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How companies can codify biodiversity and nature into their sustainability practices and reporting

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

In the wake of growing acceptance of nature's vital role in the global economy, corporations are increasingly recognizing that biodiversity and natural capital are key sources of value that are critical to their sustainability reporting and transition planning

In January, the Thomson Reuters Institute predicted that biodiversity and nature will emerge as mainstream topics for corporate reporting. Since then, the Task Force on Nature-related Financial Disclosures reported that 320 companies and financial institution were using its recommendation for corporate reporting. In addition, the United Kingdom’s Transition Plan Taskforce (TPT) Nature Working Group published in April recommendations for companies on the future of nature in transition planning beyond the current TPT Disclosure Framework and previous associated guidance.

These developments point to the fact that companies are acknowledging the importance of nature as a core value input for their successful operational performance and for the global economy writ large. For example, a study of quantitative data indicates that approximately 55% of the world’s GDP, which is around $58 trillion as estimated by PwC, relies on the health and proper functioning of ecosystem services and the benefits that human receive from health ecosystems to a moderate or significant extent.

Further, the global economy has incurred costs exceeding $5 trillion per year due to the detrimental effects of business activities on nature and vital ecosystem services, according to a report from the Boston Consulting Group (BCG).

Similarly, companies also rely on natural capital for their own individual performances, and their operations have consequential risk exposure to nature. PwC estimates that 50% of the market capitalization listed on 19 large stock exchanges is subject to material risks related to nature. For example, the entirety of the economic value derived from direct activities in sectors such as agriculture, forestry, fisheries and aquaculture, as well as food, beverage, tobacco production, and construction, shows a significant reliance on natural resources, according to PwC. Further, BCG estimates that the main supply chains that account for 90% of the degradation of biodiversity are businesses engaged in four main industries: food production, infrastructure and transportation, energy, and fashion.

Integration of nature into climate transition plans

The significant degradation of nature and the worsening climate crisis are interrelated. Indeed, climate change is the third-greatest driver of nature loss, according to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services.

Methods designed to help companies assess their operational impact on nature are nascent. In addition, companies remain overwhelmed with the onslaught of existing new rules — such as California’s climate rules and the European Union’s Deforestation Regulation that’s coming at the end of 2024 — and proposed regulation, such as the EU’s Corporate Sustainability Due Diligence Directive which concerns disclosure. Not surprisingly, it can be difficult for some compliance professionals to assess where to start.

For many companies, analyzing where nature fits into their climate transition plans is a sensible place to start, according to the UK’s TPT. Combining climate and environmental goals into one strategy enables companies to take a coordinated approach to addressing the objectives related to both climate change and nature objectives. To do so effectively, however, companies need to understand the core competencies required for implementing climate and nature transition plans, while recognizing that there are existing gaps in these capabilities. According to the TPT Nature Working Group:

      • The ambition to develop cohesive plans for nature and climate transition involves several key steps. These include: i) carrying out a materiality assessment to determine the relative importance of different factors; ii) selecting those capabilities upon which to focus based on geographical considerations; and iii) comprehending the interactions between climate and nature, specifically where, how, and to what degree these interactions may either complement or conflict with each other. Additionally, this process involves the collection and examination of relevant data, which in turn encompasses the identification of appropriate data sets and analytical tools, as well as effectively conveying the associated levels of uncertainty in the data.
      • An action plan requires converting the goals of the transition strategy into practical steps within various business processes, while understanding the impact that these steps have on the organization’s business structure, profitability, and liquidity, including how these effects are reflected in the company’s financial reports. Taking action also involves ongoing engagement with stakeholders throughout the value chain, including industry peers, regulators, impacted communities, and internal functional representatives. The TPT, in particular, outlines that the capacity to involve both intra- and inter-sector stakeholders in a landscape approach, which addresses the distribution of costs and efforts, represents a unique capability gap that needs to be addressed.
      • Finally, accountability through establishing clear metrics and objectives, as well as a robust governance framework, are essential elements of effective climate and ecological transition strategies. Companies should focus on defining and tracking specific baselines and measurement criteria for both their own operations and their supply chains. Setting clear targets and key performance indicators are also crucial for monitoring and reporting on progress. Additionally, companies should consider implementing compensation models that align with and motivate the successful achievement of their transition plans’ goals.

The requirements necessary for companies to realize their ambition, action, and accountability of nature and climate plans will be time-consuming and resource-intensive over the next few years. Yet, inaction almost certainly will be more costly. Earth operates as a finite system, and disruptions in one part can propagate far-reaching consequences across the globe. Without ambition, action, and accountability by companies, governments, and humans that ultimately change global consumption habits, Earth itself will impose dire consequences. And this could include the elimination of economic value of companies that took decades to build or even worse, an inhabitable planet or the extinction of humankind.

At the end of the day, however, what choice do we have?

For more content on sustainability, the environment, and other critical issues, check out the ESG Resource Center on the Thomson Reuters Institute blog site.

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