Biodiversity and business: How should your organisation respond?

During recent years, governments, regulators and businesses have recognised the systemic, operational and financial risks posed by climate change. However, as highlighted by the recent publication of the EU 2030 Biodiversity Strategy and the Economics of Biodiversity review by Professor Sir Partha Dasgupta, the challenges posed by biodiversity and ecological conservation will demand governments and businesses confront and manage these risks with the same momentum.

Biodiversity: What does it mean and why is it in crisis?

In simple terms, biodiversity concerns the variety of life on Earth as a whole. Biodiversity comprises 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 of wild species fell by 60% between 1970 and 2014. Further to this, according to the 2019 IPBES Global Assessment Report on Biodiversity and Ecosystem Services, one million species of plants and animals remain at risk of extinction within decades.

Why should businesses care about biodiversity?

Business and nature are inextricably connected, and a disturbance to biodiversity has serious consequences for companies.

The food and beverage business is one example of an industry that faces the greatest risk from biodiversity loss. Deforestation, soil erosion and pollinator extinction pose a serious threat to food supplies and ultimately, global value chains. For instance, over 75% of global food crops are dependent to at least 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 businesses. Many organisations are aware of this and are beginning to take action, but managing biodiversity risk is a new and different challenge for business. A recent study of Fortune 500 companies found that whilst nearly half referenced biodiversity within sustainability reports, only five had set sufficient and tangible nature-related targets. Knowing how to measure and understand nature-related risks to business and value chains remains a challenge.

Our top three business biodiversity considerations:

1. Really understand your value chain and nature-related dependencies within it.
   
   Your first step should be to know where your highest dependencies on nature lie across your value chain. Look to adopt a risk management framework, such as that proposed by the Natural Capital Protocol, for identifying and measuring your nature-related dependencies and getting sight of the evolving risk landscape. Some companies like Kering, a luxury goods conglomerate, have implemented an Environment Profit & Loss (EP&L) tool, which has helped to reduce their environmental footprint and generate tangible benefits at all levels of the business. You do not need to know all the answers, but defining a proactive and committed approach is key if businesses are to support biodiversity initiatives.
   
2. Consider how you can 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. Define a vision by working with each part of your business and external partners to drive action throughout your value chain. For instance, at Dow, a multinational chemical corporation, senior management recognises the firm’s dependency on natural capital, particularly during events of extreme drought, which directly affects Dow’s assets. Collaboration and joined-up thinking have enabled Dow to commit $10 million over a five-year period to work on natural capital with The Nature Conservancy and other external stakeholders and really accelerate progress in managing Dow’s nature dependency.
3. Think about setting ambitious targets according to best practice frameworks.
   
   Businesses are coming under increasing scrutiny to account for and disclose nature-related risks. In 2020, as part of the EU Non-Financial Reporting Directive, the European Commission launched a review of the reporting requirements for businesses with the aim of enhancing the quality and scope of non-financial disclosures, particularly around environmental aspects such as biodiversity.
   
   Developing metrics and targets for monitoring material nature-based risks will help your business to assess progress against strategy, and remain accountable to stakeholders. Seeking support and guidance from bodies like the Climate Disclosure Standards Board (CDSB) will help your organisation to incorporate nature-related risks alongside climate risk within your corporate disclosure.  

Looking forward

Addressing the consequences of change in global biodiversity requires wholescale societal commitment, and a clear vision, embedded in global business strategy. This year, the European Commission will launch a new initiative focused on sustainable corporate governance. This initiative, which may translate into legislation, will call on businesses to ensure that environmental issues are being considered and assessed across value chains in a way that is proportionate to the size of companies.

At Deloitte, we recognise the need to think ahead and focus on solutions that see business and biodiversity as two sides of the same coin. We want to work with you to start managing nature-related risks and seek out opportunities to build a more resilient business - one that can deliver strong financial and social returns.