situation is a major blocker for putting biodiversity issues on the management agenda.
Customers, investors and other stakeholders will demand that companies set ambitious targets and make concrete actions for promoting biodiversity.
Sven Stadtmann, PhD
Biodiversity Lead, Senior Consultant, Sustainability Consulting
No nature, no business
The loss of biodiversity affects businesses in different ways, given their individual risk profiles and dependencies on nature. For instance, a reduction in soil quality and unstable climate can significantly disrupt the reliability of agricultural supply chains, while the disruption of a river flow impacts the efficiency of hydropower plants and a decrease in forest cover-related erosion protection provides a direct threat to the operation.
Biodiversity loss increases physical, regulatory, economic and reputational risks while investing in biodiversity and ecosystem restoration can prevent liabilities and manage such risks – if the measures are target-oriented and a company’s risk profile has been properly identified. This process requires the collection and analysis of location-specific data, which is a major difference when compared to climate reporting. Unlike climate change, nature-related impacts and dependencies for the same type of company asset vary significantly around the globe depending on the ecosystem or region where the asset is located in.
The requirements for managing nature-related risks and dependencies are increasingly reflected in ESG processes, regulatory requirements but also in customer demand. While the topic is a few years behind the climate change discussion in both public awareness and policymaking, regulators are picking up the pace, as the recent adjustments to the EU Taxonomy and the founding of the Task Force on Nature-Related Financial Disclosure (TNFD) have demonstrated.
Customers are demanding sustainability actions – biodiversity is the next big thing after climate actions
Most companies that initiated corporate sustainability programs have succeeded in increasing customer satisfaction and, in turn, customer loyalty and financial performance. As customer expectations keep increasing, new business opportunities emerge while companies respond to demand and offer more sustainable solutions and alternatives – a process whose positive spin also attracts investors. However, corporate sustainability management will include managing nature-related risks in moving forward, and further action on biodiversity is required to keep the ball moving.
The tightening of requirements for sustainable financing will have a significant impact on the efforts of companies to manage biodiversity. Money will be directed towards companies and projects that promote biodiversity and sustainability more broadly. TNFD, as well as the EU Taxonomy, will be important tools in this context and a good understanding will be required to apply them effectively, while at the same time international infrastructure projects need to be increasingly aligned with performance standards such as IFC PS6
1
.
A responsible business attracts not only customers and investors, but partners and employees too. Responsible actors also expect their partners to take concrete responsible action. This becomes visible not only in the patterns of cooperation between companies, but also, for example, in supply chains. Sustainability has therefore become a trend that is shaping the market economy.
How ambitious are your biodiversity targets?
As the bar is raised and the stakes increase, the strategic level becomes more important. Rather than fixing individual issues, it is useful to develop a holistic view of what kind of actor the company will be in the future and what role biodiversity issues will play in this.
Does the business model require a complete management makeover to account for nature-related risks? Do you need to sync your business with IUCN
2
guidelines? Are you going to invest into concrete biodiversity restoration measures such as green roofs and wetland restoration? Do public-private sector partnerships and community-based conservation approaches play an important role in securing the relevant ecosystem services and natural capital assets?
Promoting biodiversity can still provide a competitive advantage for companies, but soon it will become a standard requirement.
Minna Laitinen
Senior Consultant, AFRY Management Consulting
By assessing one's own performance, including the company's capabilities, competitiveness, competitive landscape and the impacts of the business, it is possible to get a better idea of what targets can be set and how to work towards them.
Footnotes
- 1. International Finance Corporation's Environmental and Social Performance Standards define IFC clients' responsibilities for managing their environmental and social risks. Performance Standard 6 includes Biodiversity Conservation and Sustainable Management of Living Natural Resources. a↩
- 2. International Union for Conservation of Nature ↩
