The current state of nature and biodiversity loss

Nature is the foundation of all life on earth. But despite its critical importance, our dependence on nature and its true value has long been taken for granted and its contribution gone unrecognized.

Figure 1: Decline in biodiversity 1970- 2018 (Living Planet Index)

The exploitation of nature has led to a 69% drop in populations of all mammals, birds, amphibians, reptiles and fish since 1970 – Figure 1.[1]

Current estimations suggest that between 10,000 and 100,000 species are going extinct each year.[2] And we know this loss is driven largely by human factors associated with the growth of human populations, consumption, trade, and investment.[3]

Estimates suggest that 55% of global GDP is directly dependent on biodiversity and ecosystem services, while 1 in 5 nations (that’s 20% of both advanced and emerging economies) are at risk from ecosystem collapse due to declining biodiversity.[4] With less than a quarter of large companies at risk from biodiversity loss currently disclosing on the topic,[5] it is surely time to start thinking about how to measure our impact and dependency on nature.

The role and importance of nature and biodiversity

Nature plays a fundamental role in sustaining humanity, providing us with the food, water, energy, and materials we need to survive, whilst enabling an almost incalculable number of complex processes and functions that allow our social and economic systems to thrive. Loss of biodiversity poses major risks to human societies, with threats linked to health, food insecurity, the development of medicines, climate regulation and carbon sequestration.

The COVID-19 pandemic and other global zoonotic diseases (like Ebola, Lyme disease and bird flu for example), have been linked to human encroachment into natural environments, while deforestation is known to increase rates of malaria and Ebola.[6] Loss of nature also poses severe commercial risks to businesses, risks which remain much less well understood compared to issues like climate change.[7]

The true contribution of nature to humanity is difficult to calculate, though evidence suggests ecosystem services are worth about double the world’s US$75 trillion GDP.[8] In this context, loss of nature and biodiversity - estimated at around US$20 trillion a year between 1997 and 2014 - is equivalent to the disappearance of a quarter of today’s global annual economic activity.[9]

A recent study by the World Economic Forum found that more than half of the world’s total GDP – US$44tn of economic value generation - is moderately or highly dependent on nature and its services. Loss of nature thus poses a significant risk to the global economy, whether directly through physical dependence of businesses on nature for their materials, operations, supply chain performance and business continuity, or indirectly through secondary impacts such as loss of customers and markets or financial impacts due to legal and regulatory issues.[10]

As with climate change, industries and organisations that are either at risk from biodiversity loss or whose operations have significant impacts on biodiversity and nature are increasingly exposed to physical and transition risks related to nature loss. The risk to investors will only increase as scrutiny on biodiversity impacts and pressure on companies to adjust their practices rises. However, understanding of the relationship between a company’s reliance on nature and its potential impacts remains very limited.

Increasing focus on nature in policy and financial services

“Even if you are only interested in dollars and cents, we can see that conserving and restoring nature is now very often the best bet for human prosperity” Professor Andrew Balmford (Nature Sustainability, 2021)[11]

Recognising the potential economic impacts of biodiversity loss and current lack of information and consideration for nature factors within the financial sector, the world’s governments and regulators are increasingly focusing on nature and biodiversity. The following events and initiatives are leading the way:

COP26

Nature was a key focus of COP26 and the resulting Glasgow Pact[12] included several pledges and commitments aimed at restoring and protecting nature and biodiversity, key among them the Glasgow Leaders’ Declaration on Forests and Land Use, which saw 137 countries covering 91% of the world’s forests agree to halt and reverse forest loss and land degradation by 2030. At least £5.3 billion ($7.2 billion) of private sector funding has also been mobilised in support of biodiversity.

COP 15: UN Biodiversity Conference

Delegates from 196 countries met at COP15 in Montreal in December 2022 to negotiate a strategic global framework for nature and biodiversity. The resulting Kunming-Montreal Global Biodiversity Framework includes the following commitments:

Protect the planet. To effectively restore 30% of land, water, coastal and marine ecosystems by 2030 and enable 30% of land, water, coastal and marine areas to be effectively conserved and managed. This is linked to the ambition to halt the extinction of threatened species by 2050 and increase the abundance of native species by ‘tenfold’.
Finance biodiversity. To increase finance to biodiversity, with developed nations providing $20 billion in annual funding to developing countries by 2025 and $30 billion annually by 2030 through a new biodiversity fund under the Global Environment Facility (GEF). The ultimate goal is to mobilize $200 billion annually by 2030 from domestic, international, public, and private resources for biodiversity initiatives, including green bonds and biodiversity offsets and credits.
Reduce pollution. To reduce pollution, including targets to reduce excess nutrients and risks to biodiversity from all chemical and pesticides by 50%, and work towards the elimination of plastic pollution.
Increase reporting. To ensure businesses and financial institutions report on impacts and dependencies and reduce negative impacts and increase positive impacts on biodiversity.
End subsidies. To identify harmful subsidies by 2025, and reduce them by at least $500 billion annually by 2030 or phase them out entirely where possible. Nations also agreed to increase incentives for conservation and positive biodiversity practices.

Business and finance at COP15

The overall outcome of COP15 was widely viewed as positive, even “historic”, with significant engagement from business and finance on a range of important issues, including:

Finance for Biodiversity Pledge. 126 financial institutions representing €18.8 trillion in AUM committed to the Pledge, which includes setting science-based targets and publicly reporting on the biodiversity impacts of investment portfolios.
Global Biodiversity Framework. 150 financial institutions managing $24 trillion in AUM called on world leaders to adopt an ambitious post-2020 Global Biodiversity Framework and committed to incorporating biodiversity into investment decision-making processes and seeking nature-related disclosures from investees.
Nature Action 100. COP15 saw the establishment of this new global engagement initiative aimed at driving investor action on nature-related risks and opportunities.
International Sustainability Standards Board (ISSB). The upcoming sustainability standard announced its intention to integrate biodiversity. ISSB is also due to appoint two special advisors to provide strategic guidance on natural ecosystems and just transition.
Task Force on Nature-related Financial Disclosures (TNFD). Soon to be released, the forthcoming TNFD will use the TCFD framework to help organisations consistently assess and report nature-related risks, impacts and opportunities.

Integrating nature into ESG processes

Although nature has yet to receive the same scrutiny and attention from regulators, investors and other stakeholders as climate, it surely will. In preparation, organisations across the financial and corporate sectors will need to start looking into their operations, supply chains and investments to prepare themselves to assess the potential risks and impacts, understand the relevant metrics for measurement, and develop a plan to integrate nature considerations into their existing climate and other risk management processes.

Biodiversity assessment may soon become a typical part of due diligence and risk management procedures. This might include screening of impacts and dependencies by location, sector and activity, to understand the potential risks and impacts loss of nature and biodiversity could have on a business and its value. Ultimately it will involve a more detailed assessment of direct and indirect risks throughout the supply chain – similar to carbon footprinting methods for Scopes 1, 2, and 3. And although no one is expected such levels of detail just yet, with new policies and guidelines emerging all the time, it seems like that’s the direction of travel.

So, how to get started?

Getting started with these four top tips and activities:

Sign the Finance for Biodiversity Pledge, and join 126 financial institutions representing 21 countries and over €18.8 trillion in assets under management, who are committing to protect and restore biodiversity through their finance activities and investments.
Watch the PRI-hosted event “Getting started in nature, biodiversity and finance”
Review TNFD’s recommendations, including the evolving TNFD framework and LEAP risk assessment process.
Learn more about how to set targets and engage portfolio companies on biodiversity with the Science-based Targets for Nature (SBTN) guidance for business.

And if you need more to think about, try these:

Review requirements under SFDR (if relevant) and identify relevant tools for assessing biodiversity including the new IUCN STAR Metric, part of the Integrated Biodiversity Assessment Tool (IBAT). This will enable investors to evaluate investee companies progress in assessing, monitoring or controlling their contribution to pressures on biodiversity.[16] Other measurement approaches for financial institutions can be found here.
Read about nature and biodiversity and the coming regulatory changes via the TNFD “Knowledge Bank” and the Finance for Biodiversity Initiative work streams and publications.
Learn about the World Benchmarking Alliance’s Nature and Biodiversity Benchmark, which measures and tracks corporate performance towards a nature-positive future by measuring how companies are reducing their impact and even regenerating ecosystems.[19] This is designed to align with and complement TNFD.
Investigate biodiversity offsets – like carbon offsets, these are designed to compensate for hard-to-treat and unavoidable impacts. This should be a last resort once all alternatives for avoiding damage to biodiversity have been exhausted.

2023 is set to be a significant year for biodiversity and nature, and though mandatory requirements are yet to kick in, now is the time to get ready for what’s inevitably to come.

For more information on how to integrate biodiversity into your investment processes and prepare for TNFD, please get in touch.