Why is Biodiversity Important to Business?

Sustainability has become a top priority for businesses in recent years, with many organisations setting ambitious net-zero carbon emissions goals in order to become climate positive. The world is not only facing a climate emergency, however, but also a biodiversity loss crisis and there is increasing awareness that we need to think beyond net-zero and consider our broader environmental impact. Our current use of planetary resources is totally unsustainable, causing deforestation, destroying natural habitats, and using water and raw materials at rates that cannot be maintained. This level of consumption not only creates mountains of waste which then further pollute the environment, but also endangers the future stability of business operations.

Most businesses are heavily dependent on natural resources, but many are unaware of how the availability and quality of these resources are reliant on healthy ecosystems. By considering their biodiversity or nature footprint, businesses can assess the risks posed by biodiversity loss to their operations, and also work towards becoming nature positive in a more holistic way. Very few businesses are currently considering their biodiversity footprint, however, so we take a look at why it is a critical moment for all organisations to examine their wider environmental impact.

What is biodiversity and why is it important?

Biodiversity is a word that describes the astonishing variety and variability of plants, animals, fungi, and other organisms on planet Earth, which form a complex web of interconnections within ecosystems. The complexity of these interconnections is the result of millions of years of evolution and is one of the key reasons that maintaining high biodiversity is so important. Every organism relies on other species for food, shelter, and reproduction, and the local extinction or introduction of any one species can have a dramatic chain reaction of consequences for the whole ecosystem. When we talk about biodiversity in general, we are referring to encouraging a healthy population of a wide variety of species within natural habitats such as forests, wetlands, moorland, or grasslands. This requires preserving and restoring habitat, using natural processes and restoration intervention techniques to encourage the widest diversity of species possible.

Maintaining the biodiversity within ecosystems is important not only for their continued existence, but also for their resilience and productivity. Higher biodiversity stabilises ecosystems against environmental change, invasive species, and disease, and improves resilience to disturbance and potentially climate change. Ecosystems high in biodiversity are also more productive, as records of fishing yields increasing up to five times in Marine Protected Areas demonstrate. An improvement in the resilience of an ecosystem also makes the provision of ecosystem services such as food, water, or flood defence more reliable. Ecosystem services are inextricably linked to biodiversity, and attempts to estimate how essential they are to our economies have valued them at $33 trillion a year globally. In simple terms, if we want to assure the long term provision of raw materials and natural resources, we have to maintain and increase biodiversity.

Biodiversity in crisis

Although biodiversity is essential to our survival, we are losing species at the fastest rate in Earth’s history and the impact of human activity has affected almost every part of the globe. For example, 38% of global land surface is dedicated to agriculture and 96% of mammal biomass is humans and livestock. In terms of resource use, It has been estimated that we are using the equivalent of 1.6 Earths, far exceeding the planetary boundaries that define the safe limits for human impact on natural systems. This has had a dramatic effect on ecosystems, with 87% of inland wetlands having disappeared since 1700, one third of forests having been lost globally, and only 3% of the Earth’s land surface left with animals that have been unaffected by human activities.

Biodiversity is threatened predominantly by habitat loss and deforestation as a result of land use change for agriculture and biofuels, but also by climate change, urbanisation, habitat fragmentation, pollution, overharvesting, poaching and invasive species. Business operations have been associated with many of these factors, particularly deforestation, habitat destruction (e.g. from agriculture or mining), and pollution. We are having an almost incalculably large effect on the planet, but also negatively impacting on ourselves because ecosystem degradation is already affecting the wellbeing of an estimated 40% of the world’s population (3.2 billion people).

Why is biodiversity important to business?

Biodiversity loss and ecosystem collapse is important to business for two main reasons – the risks that are associated with it (dependencies), and the impact of businesses upon it (responsibilities).

Dependencies

There are economic consequences to biodiversity loss, with half the world’s GDP, or $44tn of value generation, being dependent on nature. Every year we are losing ecosystem services worth more than 10 per cent of our global economic output, putting lives and businesses at risk. An assessment by the Natural Capital Finance Alliance, a collaboration with the United Nations Environment Finance Initiative found that 13 of the 18 sectors that make up the FTSE 100 have production processes with high or very high material dependence on nature, representing $1.6tn in market capitalization. It is clear that business and nature are inextricably linked, so investing in biodiversity preservation and restoration should be a priority. With 1 in 5 countries facing ecosystem collapse according to Swiss Re, there is an urgent need to reassess the business risks associated with biodiversity loss.

In some industries such as agriculture, the risks of biodiversity loss are more obvious, as it can lead to reduced soil fertility (through depletion of soil organisms), increased soil erosion (through loss of plants), or lower productivity (through declines in pollinating insects). Equally it is evident that industries that rely directly on ecosystems such as fishing, forestry, or tourism are significantly impacted by the loss or degradation of habitats such as lakes, woodlands, or coral reefs. Biodiversity is linked to ecosystem productivity and resilience, so any loss of biodiversity could affect the supply of products such as timber, food, plants for medicine, and other raw materials. Ecosystem services provided by natural habitats such as floodwater absorption or air quality improvements can also impact any business physically within the catchment area. 

The risk posed by biodiversity loss can be less obvious, however, with investments being one of the key areas where exposure might occur. Investors are increasingly taking a more holistic look at a company’s sustainability profile and linking long-term operational stability to an effective understanding of their nature-related contingencies. Biodiversity loss is ranked third (behind climate change inaction and extreme weather impacts) in the list of long term risks identified by executives as part of the Global Risk Perception Survey organised by the World Economic Forum. Another indirect risk of biodiversity and habitat loss is an increase in new diseases as a result of wild animals coming into closer contact with humans, and the Covid pandemic demonstrated the human and economic costs of a novel disease. The importance of a business’ biodiversity profile is expected to rise within the investment community as the EU is introducing mandatory reporting on biodiversity related risks and impacts from top companies as part of the new Corporate Sustainability Reporting Directive. The requirement for compliance with new regulations is also a risk that needs to be considered when projecting the shape of future business.

Responsibilities

The effective functioning of businesses and supply chains is not only being threatened by biodiversity loss, but business itself is a large contributor to the problem. The impact of businesses on biodiversity is seen directly through use of resources such as overharvesting, sourcing of raw materials from suppliers who are damaging natural areas, destruction of habitat for building or farming, and deforestation among others. Indirect effects can come through means such as investing in entities that are directly damaging ecosystems. The amount of waste we produce also damages ecosystems and needs to be accounted for as part of the business impact on natural systems. The awareness of the urgent need to quantify and reduce  the business impact on biodiversity is growing, and even businesses themselves such as Sainsburys, Nestle, and H&M are pushing for mandatory disclosures on nature impacts to be brought in by 2030 as part of the COP15 process. The new EU Corporate Sustainability Reporting Directive will require disclosure of the impact of larger businesses active within the EU on biodiversity and ecosystems by 2024.

Estimates show that between 1992 and 2014, the global capital produced doubled, and human capital per person increased by about 13%. However, the stock of natural capital per person declined by nearly 40%, clearly demonstrating that this increase in prosperity is coming at the expense of nature. One of the greatest problems with measuring our impact on nature and assessing the risks associated with their loss is that our economic systems do not have an effective capacity for attributing value to ecosystem services. The contribution of ecosystem services to the global economy (food production, carbon storage, water and air filtration) is estimated as being worth more than $150tn annually, more than twice the world’s GDP, but without an effective framework for estimating value, it is difficult to incorporate into business models. A number of new initiatives are developing new methods for assessing the nature or biodiversity footprint of your business including the Taskforce on Nature-related Financial Disclosures.

It is particularly activities related to resource extraction and cultivation that are contributing to driving biodiversity loss. More than 90% of the anthropogenic pressure on biodiversity is driven by the operations of four major value chains: food production (50%), infrastructure and mobility (25%), energy production (10%), and fashion (<10%). The remaining sectors include pharmaceuticals, cosmetics, and consumer electronics, which have a lower impact but could still have high exposure to biodiversity loss risks. The impact of business operations on ecosystems can be a risk in itself, with reputational damage, legal action, or lower investment as a result of negative biodiversity impacts.

To give an example of how complex the impact of a business can be on ecosystems we can consider a textile industry case study. A producer of textiles using natural fibres has a direct impact on ecosystems due to land conversion for crop production. The process of producing textiles requires water and also may contribute to water pollution through pesticide and herbicide runoff, whilst their greenhouse gas emissions add to air pollution and excess carbon dioxide, fuelling climate change. The production of any fertiliser, herbicides, or pesticides used in the crop production may have upstream negative impacts on ecosystems elsewhere. Similarly, downstream there may be further impacts caused by shipping, packaging, and storage. These effects can be cumulative, particularly where air and water pollution are concerned and puts the industry at the risk of fines and reputational damage, but endangers productivity due to loss of ecosystem resilience.

The opportunities provided by a nature-positive business profile

There are significant opportunities to be gained by acting early in analysing and mitigating for biodiversity related risks, however. By identifying dependencies and managing the risks, businesses can prevent supply chain disruptions, avoid regulatory costs, improve their investment profile, increase their attractiveness to employees, and improve efficiency. By considering nature-related contingencies, businesses can not only make their business more sustainable but also improve their resilience to environmental disturbance such as climate change. Improving the biodiversity impact of projects can increase their value, particularly with construction projects, where ecosystem services provided by biodiverse landscaping can reduce air pollution, decrease flooding, and improve the physical and mental wellbeing of residents. Finally, there are reputational gains to be made through ethical operation, and scrutiny will be increasingly falling on biodiversity and nature impacts.

There are now frameworks such as the Taskforce on Nature-related Financial Disclosures that are creating a structure to enable businesses to analyse their biodiversity and nature footprint. An approach similar to the climate net-zero would be productive, in other words reducing impact as much as possible and then offsetting any unavoidable impact by investing in biodiversity offsetting or restoration projects elsewhere. See our next blog post for details of how to assess your broader planetary impact and how to improve it. For details of how to improve your biodiversity profile immediately by investing in high quality ecosystem restoration projects, see our biodiversity banking programme.

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