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Exploiting nature just for profit no longer makes business sense

Change can only be achieved if consideration of biodiversity is embedded in corporate strategies

With more than half of the world’s economic output dependent on nature, biodiversity fuels the global economy. Business and the natural world have traditionally been viewed separately, with economies relying on the exploitation of nature for profit but now is the time that companies must make meaningful change.

Investors are becoming aware of the financial risks that biodiversity decline presents while regulators are increasing pressure to reduce biodiversity loss through established regulation in France, and impending rules in the United Kingdom and European Union.

The World Bank estimates that as much as $2.7 trillion (€2.6 trillion) in global GDP could be lost per year by 2030 due to the collapse of ecosystem services – the basic services provided by nature that make life possible. These figures are sure to grab the attention of investors and policymakers. For industries that are highly dependent on nature, including food and agriculture, fashion and construction, any decline in ecosystem services presents material financial risks.

Here in Ireland, biodiversity is in crisis. Some 85 per cent of protected habitats and 30 per cent of protected species are at risk. Global comparisons also highlight challenges for Ireland’s ecosystems. Ireland ranks 42nd globally in the Yale Environmental Performance Index for biodiversity and habitat conservation, ranking behind countries with considerable ongoing habitat destruction. There is an increased awareness of the need to act to improve conservation and restoration efforts, with initiatives such as the National Biodiversity Plan and Business for Biodiversity aiming to engage civil society and the corporate world in action to protect nature at a local level.

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The increasingly apparent link between the climate crisis and biodiversity decline may be one reason for this heightened awareness. With temperatures on the rise, changing rainfall patterns, extreme weather events and ocean acidification, these developments create incredibly challenging conditions for biodiversity to survive.

Extreme weather

In turn, the destruction of natural habitats undermines nature’s ability to regulate temperatures and protect against extreme weather. The link between climate and biodiversity means that inaction on one topic undermines any achievements on the other. For businesses and investors, this means that a climate transition strategy that fails to take biodiversity into account ultimately does not address environmental risks, which presents significant unknown financial risks. As the link between climate and biodiversity becomes increasingly obvious, recognition of the financial risks of acting in silos will become clear.

Some investors have responded to the concerning rate of biodiversity loss and its potential devastating financial consequences. Aviva has urged policymakers to embed nature in climate transition plans while also working to improve its own performance, linking its climate and biodiversity goals, and publishing a biodiversity policy that aims to protect and restore nature across its investments. Investment manager Martin Currie is also integrating biodiversity into the investment process, and others are beginning to follow suit. A recent Robeco survey found more than 40 per cent of investors say biodiversity is a significant factor in their investment policy.

As regulation, industry frameworks and investor priorities demand increasing accountability on biodiversity impact, companies’ “wait and see” approaches have become inadequate, as have complaints over the lack of guidance on measuring impact. What cannot be measured, cannot be managed may ring true for many corporations who have dealt with climate through the monitoring of a single metric – greenhouse gas emissions.

Responsibility

There may not be one silver bullet metric for biodiversity, so corporates will need to think differently about how they track and report their progress. Frameworks and measurement techniques are emerging to support standardisation and any biodiversity action plan should be grounded in science-led frameworks. The Taskforce on Nature-related Financial Disclosure (TNFD) appears positioned to become the gold standard reporting framework for natural capital. The TNFD draft framework outlines how action on biodiversity involves identifying contributions to biodiversity loss, understanding how to eliminate negative impacts and ultimately contributing to the restoration of nature. The adoption of transparency on climate paves the way for a rapid increase in biodiversity disclosure.

Businesses rely on biodiversity to provide the ecosystem services that underpin our economy. In exchange for these services, actors have a responsibility to ensure the protection and restoration of nature, not just as the right thing to do but to promote prosperity and resilience. Only through the consideration of biodiversity in corporate strategy can the scale of change required be achieved. We can live prosperously with nature so long as the economy is viewed as embedded within our natural ecosystems, not separate from them. To avoid the worst impacts of biodiversity decline, investors and businesses need to begin working with nature, not against it. Businesses will need to assess their role within natural ecosystems and begin on the path of creating positive feedback loops.

The exploitation of nature no longer makes business sense, integrating nature into corporate strategy does.

Holly Pettingale is a director at FTI Consulting, specialising in ESG and sustainability