Nature is as vital for humans’ mental and physical wellbeing as it is for their ability to manage change, global health threats and natural disasters. It is an integral part of life and essential for a resilient society.
But human activity continues to upset the precarious balance in ecosystems at an alarming and dangerous rate. The World Economic Forum’s (WEF) 2020 Global Risks Report notes that biodiversity loss is among the highest-impact risks of the next decade – with “critical implications for humanity, from the collapse of food and health systems to the disruption of entire supply chains… Biodiversity loss has also come to threaten the foundations of our economy.”
Businesses and governments have an important role to play in stanching the loss. According to the International Union for Conservation of Nature (IUCN), more than a hundred countries have adopted or are developing biodiversity compensation or offset policies. Still, much more is required to combat this urgent and existential threat. For businesses, it’s important to understand how they’re affected by nature loss and what they can do about it.
So, what is biodiversity and why is it in crisis?
In simple terms, biodiversity refers to the variety of life on Earth as a whole – every plant, animal, insect and microbe that makes up the ecosystems on the planet. However, as a direct result of continuous unsustainable activity, the global population sizes of wildlife fell by 60% between 1970 and 2014. In addition, studies show that 1 million species of plants and animals are at risk of extinction within decades. The WEF Global Risks Report notes: “The current rate of extinction is tens to hundreds of times higher than the average over the past 10 million years – and it is accelerating.”
Why should business care about biodiversity?
Business and nature are inextricably connected, and a disturbance to biodiversity has serious consequences for companies, their bottom line and the larger environment in which they operate.
The food and beverage business is one example of an industry that is at great risk from biodiversity loss. Deforestation, soil erosion and the extinction of pollinators pose a serious threat to food supplies and, ultimately, global value chains. For instance, more than 75% of global food crops are dependent, at least to some extent, on pollination. Consequently, as the loss of pollinators worsens, the global crop production, with a market value between $235 billion and $577 billion, is at risk.
Although the level of dependency varies by industry, biodiversity loss is an acute risk for all. Many businesses are aware of this and beginning to take action – but managing this type of risk is a new and different challenge for businesses. A study of Fortune 100 companies found that while nearly half referenced biodiversity within sustainability reports, only five had set commitments that were specific, measurable and time-bound. Knowing how to measure and understand nature-related risks to business and value chains remains a challenge.
Here are three considerations that businesses can be mindful of when thinking about biodiversity:
1. Understand the value chain and nature-related dependencies within it.
Companies’ first step should be to identify where their highest dependencies on nature lie across their supply chain. Adopting a risk management framework, such as that proposed by the Natural Capital Protocol, will aid in identifying and measuring nature-related dependencies and getting sight of the evolving risk landscape. Some companies have implemented Environmental Profit & Loss (EP&L) tools, which help to reduce their environmental footprint and generate tangible benefits. Companies don’t need to know all the answers, but defining a proactive and committed approach is key.
2. Consider how to influence nature-related risks and opportunities by working with peers and suppliers.
Companies with enhanced exposure to nature’s assets and services may be best to consider nature-related risks on a system level. They can define a vision by working with each part of their business and external partners to drive action throughout the value chain. For instance, at Dow, senior management recognizes the firm’s dependency on natural capital, particularly during events of extreme drought. Collaboration and joined-up thinking across the value chain have enabled the company to commit $10 million over a five-year period to work on natural capital with The Nature Conservancy and other external stakeholders – accelerating progress in managing the company’s nature dependency.
3. Think about setting ambitious targets according to best practice frameworks.
Businesses are under increasing scrutiny to account for and disclose nature-related risks. Developing metrics and targets for monitoring material nature-based risks will help companies assess progress against strategy and remain accountable to stakeholders. Seeking support and guidance from bodies like the Climate Disclosure Standards Board (CDSB) will also help organizations to incorporate nature-related risks alongside climate risk within corporate disclosures.
Addressing the consequences of change in global biodiversity requires wholescale societal commitment and a clear vision, embedded in global business strategy. By recognizing this, thinking ahead and focusing on solutions, companies can create opportunities to build a more resilient business, which can deliver strong financial and social returns.
Mike has more than 25 years’ experience in risk management, controls and governance. He leads Deloitte UK’s sustainability practice, which helps clients achieve their sustainability goals by developing, measuring and reporting on corporate responsibility strategy. Mike works with many large and listed organisations, helping them on sustainability issues ranging from decarbonisation to internal audit and assurance.