This year’s theme for the International Day for Biological Diversity – ‘From agreement to action: build back biodiversity’ – brings with it a sense of urgency. Last week’s headlines heralded the likelihood of global warming exceeding the critical temperature limit of 1.5C within the next few years, throwing the need to take effective action into sharp relief. But climate change and nature go hand in hand – one impacts the other. Climate change, unattended to, will lead to more biodiversity loss and biodiversity loss, left unaddressed, will lead to greater climate change.

While astute business leaders are acknowledging that climate risk is a commercial priority, as much as it is an environmental one, companies active in mitigating climate transition risk, in the absence of biodiversity and nature, could be caught short. Biodiversity litigation and physical and transition risk are catching up, fast.

Rising pressure on business

Pressure for businesses to demonstrate net-zero plans has mounted in recent years emerging from several sources. A range of international climate-related disclosure frameworks mandate certain organisations to annually disclose the impacts of climate change on financial performance.

Globally, investor expectations and customer sentiment are also driving businesses to disclose their climate-related financial risks and plans to mitigate them. The last few years have witnessed an exponential rise in climate litigation featuring protracted legal cases that can be costly.

The Task Force on Nature-related Financial Disclosures (TNFD) framework will come into play in September this year and encourages ‘early action by companies and financial institutions to begin reporting nature-related dependencies, impacts, risks and opportunities, given the urgent need to address both nature loss and climate change in an integrated approach’ (1). Like the TCFD, the nature-equivalent framework will become integral to investor expectations. Firms failing to demonstrate actions that ensure risk to nature is accounted for in supply chains are sure to attract the ire of nature activists and the critical glare of the media spotlight.  Showing that a business is operationally nature positive – going beyond damage limitation such that economic activities enhance ecosystems and enrich biodiversity (2) – is also a concern. Businesses found falling short of regulatory, investor and consumer expectations also risk being left behind more nature-astute competitors, and could suffer reputational damage that can be financially injurious.

Restoring and protecting biodiversity

While there have been very few legal cases focused on biodiversity loss and environmental impairment to date, this is forecast to change within the next few years. The need for restoring and protecting biodiversity and nature globally is now framed by the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF), signed in December 2022 at the Convention on Biological Diversity’s (CBD) 15th Conference of the Parties (COP).

The GBF sets goals and measures to stop and reverse the loss of nature by 2050. It has close to 200 countries in agreement with the four goals and 23 targets that comprise the framework – including a direct message for businesses and financial institutions to prepare to assess and disclose their risks, dependencies and impacts on biodiversity.

The headline target of ‘30×30’ intends to conserve 30 per cent of the world’s land, freshwater and ocean by 2030. The GBF will be translated into national laws, which will have material impacts for corporations as more land will need to be protected. In short, business leaders need to act, now. The global rise in climate litigation has been rapid and an increase in nature litigation is likely to follow the same arc.

As with discussions about climate-change litigation, the rights of indigenous peoples also factor in biodiversity and nature. As the rights of nature and natural assets themselves are increasing, these claims are usually based on indigenous people’s groups and their traditional subsistence and hunting laws. Free, prior and informed consent to any commercial activity is more and more crucial in areas inhabited by indigenous peoples.

Preparing for what’s ahead

Many emerging laws could have retrospective impact and companies will have to retrofit their operations, for example, to restore nature. Business leaders might not be aware of land rights now but if biodiversity is damaged, companies could find themselves addressing a claim down the line should ecosystem services be lost. Horizon scanning for emerging biodiversity regulation is essential and companies need to understand the impact of their business strategy and associated operations throughout the entire value chain.

The International Finance Corporation Performance Standard 6 for new investments requires all companies to screen whether assets and operations are near to a critical habitat ‘that address habitat of significant importance to threatened, endemic, congregatory and migratory species, threatened or unique ecosystems, and key evolutionary processes’ (3). Companies need to know where and how their assets and operations could come up against this standard that seeks to protect areas of high biodiversity value.

Taking a data-driven and science-led approach to climate- and nature- related reporting brings business insights to improve decision making and efficiency gains. Preparing now for what’s to come offers the chance to develop a competitive edge and business resilience for the transition to a low-carbon and nature-positive future.

 

Reference 1: https://framework.tnfd.global/introduction-to-the-framework/

Reference 2: https://www.weforum.org/agenda/2021/06/what-is-nature-positive-and-why-is-it-the-key-to-our-future/

Reference 3: https://www.unep-wcmc.org/en/news/screening-for-critical-habitat