Biodiversity has quickly pushed itself to the front of the environmental, social, and governance (ESG) conversation alongside carbon, climate, community, and sustainable investment factors. Savvy business leaders need to be aware of what this development means in terms of their enterprise risk, impact and dependency assessments, and disclosure requirements.
The starting point is to build an understanding of how businesses rely on nature and what disclosure requirements are going to look like. Organizations that do this will not only mitigate financial risk and attract investment, but also ensure that they are prepared for the complexities of mandatory disclosures.
Why is the demand for biodiversity disclosures growing?
The evolution of the climate movement has opened the doors for more serious conversations about biodiversity. But make no mistake, biodiversity is paving its path in the corporate landscape.
According to research by the World Wildlife Fund, wildlife populations have suffered a decrease of 69 percent globally in the last 50 years. And research and modeling from the Royal Botanic Gardens, Kew, suggests that 40 percent of the world’s plant species are threatened with extinction.
These losses are attributed to five key drivers with land conversion from forests and wetlands to agricultural uses and urban areas being the largest one. Other factors include climate change, pollution, overexploitation, and invasive species.
The loss of biodiversity poses huge risks to the world’s economic system. A report from the World Economic Forum concludes that half of the world’s GDP ($44 trillion) is either moderately or highly dependent on nature. Nature provides essential services, free of charge, to businesses in the form of pollination, water purification, soil health, and a stable climate. With the disappearance of those services, businesses and investments find themselves facing substantial risks.
Governments and multilateral organizations are developing regulations in response to alleviate the progression of biodiversity loss and compel businesses to conduct biodiversity impact and dependency assessments as well as disclose biodiversity risks and opportunities.
The Current State of Biodiversity Disclosures
In December 2022, the Convention on Biological Diversity (CBD), and its 196 member states, adopted the Kunming-Montreal Global Biodiversity Framework (GBF) at the COP15 U.N. Biodiversity Conference in Montreal. The framework has four goals and 23 targets.
Highlights of the GBF include the “30 by 30” rule, which calls for the conservation and management of 30 percent of the world’s land by the year 2030. Target 15, which obliges governments to take legal action that ensures large companies and financial institutions regularly disclose their biodiversity impacts, dependencies, and risks, was also a major development.
The Taskforce on Nature-related Financial Disclosures (TNFD) provides a framework and business sector guidance that focus on nature-related risks. The latest beta version was released in March 2023, with September 2023 marked for the full release. As well, the GRI Biodiversity Standard is set to be released in the second half of 2023 for organizations to report on their biodiversity impacts. Financial institutions can report on their impacts and dependencies throughout their portfolios using the TNFD and GRI frameworks. The Partnership for Biodiversity Accounting Financials (PBAF) Standard provides guidance on how to use the growing number of tools available.
All of these disclosures are still voluntary, but mandatory disclosures based on the TNFD are expected to be coming soon. That said, the risks and opportunities are still present today, with or without regulations.
Why should businesses start now to prepare for biodiversity disclosures?
Complexities in Tracking, Measuring, and Reporting
“Biodiversity is a lot,” says Wijnand Broer, program manager at PBAF. “With climate, you have the CO2 equivalent as the key metric that can be used. In biodiversity, you do not have such a metric.”
Key indicators focus on the drivers of biodiversity loss and include the extent of land use change, total pollutants released to soil, volume of pollutants in wastewater, and total water withdrawal and consumption.
Understanding the definitions involved in biodiversity metrics and disclosures, and what they mean to your organization is a challenge. The sooner you begin exploring these factors, the better your understanding of them will be when it’s time to disclose.
Gain a Competitive Advantage
Along with the impacts, dependencies, and risks of biodiversity, there are also opportunities. “It’s an opportunity to attract investment,” says Stina Warnstam Drolet, head of sustainability, and advisory, at Oxford Analytica. “It’s an opportunity to attract employees and customers. It’s an opportunity to target new markets. I think, increasingly, companies will see it in that light.”
When financial institutions focus on lowering their biodiversity impacts and risks, companies outperforming the sector average will gain a competitive advantage.
“When a financial institution starts calculating an organization’s footprint based on sector average secondary data, and a company believes, ‘but we’re doing better than that,’ companies will benefit from proving that they score better than the average,” says Broer.
How Can Businesses Get Started On Their Biodiversity Journey
Awareness about biodiversity risks and opportunities has to first be raised with a company’s board of directors and C-suite executives. Once an organization’s governance is engaged, some fundamental building blocks mark the beginning of a biodiversity journey.
LEAP Assessment from TNFD
LEAP is the material risks and opportunities assessment guidance provided by the TNFD. It is not mandatory to use LEAP, but it is the recommended starting point for companies to assess their biodiversity impacts, dependencies, risks, and opportunities.
LEAP is broken down into four steps:
- Locate, which instructs organizations to locate the presence of their operations in areas that meet the TNFD criteria for high-risk ecosystems
- Evaluate, which is conducting a biodiversity impact and dependencies assessment
- Assess, which includes a materiality assessment to identify the material risks to an organization
- Prepare, which is preparing to disclose and report on your findings
LEAP provides direction and guidance for companies, but fulfilling the requirements of each step is still a new and confusing challenge. Locating all business assets and activities presents a problem of scale, and conducting biodiversity impact, dependency, and material risk assessments is unknown territory for most organizations. Few organizations have the in-house resources and capacity to do everything on their own. ESG and biodiversity experts, like Equilibrium, have the professional expertise and precision tools that businesses need to complete each of the LEAP steps.
Supplier Conversations and Data Gathering
Gathering data from suppliers is the biggest challenge that companies will face when it comes to biodiversity disclosures. Much like Scope 3 GHG emissions, biodiversity disclosures require complete supply chain analysis and data gathering. With biodiversity metrics, however, organizations need to get much more information from suppliers than just their emissions numbers.
Technology offers a practical solution to this complicated problem. Using Equilibrium’s supplier survey portal, businesses can select preloaded questions, or customize their own questions, pertaining to the range of biodiversity data that they need from their suppliers. With the click of a button this survey can be sent out to every single supplier in an organization’s value chain. When suppliers respond, their information is automatically uploaded, and the data automatically aggregated to the software, giving organizations a complete look at their supply chain biodiversity metrics.
The Benefits of Including Biodiversity in Your Overall ESG Strategy
“Biodiversity and climate are two sides of the same coin — they are not separate issues,” says Broer. Many nature-based solutions can benefit both biodiversity and climate. Realizing those opportunities by including biodiversity in your ESG strategy can stretch the impact of your actions.
One of the obstacles for companies in their biodiversity journey is the lack of data, but that shouldn’t hold you back.
“It’s fine to quantify, but don’t ever hide behind the data or the lack of data. There is so much you can already do based on common sense,” says Broer. “Based on common sense, you already understand what your financial risks will be, and what actions you can take to limit those risks. It’s an important message not to wait, but to start.”
