Embedding of climate risk into day-to-day business operations is a milestone moment in efforts to manage the climate impact of global business. Richard Young explores whether biodiversity risk could become as integrated into how businesses operate
When we talk about biodiversity, we refer to all kinds of life – plants, animals, fungi and microorganisms – but also the ecosystems in which they interact with each other. While we have been aware of escalating impacts on climate for many decades, we have known about the growing loss of global biodiversity for much longer. Species extinctions and population declines all over the world are concerning not only in themselves but also from a societal and business point of view.
The rate at which biodiversity loss is occurring poses a risk to global business owing to the fact that we rely on the natural world to provide essential goods and services and planetary life support systems.
Much like climate-related disclosures in recent years, we can expect that the potential risk from biodiversity loss will reach a point that regulators can no longer ignore, leading to a mandatory company reporting requirement being introduced.
The momentum behind this is building. The World Economic Forum's Global Risks Report 2024 identifies biodiversity loss as the third most critical risk we will face over the next ten years. Where this differs from climate change is that businesses, and society more broadly, depend on biodiversity, a well-known example being the need for insect pollinators in order to grow crops.
There is a very clear business interest in developing strategies for and investing in reducing our impact on biodiversity.
There needs to be a systematic approach to identifying and acting on these known risks, much like many governments have now introduced carbon-linked reporting. The Taskforce on Nature-related Financial Disclosures (TNFD), which launched its final recommendations in 2023, has been developed as a common approach for helping businesses to identify the risks and opportunities in their interactions with the natural world.
Moreover, the groundbreaking and highly influential International Sustainability Standards Board (ISSB) has earmarked nature as the focus for its third standard, which is likely to be aligned with TNFD recommendations.
While there is not yet a regulatory mandate necessitating biodiversity reporting in isolation, it is rising higher on the global agenda through its inclusion in the United Nations Kunming-Montreal Global Biodiversity Framework as target 15. The European Union (EU) has recently introduced the Corporate Sustainability
Reporting Directive, which requires large businesses to report on sustainability issues beyond climate to now include nature and biodiversity.
"The potential risk from biodiversity loss will reach a point that regulators can no longer ignore, leading to a mandatory company reporting"
Within the past year, the EU has also introduced a new deforestation regulation that demands appropriately robust due diligence on the sourcing of certain commodities associated with tropical deforestation to reduce the region's impact on tropical forests and the biodiversity they support.
These policies indicate an important shift towards much-needed action from business in protecting global biodiversity.
We are beginning to see growing awareness among policymakers and regulators of the significance of biodiversity risk. Much like with climate, financial and regulatory institutions act as barometers: as they start to acknowledge a particular challenge, disclosures on that challenge are likely to become mandatory.Understanding biodiversity risk is particularly nuanced and complex – it differs from business to business, supply chain to supply chain – and is highly location specific. However, it's key to understanding the baseline – where a business is now. Identifying how a company's supply chains, direct operations and sold goods and services impact and depend on nature and biodiversity is the starting point for taking action.
For most businesses, the greatest risk is in the supply chain – the raw materials sourced and where they come from. Given the complexities, scale and intransparency of many supply chains, this inevitably presents a challenge. The new TNFD framework gives a valuable good practice guide that is a worthwhile read for those working on biodiversity and financial risks to a business. Having that understanding becomes the foundation for action.
It's likely that many businesses have already taken some action on biodiversity risk. For example, if a business has begun climate risk work, following a model such as the Task Force on Climate-Related Financial Disclosures (TCFD), it has already completed a significant amount of meaningful work towards biodiversity risk. The information gathered for assessing climate risk will provide good visibility and foresight across the areas that are key to understanding biodiversity risk and in particular the procurement of raw materials and other commodities.
Biodiversity is highly complex and can't be assessed by a singular metric such as a company's impact on the climate (for example, volume or intensity of carbon emissions), and the location-specific nature of biodiversity impacts and dependencies makes it a challenge to gain an understanding, especially so given the opaque nature of supply chains. Equally, if a business is already delivering emissions reductions, that is likely also driving actions that reduce nature-related risk. Taking nature-based approaches to offsetting, for example, means you may already be doing a lot to reduce impacts on the natural environment potentially linked to your business, as well as managing carbon footprints.
In January 2024, 320 businesses signed up as early adopters of the TNFD framework. There is already momentum building within businesses to take meaningful company-wide action to manage their impacts and dependencies on nature. As focus on this grows, coinciding with the arrival of mechanisms such as the TNFD framework, businesses are beginning to take real, meaningful action now ahead of any potential mandate coming in. If, and when, that does happen, many will already be well prepared.
Dr Richard Young is managing director of Nature Positive, a sustainability consultancy specialising in helping businesses with their nature and climate goals and challenges. It is a subsidiary of RSK Group.
