Biodiversity is following hot on the heels of carbon as an issue customers and investors want businesses to address. Addressing biodiversity means understanding the risks associated with biodiversity loss, and recognising the opportunities it presents.
There is some legislation in the mix too. Obligatory is only where you are a planning authority, developer or land manager and Biodiversity Net Gain (BNG) is mandatory from November 2023 for developments in the Town and Country Planning Act 1990. The start date is April 2024 for small sites. What is BNG I hear you ask….. It is making sure the habitat for wildlife is in a better state when a development is completed, than before the site was developed.
Then you may come across The Taskforce on Nature-related Financial Disclosures (TFND) which is due to be published in September 2023. This is a market-led, science based and government supported initiative. The now mandatory TCFD started in a similar fashion. The acceleration of nature loss globally is an increasing source of risk to businesses and providers of financial capital, so 190 states set targets under the Global Biodiversity Framework (GBF) in December 2022. As this is the likely legislative framework of the future, this article will give a quick overview of the recommended business approach to biodiversity – Identify, Assess, Respond, Disclose.
Identify
This is a mapping exercise across a business value chain, to identify where there are interfaces with nature. Often this will be within supply chains. Businesses should identify the type of ecosystem, location and they key functions of each.
There is then a prioritisation exercise considering ecosystem relative importance, risk and stress condition. Functions are typically described in terms of key environmental assets (e.g. forests, wetlands, rivers, oceans, aquifers, clean air), and ecosystem services e.g. food, water, timber, water, pollination, pest control, disease control, habitat provision, recreation, tourism etc.)
Having identified them, you can then determine the size and scale of your dependencies (reliance on) and impacts in each prioritised location.
This also applies to any financed activity, just in case financial services businesses think they will miss the boat!
Assess
Having done the hard yards of understanding your impacts and dependencies, the assess stage is translating these into risks and opportunities for your business. Physical risks could lead to challenges such as resource scarcity, price volatility, stranded resource assets. Examples of transition risks include mandatory reporting, new permits and taxes, and product labelling obligations. There are also systemic risks from ecosystem breakdown such as financial instability, immigration pressures or tourism collapse.
As with TCFD, looking for upsides is encouraged! Opportunities such as Increased yields from investment in soil improvement, flood risk mitigation, technology innovation leading to alternative renewable materials, alternative use such as amenity and lots of emerging green markets.
Once your risks and opportunities are established, you can consider different climate change scenarios for both physical and transition changes to flesh out the picture.
Respond
You will then be well equipped to consider how all this will or could impact your strategy, business plans, risk management and capital allocation. Naturally this will involve building your nature related risks and opportunities into your governance systems.
Disclose
There is not yet an obligation to disclose. Some already do using the disclosures in frameworks such as GRI and CDP. Others respond when queried by stakeholders. In an ideal world, everyone who has done the work would disclose to enable shared learning and progress, as there is little to be achieved by being one of a minority who improve their nature related impacts.
Final word on TNFD
While the breakdown above from TFND gives a good model for approaching biodiversity management, within the framework they use a model called LEAP. Locate – The interface with nature. Evaluate – Priority dependencies and impacts. Assess – Material risks and opportunities. Prepare – To respond and report. The structure of reports is expected to follow the TCFD model of recommended disclosures on your Governance, Strategy, Risk & Impact Management and finally your Metrics and Targets.
Wrap up
Evaluation of biodiversity risks and opportunities is accelerating and is likely to reach most BRB organisations in some shape or form in the short term (<3 years). This is likely to be driven initially by investors and listed businesses, and ultimately legislation.
Considering these risks and opportunities is just good business, and if you want to take a structured approach there are frameworks to guide you. There is a feel good factor to “doing the right thing” which frequently cascades into clearer purpose and values, leading to higher employee retention coupled with better talent attraction.