Biodiversity: an investment blind spot

Ecosystem services under pressure

Nature is quite literally a natural capital which provides us with various benefits that we call ecosystem services. We distinguish the following categories:

• regulating services
  (life-supporting processes such as nutrient recycling and water purification)
• provisioning services
  (resources we obtain such as food, water and timber)
• cultural services
  (recreational and spiritual experience)

However, our expanding human activities are putting increasing pressure on our planet and its services. We treat our precious natural capital as a bank account from which we only withdraw - we never get round to making a deposit. But failing to do so comes at our own expense: we are seriously at risk of becoming overdrawn.

And that is a real risk. The IPBES (The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services) has identified five key pressures on and by economic activity:

• habitat destruction and fragmentation
• pollution
• climate change
• rise of evasive species
• overexploitation of natural resources

These pressures profoundly – and negatively ­– affect biodiversity and ecosystem services. Many sectors and industries, such as the textile industry or the agricultural, energy and renewables sector, depend on ecosystem services. Without the clean water, pollination or climate regulation that these services provide, ecosystem-dependent sectors would face serious problems across their production and supply chains.

There are companies whose operations have a negative impact on the environment and actually contribute to ecosystem degradation. Take for example the oil and gas, maritime, aerospace and mining industries or the agricultural sector.

The IPBES identifies categories of businesses that depend on biodiversity and those that directly or indirectly impact on biodiversity.  And the fact of the matter is that we are all affected by ecosystem degradation. Biodiversity loss not only threatens the natural world but also has far-reaching consequences for the economy and human well-being.

If it’s obvious that we need healthy ecosystems for our economic and long-term survival, it makes sense that companies across all industries take measures to mitigate their impact on biodiversity and promote sustainable business practices. So why is that barely happening?

Weeding out the obstacles

One of the problems is that investors and the wider business community have not yet fully grasped the importance of biodiversity and its benefits to the economy and society. We need to do more to promote awareness and stress the ramifications of inaction.

A second issue is the perceived conflict between economic growth and biodiversity conservation. Some argue that protecting biodiversity comes at the expense of economic development. But that is not the case. In fact, investing in biodiversity conservation and restoration can lead to economic opportunities, such as developing nature-based tourism and jobs that contribute to preserving or restoring the environment, such as in the renewable energy or waste reduction sectors. It is important to encourage sustainable practices and investments that prioritize biodiversity conservation. Financial incentives that reward companies for their positive environmental impact can help to do so.

Complexity is a third obstacle. Biodiversity varies depending on region, country and even location. Each habitat has its own unique set of flora and fauna that has adapted to the specific environmental conditions of that area. This incredible diversity of life across different habitats is what makes our planet so rich and fascinating. But it also means that the measures needed to combat ecosystem degradation vary according to the habitat. It is hard for companies with global presence to roll out a single strategy. Added to that, there is no consensus yet on how to define and monitor biodiversity. However efforts are now well under way to establish common biodiversity indicators that are scientifically robust and measurable so that the data reported is consistent and comparable.

Taking biodiversity out of the blind spot

Biodiversity is a topic businesses cannot ignore. If investors and FMPs are to create sound investment strategies, they need to understand how the activities of their assets impact on the environment and they must assess the risk of business activities being impacted by a changing environment. ESG analysts have to know which biodiversity initiatives to launch, sustainability officers must integrate biodiversity principles into their operation and strategy, and compliance officers seek regulatory alignment. For risk and supply chain managers, biodiversity degradation is a worry because of the lack of or change to resources.

When you put biodiversity firmly on your business agenda, we will help you answer the key questions of identifying the mitigating action to take and how to monitor and account for your company’s progress in restoring ecosystems?

Show and grow

There is increasing regulatory pressure to account for biodiversity protective measures. Some legislation is already in place that addresses biodiversity conservation and sustainability and there are a growing number of methodologies and initiatives that can help you assess and report on your company’s environmental impact. Current and pending legislation, in the EU at least, includes:

• SFDR
• CSRD
• Nature Restoration Law

These legislative measures demonstrate the growing recognition of the importance of biodiversity conservation and the need for businesses to integrate biodiversity considerations into their operations and reporting. 

The methodologies and approaches that you can use to demonstrate your efforts and activities include the CDP Disclosures System, SBTN, GRI, TNFD, Natura Capital protocol, ISSB, and an interoperable approach to ESRS or ISSB.

While some of these approaches are voluntary, it is important to note that certain methodologies, such as those under the Corporate Sustainability Reporting Directive (CSRD), are mandatory for reporting.

How can I assess impact or dependency?

There are various options available in the market to help you properly assess the impact and dependency of your business or investment on ecosystem services. Examples of useful tools are ENCORE, Exiobase, and Globio. They provide comprehensive analysis and measurement of environmental impacts, so that you can make informed decisions and take targeted action to mitigate negative effects.

The World Resource Institute, Aqueduct, and the Global Biodiversity Score are other resources that offer valuable insights into the state of global ecosystems and biodiversity. These platforms provide data and metrics to assess and monitor ecosystem health and biodiversity loss.