Understanding Biodiversity’s Impact on Business
Understanding Biodiversity’s Impact on Business
Head, BMO Climate Institute
Melissa leads BMO’s Climate Institute, a center of expertise accelerating climate solutions by bridging science, technology, policy, and finance. She is a glo…
Melissa leads BMO’s Climate Institute, a center of expertise accelerating climate solutions by bridging science, technology, policy, and finance. She is a glo…
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Global biodiversity is crucial for the stability of our value chains, from the forests' timber to the bees that pollinate crops and the cotton spun into fabric. However, climate change, deforestation, and the exploitation of natural resources are triggering a steep decline in the world's species.
The relationship between business and biodiversity is often overlooked in otherwise important conversations about addressing climate change. Here's how companies can better understand their biodiversity impacts and some practical steps to form a program that addresses them.
How biodiversity loss impacts business
A rich variety of plant and animal species is essential for the resilient, healthy ecosystems on which our livelihoods and supply chains rely. When these ecosystems are thrown out of balance, businesses can also experience losses. With more than half of global GDP being nature-dependent, unmitigated biodiversity loss can contribute to significant economic disruption.1 For example, deforestation, climate change, and disease have put 60% of coffee plant varieties in danger of extinction, risking destabilization of an US$83 billion industry.
In addition to this economic risk, other kinds of risks includeinclude:
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Regulatory risk. A 2023 analysis found a 155% increase in global ESG regulations in the last decade.2 In this fast-evolving regulatory environment, businesses must rush to keep up with new mandates or face financial penalties for noncompliance.
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Loss of social capital. Businesses that fail to reduce their negative impacts on the natural world could face consumer scrutiny and reputational damage.
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Limited investment opportunities. Investors can be wary of getting involved with businesses that lack a detailed and convincing plan to mitigate biodiversity risks.
A tool to address risks and identify opportunities
The Taskforce for Nature-related Financial Disclosures (TNFD) is a science-backed global initiative to provide organizations with tools to manage nature-related challenges. The TNFD is led by 40 senior executives from across the business world, and its framework has been shaped by input from financial institutions, civil society organizations, local communities, and other stakeholders. The taskforce designed the framework as a starting point for organizations looking to understand their dependencies on nature and standardize reporting on their impact to biodiversity globally.
The TNFD's official recommendations were published in 2023 and are quickly gaining momentum. While currently voluntary, these guidelines seem positioned to follow the same path as those of the Task Force on Climate-Related Financial Disclosures (TCFD), upon which TNFD reporting was built. TCFD output has evolved into regulations impacting certain companies in jurisdictions including the EU, Switzerland, Hong Kong, and the UK3 and has been embedded in the recommendations from the US SEC and Canadian investor disclosures.
With this precedent in mind, organizations can get ahead of TNFD's potential adoption and take the time to develop a meaningful biodiversity program aligned with business needs rather than scrambling toward compliance later.
Engaging in TNFD reporting can also reveal a range of business opportunities:
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A competitive edge. Engaging in biodiversity action, including transparent reporting, can give businesses an advantage in markets influenced by environmentally-conscious customers.
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Opening avenues for innovation. With a new focus on addressing biodiversity issues, businesses may spot opportunities to create alternative revenue streams through biodiversity and other environmental commodity markets.
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Encouraging new investment. Forward-looking companies that consider and communicate their biodiversity risks can be more attractive to ESG-minded investors, demonstrating that businesses are prepared to be resilient in the face of nature-related impacts.
The TNFD framework can enable businesses to mitigate this risk, open up new ways of creating revenue, and attract investment by enhancing biodiversity. For instance, if there are degraded lands within an enterprise’s operations, they might implement a wetlands restoration or reforestation project, boosting both biodiversity and carbon stocks. Then, they can either avoid the costs of external carbon credits being retired towards their corporate GHG inventories or make a profit selling the ones they've created.
How to get started with TNFD
Now is the best time to establish a corporate biodiversity program as delays in action may increase costs as biodiversity continues to degrade and new regulations create a rush toward compliance.
Steps toward a corporate biodiversity program:
1. Make sure executives understand biodiversity.
A range of biodiversity terminology, principles, and regulatory frameworks will likely be new to many company decision-makers and it’s important to connect the dots between the impacts and the understanding. The TNFD has issued sector-specific publications, which can be a good starting point.
2. Identify the biggest impacts.
Trying to tackle everything at once is ill-advised. Start with the company's biggest nature-based impact—for example, water or timber—and build a biodiversity program around it. Once business leaders see progress underway, they can repeat their success by moving on to additional impacts.
The Cross Sector Biodiversity Initiative's Mitigation Hierarchy Guide outlines a systematic course of action that businesses can follow to limit their role in biodiversity loss for insight into balancing business priorities with biodiversity goals.
3. Engage stakeholders.
Reach out to internal and external partners, including those who live or work in the communities in which the organization operates and where the impacts are deepest. Biodiversity initiatives are best executed in concert with local stakeholders.
4. Focus on the four pillars.
The TNFD recommendations outline four pillars for organizations engaged in disclosures, which serve as building blocks for an effective biodiversity program:
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governance
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strategy
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risk and impact management
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key metrics and targets
5. Leverage expert advice.
Turning a company's relationship with biodiversity from a risk into an asset can feel overwhelming. Engaging corporate sustainability experts who are invested in the business's success can help executives design and implement environmental strategies that help minimize costs and optimize value.
Businesses have a lot to consider as we transition to a net-zero world. In addition to reducing emissions, addressing biodiversity is a critical strategy—for environmental and business sustainability. With the right guidance, the TNFD framework can be a powerful tool for enabling both.
1 World Economic Forum, Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy, January 2020.
2 ESG Book, Global ESG regulation increases by 155 per cent over the past decade, June 2023.
3 UL Solutions, The Taskforce for Climate-Related Financial Disclosures, accessed September 2024.
