Update: Biodiversity Loss – The Urgent Need to Take Action
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UPDATE 11/2/22: At the VERGE22 Climate Tech Conference on Oct 22-25, we heard a lot about the role of nature in sustainability and the growing importance of biodiversity in ESG. This week, the TNFD Financial Markets Readiness Assessment report was published, which summarizes the results of a financial sector market readiness assessment that was commissioned by UNEP Finance Initiative (UNEP FI) and United Nations Development Programme (UNDP) supporting the mission of the Taskforce on Nature-related Financial Disclosures (TNFD). The report found that the main drivers from financial institutions concerning nature-related reporting are “awareness of risks, impacts and opportunities associated with nature loss, and the need for action is growing within the financial sector, extending to a diversity of financial institutions from many geographies.”
Market participants are increasingly aware of the role that nature plays within their business model and the need for assessing and disclosing on material nature-related risks and opportunities. This report now sets the stage for the Taskforce on Nature-related Financial Disclosures (TNFD), which is modeled after the Task Force on Climate-related Financial Disclosures (TCFD).
In 2020, the World Wildlife Fund Living Planet report revealed a 68 percent drop in wildlife populations around the world since 1970, while a report from the Swiss Re Institute found that over half of global GDP depends on high-functioning biodiversity and ecosystem services. However, only around 25% of companies at high or medium risk from biodiversity loss currently disclose that risk in their corporate reporting. The sectors considered to be at high and medium risk from biodiversity loss include construction & building materials, electricity, food & drug retailers, oil & gas, and utilities. The events at COP26 and statements by the CDP, though, indicate that reconciling this mismatch is now a priority.
The Value of Biodiversity
Biodiversity refers to the variety of life on Earth at all its levels, from genes to species to ecosystems. It can encompass the evolutionary, ecological, and cultural processes that sustain life.
Biodiversity has both an intrinsic value and a functional value for the many cultural and ecosystem services it provides. For example, biodiversity supports (but is not limited to) water purification, pest control, climate regulation, pollination, seed dispersal, medicinal benefits, etc. The value we place on biodiversity influences how we think about it.
Globally, we have undervalued natural capital, which is supported by biodiversity. Not surprisingly, biodiversity is also underreported within sustainability disclosures. For example, the operations of four major value chains – food, energy, infrastructure, and fashion – currently drive more than 90% of man-made pressure on biodiversity; yet with the exception of the mining industry, the majority of these companies do not report on the risks they face from biodiversity loss.
Financial Implications of Biodiversity Loss
There are increasing efforts to understand the linkages between biodiversity and financial stability. More than half of the world’s GDP depends heavily on functioning natural ecosystems. As those ecosystems decline, businesses face significant risk. Food and fashion producers may be impacted by higher costs for raw material inputs caused by degraded soils and the disappearance of natural pollinators.
The value of biodiversity lies in more than just natural capital, or a company’s environmental and economic goals. As much as 80% of the world’s remaining forest biodiversity lies on indigenous land, while global loss of biodiversity is threatening the world’s food supply. The 2019 report, “The State of the World’s Biodiversity for Food and Agriculture” conducted by the UN Food and Agriculture Organization (FAO) found that as little as 9 plant species, out of the 6,000 species studied, accounted for 66 percent of crop production in 91 countries. “Biodiversity is critical for safeguarding global food security, underpinning healthy and nutritious diets, improving rural livelihoods, and enhancing the resilience of people and communities,” explains FAO’s Director, General José Graziano da Silva.
The latest report from the joint NGFS-INSPIRE Study Group on Biodiversity and Financial Stability, titled “Biodiversity and financial stability: building the case for action” applies a ‘double materiality’ approach to biodiversity loss, where nature-related hazards can affect companies and financial institutions, and companies and financial institutions can also affect biodiversity and climate.
The Study Group’s interim report highlights include:
Financial institutions, as they stand, are not prepared for significant socioeconomic transformation or an ecological transition towards a nature-positive economy. The financial system needs to be aligned with forthcoming biodiversity policy developments to avoid triggering transition risks to our economic systems.
Central banks and financial supervisors should prepare themselves now by better understanding and assessing physical and transition risks related to biodiversity impacts, as the impacts of biodiversity loss will inevitably fall within the mandates of our financial institutions.
Similar to many other methods of assessing climate-related risks, there is a need to use a variety of modeling approaches when assessing biodiversity-related financial risks. There are many variables when considering the implications of biodiversity loss, however, and any analyses should be met with the understanding that biodiversity loss models are subject to methodological limitations.
Methods of assessing the relationship between biodiversity and financial stability are starting to emerge; one such method is embedding biodiversity-economy models into existing risk assessment frameworks which might allow for a model that shows how biodiversity-related shocks have a domino effect on our economic systems and supply chain.
Sustainable Land Use & Deforestation Pledges
COP 26 Declaration on Forests and Land Use
At COP26, the recent UN Climate Change Conference, representatives from 197 countries met to discuss climate action commitments and plans for decarbonization. Over 100 countries signed the Glasgow Leaders’ Declaration on Forests and Land Use with the intent to emphasize the critical and interdependent roles of forests of all types, biodiversity, and sustainable land use. They committed to working collectively to halt and reverse forest loss and land degradation by 2030 while promoting sustainable development.
The Declaration stated that they are will strengthen their shared efforts to:
Conserve forests and other terrestrial ecosystems and accelerate their restoration;
Facilitate trade and development policies, internationally and domestically, that promote sustainable development, and sustainable commodity production and consumption, that work to countries’ mutual benefit, and that do not drive deforestation and land degradation;
Reduce vulnerability, build resilience and enhance rural livelihoods, including through empowering communities, the development of profitable, sustainable agriculture, and recognition of the multiple values of forests, while recognizing the rights of Indigenous Peoples, as well as local communities, in accordance with relevant national legislation and international instruments, as appropriate;
Implement and, if necessary, redesign agricultural policies and programs to incentivize sustainable agriculture, promote food security, and benefit the environment;
Reaffirm international financial commitments and significantly increase finance and investment from a wide variety of public and private sources, while also improving its effectiveness and accessibility, to enable sustainable agriculture, sustainable forest management, forest conservation and restoration, and support for Indigenous Peoples and local communities;
Facilitate the alignment of financial flows with international goals to reverse forest loss and degradation, while ensuring robust policies and systems are in place to accelerate the transition to an economy that is resilient and advances forest, sustainable land use, biodiversity, and climate goals.
(source: ukcop26.org)
G7 2030 Nature Compact
The COP26 Declaration follows the historic 2030 Nature Compact from the G7 Heads of State in June, which set ambitious and wide-ranging actions to address the biodiversity crisis. The thesis of the statement was to halt and reverse biodiversity loss by 2030, in partnership with the United Nations and other leading entities.
Among their commitments, the group stated that they will support:
An agreement to support new global targets to protect and conserve at least 30% of global land and at least 30% of global ocean by 2030. The agreement states that the nations will lead by example by effectively protecting and conserving the same percentage of their national land, inland waters, and coastal and marine areas by 2030.
A commitment to prioritize the inclusion of Indigenous Peoples and local communities in co-design, decision-making and implementation of the systems change needed for the Nature Compact’s success.
A pledge to dramatically increase investment in nature from all sources including the percentage of public climate finance directed towards nature.
(source: Campaign for Nature)
While the statements were well received, many were quick to point out that in 2014, the New York Declaration for Forests had already promised to halve deforestation by 2020 and end it by 2030. Since then, deforestation has continued to rise, and the biodiversity crisis has enlarged. However, the statements come in conjunction with companies such as Cargill and Archer Daniels Midland (ADM) committing to halting forest loss associated with agriculture commodity production and trade. Optimism is higher, with the hopes that economic pressure pushes governments to take action and halt deforestation under their jurisdiction. If world leaders stick to their commitment, over 3 billion hectares of forest, home to millions of species that are crucial to our ecosystem, could be protected and we can finally turn a corner.
New Biodiversity Initiatives
Value Reporting Foundation Symposium
At the 2021 Value Reporting Foundation Symposium, a multi-day conference bringing together world leaders in sustainability reporting, experts declared biodiversity as the next “big thing” after climate change reporting. The Value Reporting Foundation, which combines SASB Standards with the Integrated Reporting Framework, views sustainability in tandem with financial success: a company’s business value is directly linked and impacted by climate change. So, when biodiversity arises as a topic of concern, the economic impacts are just as apparent as the environmental and social impacts.
2022 CDP Biodiversity Reporting
One of the most significant changes to the 2022 CDP Climate Change Questionnaire is the inclusion of a new 6-question module on biodiversity. The CDP questionnaire, completed by thousands of companies around the world, now includes questions that revolve around a respondent's impact on biodiversity, as well as ambitions to mitigate any negative impact on biodiversity with goals, objectives, and key strategies. The ultimate end goal is for biodiversity to become the norm among sustainability disclosures, indicating the topic to be material to stakeholders and investors.
UN Biodiversity Conference (COP15)
The United Nations has long been recognizing biodiversity as an area of priority through their sustainable development goals:
UN SDG 14: Conserve and sustainably use the oceans, seas and marine resources for sustainable development.
UN SDG 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.
This August, the United Nations will hold a live Biodiversity Conference (COP15) in China, following an online event in October 2021, that addresses deteriorating biodiversity worldwide. Under business as usual scenarios, biodiversity decline is projected to worsen, posing a challenge to world leaders to set ambitious goals in their country to protect existing biodiversity. The conference will convene governments from around the world to agree to a new set of goals for nature over the next decade through the Convention on Biological Diversity post-2020 framework process, a foundation for planning to ensure that by 2050 the shared vision of living in harmony with nature is fulfilled.
Biodiversity Targets
Convention on Biological Diversity – Aichi Biodiversity Targets
The Convention on Biological Diversity-post 2020 framework follows the development, but non-implementation of the former Aichi Biodiversity Targets. A decade ago, the Aichi Biodiversity Targets were formed with the goal of protecting and conserving global biodiversity around the world. However, after none of the targets were met by 2020, the year the framework expired, countries are now moving to release an updated version of the targets.
The existing Aichi Biodiversity Targets are an ambitious set of global goals aimed at protecting and conserving global biodiversity, including protecting 30% of the world’s land and sea areas.
They include the following strategic goals:
Strategic Goal A: Address the underlying causes of biodiversity loss by mainstreaming biodiversity across government and society
Strategic Goal B: Reduce the direct pressures on biodiversity and promote sustainable use
Strategic Goal C: To improve the status of biodiversity by safeguarding ecosystems, species and genetic diversity
Strategic Goal D: Enhance the benefits to all from biodiversity and ecosystem services
Strategic Goal E: Enhance implementation through participatory planning, knowledge management and capacity building
Biodiversity Disclosure Frameworks and Standards
GRI
GRI has allowed companies to disclose information on Biodiversity since 2016 under code GRI 304. The disclosures identified by GRI as material to organizations are as follows:
Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas
Significant impacts of activities, products, and services on biodiversity
Habitats protected or restored
IUCN Red List species and national conservation list species with habitats in areas affected by operations
GRI recognizes the need for complete disclosure on biodiversity topics and, in November 2021, appointed a multi-stakeholder Technical Committee to lead the revision of GRI 304: Biodiversity 2016. The GRI disclosures on diversity were last revised in 2006, indicating a need to update transparency requirements for organizations and align topics with recent developments as well as authoritative intergovernmental instruments in biodiversity. The updated requirements are expected to be approved and ready for distribution at the end of 2022 or beginning of 2023.
CDP
As mentioned earlier in the post, CDP restructured its annual questionnaire this year with updated guidance on biodiversity in an effort to expand its scope to cover planetary boundaries. The new questions released for 2022 are aligned with the IUCN’s Corporate Reporting on Biodiversity Guidelines and include the following questions:
Is there board-level oversight and/or executive management-level responsibility for biodiversity-related issues within your organization?
Has your organization made a public commitment and/or endorsed any initiatives related to biodiversity?
Does your organization assess the impact of its value chain on biodiversity?
What actions are your organization taking to progress your biodiversity-related commitments?
Does your organization use biodiversity indicators to monitor performance across its activities?
Have you published information about your organization’s response to biodiversity-related issues for this reporting year in places other than in your CDP response? If so, please attach the publication(s).
Climate Disclosure Standards Board (CDSB)
The Climate Disclosure Standards Board (CDSB), an international consortium of business and environmental non-governmental organizations, offers frameworks to companies to assist in reporting environment-and social-related information. In a show of support for biodiversity reporting, the CDSB released a new framework application guidance for biodiversity-related disclosures (the Biodiversity Application Guidance). The framework assists companies in the disclosure of the material information about the risks and opportunities that biodiversity presents to an organization’s strategy, financial performance, and condition within the mainstream report.
Taskforce on Nature-related Financial Disclosures (TNFD)
The Taskforce on Nature-related Financial Disclosures (TNFD) was launched last year to provide financial institutions and corporations with a complete picture of their environmental risks and opportunities. The TNFD builds upon the success of the Task Force on Climate-related Financial Disclosures (TCFD) and aims to mainstream nature-related financial risk.
The TNFD's recommended disclosures are currently being tested and refined, and are expected to focus on biodiversity impact metrics and targets, governance around strategic impact, and risk management of biodiversity risks and opportunities. Notably, the TNFD aims to align with the Center for Biological Diversity (CBD) target of no net biodiversity loss by 2030 and net gain by 2050. The framework is expected to be formalized in 2023, and already has the backing of the G7.
Next Steps to Support Biodiversity Goals
In June, the authors of the “Biodiversity and financial stability: building the case for action” analysis proposed next steps for central banks and financial supervisors, including:
Begin building the skills, capacities, tools, and cooperation to address biodiversity-related economic and financial risks.
Assess the dependencies and impacts of their financial institutions – through the economic activities they support – on ecosystem services and biodiversity.
Become more familiar with existing biodiversity-economy models and develop ad hoc methodological approaches that better capture the risk of impacts cascading through economic and financial actors.
Signal to the financial institutions that they supervise, other economic actors, and policymakers the importance of understanding the risks arising from their dependencies and impacts on biodiversity. In addition, and within the remit of their mandates, they should support governments’ efforts to reverse biodiversity loss.
Companies looking to demonstrate commitment in support of global biodiversity goals are advised to address and share their roadmap over the next year on understanding their impact, commitments, evaluation, and disclosure of deforestation and related ecosystem impacts, as well as connections to Indigenous Peoples and other human rights.
If your company needs help considering biodiversity in its impact, goals, or reporting, KERAMIDA has a team of trained experts who can help. As a CDP Gold Accredited Provider, we can also work with you to improve your CDP score with our CDP disclosure review and recommendations training session. For more information, please contact us or call (800) 508-8034 to speak with one of our Sustainability consultants today.
Author
Becky Twohey, Ph.D.
Vice President
ESG Strategy, Planning and Reporting
KERAMIDA Inc.
Contact Becky at btwohey@keramida.com.
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