By Dr Irene C. Wisheu, Ph.D.
According to the World Economic Forum (WEF), more than half of the world’s total Global Domestic Product (GDP), U$44 trillion of economic value generation, is moderately or highly dependent on biodiversity18. Business leader BlackRock has similarly stated that all companies rely on nature in some way and that the long-term financial performance of companies depends on natural capital3, hence, on the protection of natural resources and healthy ecosystems. Our economy clearly depends on nature, but how exactly?
Biodiversity is the characteristic of nature that is critical to maintaining ecosystem assets and the provision of ecosystem services that businesses and society rely upon. For example, a variety of birds, bats and insects act as pollinators, an asset that provides the service of pollination, critical to food protection. Similarly, a forest is an asset that reduces erosion (and greenhouse gas emissions (GHG)), regulates water flow, improves air quality, and provides recreational, educational, and cultural services. The land, oceans, and freshwater ecosystems are our natural capital, assets created by incredible biological diversity that together, provide, among other things, the service of global climate regulate.
Ecosystems and the services they provide have the potential to provide 37% of the mitigation actions required to remain below a 2ᵒC increase in temperature by 203016. By investing in our biological diversity and restoring ecosystem assets, nature’s ability to store and ensure carbon sequestration will improve. This would move the needle and allow a carbon-neutral economy to be achieved more easily.
It is estimated that ecosystem assets could provide up to $248 billion/year through the reduction of climate-related risks2. When used to provide services for socio-economic challenges, these assets are nature-based solutions and help with drought prevention, food security, health and well-being, air quality control, and more. For example, trees planted in an urban area will cool and improve air quality for the region’s citizens. Wetland, forest, saltmarsh, and grassland assets can all be nature-based solutions when they are used for flood reduction, erosion control, and carbon uptake. If, however, all this isn’t reason enough to act to protect and restore biodiversity, there’s more.
By underpinning ecosystems, biodiversity financially supports many businesses, including those in the construction, agriculture, and food and beverage sectors. This is worth U$7.9 trillion to the global economy annually18. These sectors draw from nature’s assets directly. There are raw materials such as timber and fish from forests and oceans, and nature’s services for soil retention, water flow regulation, pollination, and a stable climate. Some companies have their dependencies hidden within their supply chains, for example, those in the real estate, mining, retail, consumer goods, and travel and tourism industries. It is estimated that 40% of all jobs depend on businesses financially reliant on ecosystem services10, which also propels the economy.
In addition to providing the variety of foods that we eat, and the soil, air, and climate upon which our crops rely, biodiversity also ensures that our harvests are productive. More than 75% of our food crops rely on animals for their pollination19, and with pollinator species in decline, certain crops are experiencing insufficient pollination putting global crop production, valued at between $235 billion and $577 billion, at risk. In certain areas, primarily in lower-income countries, pollination is already insufficient and an estimated 3-5% of all fruits, nuts, and vegetables, are being lost annually13. This loss is contributing to an estimated 427,000 human mortalities each year!
Beyond being food, certain crops are also medicines. Over 80% of all people living in rural areas rely on traditional plant-based medicines as their primary health source17, playing a critical role and creating positive impact in local communities.
People in urban areas also rely on plants since trees offer shade and cooling. Without trees, heat islands can form, regions where air and water quality is lower and temperatures are higher. This can lead to both heat-related discomfort and deaths. There were 1,577 heat-related deaths in the United States in 2021, up 56% from 20188. Especially vulnerable are the elderly, the young, people with disabilities, low-income populations, and outdoor workers. There are also direct economic consequences as well, with heat islands raising the demand for electricity and lowering the productivity of workers laboring without shade11.
Certain communities and economic groups will be more highly impacted by the loss of biological diversity than others. For example, in India, forests contribute only 7% to the country’s GDP but up to 57% of the income in rural Indian communities19. Women and children are especially vulnerable as they frequently gain income from fuel, food, and water management, all resources that are dependent on nature. Although manifesting itself at a local level, biodiversity loss and its negative impacts on local economies can have massive effects including risks to nothing less than geopolitical peace and stability. And that’s another reason why biodiversity matters!
All businesses are either directly or indirectly dependent on nature, or vulnerable to the disruptions to communities and society that nature can cause. These impacts can be to business operations, business continuity, supply acquisition, the cost of raw materials, the value of real estate assets, and/or the physical security of the business, all of which can lead to decreased profitability.
Companies can also be vulnerable to nature-related risks by their own activities that can trigger negative consequences. These include legal and regulatory risks, reputational risks, vulnerability due to shifts in the market, and stakeholder pressure.
Essentially, the cumulative risks, whether direct or indirect, can threaten the viability of their value chains, impacting their business partners and potential future business opportunities.
Despite the importance of biodiversity, the response from the business community lags behind carbon reporting and climate action. One difficulty is that there is no measurement for biological diversity as there is for climate change and the use of the CO2 metric.
A more important barrier, however, is that there is low awareness of nature-related considerations. A survey of 100 Fortune 500 Global companies revealed that while companies are starting to refer to biodiversity within their sustainability reports, few fully understand the risks to their business or know how to measure them and set specific targets and commitments1. Even among companies that have reported to the CDP and are aware of climate-related risks, impacts, and opportunities, their disclosures reveal less reporting related to the biodiversity crisis9.
Considering its importance, a first action should be to get biodiversity on the radar and identify potential impacts, both negative and positive, and nature-related risks to your company and its stakeholders.
What are the environmental and ecosystem assets and services that could impact your business? For example, if you are in the forestry, your business activities require timber. If ecosystem and natural assets are not inventoried, and their services not valued, they can be mismanaged and degraded, leading to loss of services.
How might your production processes, your value chain, assets, and your company itself be vulnerable? Is fresh water needed for product production and cardboard and fuel for deliveries? How might the market change? What resources might you need in the future to continue to produce new products or services?
Being aware of the potential risks and then reporting on them will help you manage and avoid biodiversity risks and move towards an actionable sustainability strategy. What do you need to measure and understand in order to develop the plan? What will be your biodiversity related KPIs? Which reporting framework and assessment tools to use? There is one being developed by the Taskforce on Nature-Related Financial Disclosures (TNFD)15 which is gaining acceptance. Will it fit your needs? And while you’re doing an inventory, ask one additional question. What are the potential opportunities for your business?
Any action or initiative that protects or enhances biodiversity is an opportunity to reduce or avoid negative impact and risk. It is likewise an opportunity to access new funding sources and enhance reputation. Your brand can be strengthened and relationships with suppliers, customers, governmental authorities and local communities can be improved.
With impacts and risks identified, companies can avoid, reduce, or mitigate them and strategically transform their business models, products, services, as well as influence their investment decisions, to produce opportunities.
If resource availability is uncertain, then restructuring or improving to use less resources will not only leave your business less vulnerable to uncertainties, but will also be an opportunity to innovate, invest in research and development, and develop business efficiencies that reduce your impact on biodiversity and cut costs as well. Similarly, innovative new products, technologies, and services can be developed to lower your dependence on potentially vulnerable resources using alternative materials. In the food industry for example, diversifying the kinds of crops produced could limit your vulnerability while promoting biodiversity. Promoting vegetarian rather than meat-based products would also have a much lower environmental impact. Innovate and scale-up what you have developed. And remember, having a holistic approach of your value chain may reveal a biodiversity impact you never knew you had! And it could even generate new opportunities in terms of business models, such as circular economy loops or shared value initiatives.
Protecting biodiversity is an immense challenge and requires everyone’s implication.
With the growing concern about biodiversity, pressure will increase for risk disclosures and actionable plans. Reporting will improve transparency as will the use of well-developed metrics and targets. Regulators are struggling with standardizing nature-related data, so research which metrics and methodologies you should use. Reporting, monitoring, and measuring biodiversity impact will also facilitate the exercise of establishing initiatives and targets for lowering your impact on biodiversity while engaging and educating stakeholders as well as creating positive direct or indirect impact..
To ward off biodiversity loss, a fundamental transformation is needed in how we use the planet. The task sounds enormous but just as everyone’s small actions helped us through the COVID pandemic, every action of any size will help limit the losses. We need to go beyond risk mitigation and do-no-harm, and engage in initiatives that protect and restore biodiversity, and that do so in an equitable, inclusive, and just fashion. In other words, we need to integrate biodiversity in our business mindset.
Our economy, our climate and our lives are at risk. Biodiversity loss and ecosystem collapse is ranked as a top 10 risk in terms of likelihood and impact in the next 10 years18 and is a threat acknowledged by business leaders and heads of state and government worldwide.
There is even a business case to be made for protecting biodiversity. First, there is the potential for $3.5 trillion by 2030 if there is a transition towards a nature-positive economy and the adoption of forest restoration, sustainable aquaculture, and plant-based meat alternatives20. Next, remember the $248 billion that we could save each year from ecosystem assets? We would spend twice as much if we were to build equivalent infrastructure to perform the same services2. The benefits of restoring an ecosystem and recovering its assets and services often outweigh the restoration costs4.
Recently, at COP 15 in Montreal, it was confirmed that the new Global Biodiversity Framework, designed to guide government parties and the private sector as well, will focus on protecting 30% of biodiversity by 2030. Particular attention was paid to dissipating waste by half in the agriculture and food sector. Subsidy reform was also proposed as were new requirements on transnational companies.
Expect changes in policies to encourage the better use of resources, such as pricing changes or taxes. Biodiversity-related permits, fees and charges are likewise expected to continue increasing. Also possible is new legislature that introduces ideas such as biodiversity credits and offsetting. Disclosure requirements are also likely to change, with biodiversity reporting being added to other reporting already mandated in some areas. Governments will be encouraging greater action so watch for incentive programs and funding opportunities.
The current challenges for business leaders may never have been greater, but biodiversity does matter and is intrinsically linked to the way businesses can manage their risks, create business opportunities and value for themselves, the planet and society.
1. Addison, P. et al. (2018). Using conservation science to advance corporate biodiversity accountability. Conservation Biology 33 (2) 303-318.
2. Bassi, A. et al. (2021). How can Investment in Nature Close the Infrastructure Gap?
3. BlackRock Investment Stewardship (2021). Our approach to engagement on natural capital.
4. Blaignaut, J. et al. (2013). Restoration of natural capital: a key strategy on the path to sustainability.
5. CBD (2021). Genetic Diversity: The Hidden Secret of Life
6. CBD (2021). Pharmaceuticals and Biodiversity: To protect ourselves we must safeguard our planet
7. CDSB (2021). Application guidance for biodiversity-related disclosures
8. Davis, M. (2022). Heat-Related Deaths Up 56% Between 2018 and 2021, Provisional Data Shows.
9. Finlay, H. et al. (2021). Disclosing nature’s potential: corporate responses and the need for greater ambition.
10. International Labour Organization (2018). World Employment and Social Outlook 2018: Greening with jobs.
11. Masuda, Y. et. al. (2021). Warming from tropical deforestation reduces worker productivity in rural communities.
12. OECD (2019) Biodiversity: Finance and the Economic and Business Case for Action
13. Smith, M.R. et al. (2022). Pollinator Deficits, Food Consumption, and Consequences for Human Health: A Modeling Study.
14. Souchet, F. (2019). “Fashion Has a Huge Waste Problem. Here’s How It Can Change”
15. TNFD (2022). Welcome to the FNFD Nature-Related Risk & Opportunity Management and Disclosure Framework.
16. The Nature Conservancy (2017). Nature’s Make or Break Potential for Climate Change.
17. United Nations (2022). ‘Build a shared future for all life’, urges UN chief on Biodiversity Day.
18. World Economic Forum (2020). Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy.
19. World Economic Forum (2020). Nature loss is eating away at our food supply and diversity.
20. World Economic Forum (2020). The Future of Nature and Business.