What is the Biodiversity Mandate of Business?

Last week the 7th Future Investment Initiative in Saudi Arabia hosted Heads of State, celebrity CEOs, and other influential government and well-known businesspeople.? Many decision makers impacting capital allocation and policies around the world were present.? Against a backdrop of discussions about the global economy, energy, AI, increasing quality of life, climate risk, and the Israel-Gaza conflict, where did biodiversity fit in?

I was privileged to speak on a panel entitled: “Impact: What is the Biodiversity Mandate” alongside Cyril Courjaret ( Suez International ), Florence Bulté ( Chalhoub Group ) and Manish Pant ( 施耐德电气 ) arranged and led by 法国HEC管理学院 Professor Daniel Halbheer .? The need to do business within planetary boundaries is becoming apparent to ensure the survival of humanity – and ultimately the planet. For example, the planetary boundaries have been breached for biodiversity, water, and climate. To address this urgency, organizations must find ways to radically transform their business models. ?Weekly, articles appear regarding directors needing to get advice as nature risks turn to liabilities , while most companies are still not paying attention to the biodiversity crisis, nor integrating it into decision making . This article aims to share advice from the panel to help business managers to develop biodiversity action strategies.

Protecting biodiversity is both an ethical duty and essential for the stability and resilience of markets and ecosystems. A lack of metrics and data is often used as a reason for why action has not been taken. ?In particular, more clarity and consensus is needed on metrics to measure biodiversity impact or a market standard classifying biodiversity investments.?Boards also see biodiversity of moderate importance and not a strategic priority.

How is biodiversity and nature loss defined in managerial terms?

The first issue is a lack of clearly defined shared understanding of key biodiversity concepts. ?Biodiversity refers to the totality of all living things on earth, and the interactions between them. Biodiversity is a valuable asset for organizations and society at large.? Global GDP is estimated at approximately $96 trillion per year.? Biodiversity is estimated to be directly related to up to half of this output, around $44 trillion/year.? This includes pharmaceuticals, fisheries, agriculture, water resources, pollination, food production, timber, and clothing fiber.? Despite this, within the last 50 years, the world has lost 50% of its biodiversity, and the natural world is being ravaged by pollution, consumption, and habitat loss.? Defined as ‘nature loss’, this represents the depreciation of natural capital and ecosystem services vital to the well-being of communities, businesses and economies.? Managing biodiversity and mitigating nature loss requires a combination of restoration of degraded ecosystems, conservation of existing natural capital—and perhaps most importantly—sustainable use to achieve economic, social and ecological goals.

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What are good metrics and targets?

The second issue is that biodiversity is still abstract to business managers, despite being directly linked to supply chain inputs and impacting many of the products and needs we, as humans, have on a daily basis.?

Biodiversity metrics and targets are crucial for both management and policy development, as they provide a standardized and systematic way to measure and address the complex and interconnected challenges related to the conservation of planetary biodiversity. They help ensure that conservation efforts are effective, accountable, and able to respond to the ongoing threats and changes affecting ecosystems and species.?

Biodiversity targets are specific, measurable goals or objectives set to guide conservation efforts and ensure the protection, sustainable use, and restoration of biodiversity at local to global levels. ??Biodiversity targets can encompass a wide range of objectives, such as halting the decline of certain species, protecting a certain percentage of critical habitats.? Biodiversity metrics and targets are important tools used in environmental management to assess and monitor the health and diversity of ecosystems and species.

Risk Metrics: A good place to start is to understand the biodiversity risks to a company's supply chain and operations.? This process helps to also better understand opportunities linked to biodiversity.? It is important to check that the company is compliant with all national biodiversity related regulations. ?It also mitigates risk to track legislative trends in other regions which may affect a company’s supply chain or markets, and portend future legislative change in other regions.? The EU is quickly setting biodiversity legislation, and the UK is likely to make Taskforce for Nature-related Financial Disclosures-aligned (#TNFD) disclosures mandatory , which the UK Government expects to move faster than TFCD; illustrating that the pace of biodiversity could eclipse climate.? Jessica Smith of United Nations Environment Programme Finance Initiative (UNEP FI) says that other than AI nothing nothing is moving as fast as biodiversity credits.

It is important to note that there is not a one size fits all blueprint for the biodiversity metrics and targets that a company should use.? Companies can adapt these to the business’s goals and its purpose.? It is important is to keep metrics and targets as simple as possible initially, and not to make perfection the enemy of good. It is more important to get started and to iterate and improve over time.?

After understanding biodiversity risks to supply chains, markets and operations, the following metrics can be helpful to track progress:

1.???? Reducing Impact:? What is your company’s environmental footprint, and how can this impact be reduced?? How can sustainability be promoted in your supply chain and operations? This can be a win-win when these changes also save money.?

a.???? Carbon emissions. Tracking Scope 1 and 2 emissions is hopefully becoming an obvious necessity for any company.? In the next 12-24 months, hopefully few companies will ignore the trend of understanding their Scope 3 emissions.? Be warned: scope 3 emissions are often horrifyingly high compared to scope 1 and 2. One way to engage with staff and stakeholders is to determine emissions and water intensity per staffer.? It helps make everyone responsible for reducing the footprint.? Fitting engagement and measurement into a longer-term emissions reduction target is important. Microsoft aims to be carbon neutral since its founding in 1975 .? Sweden’s MAX Burgers is 10% ‘climate positive’ ; meaning 110% of its emissions are addressed through carbon removals.? BCP (BioCarbon Partners) is 100% climate positive meaning having offset 200% of its total emissions since founding in 2012.

b.???? Impact on land. Keeping track of the number of hectares negatively or positively impacted, and the number of dollars invested into climate and nature projects are ways to measure action. Firms can track dollars through investments into nature-based carbon projects, or funds established to fund climate and nature innovation.

c.???? Impact on species. Depending on the type of operations of a business, tracking habitat connectivity, species richness, diversity and threatened species may be relevant.? This relates to extractive industries which impact larger land areas like energy, mining or timber, or companies which produce products dependent on extractives like an 宜家 which depends on forests, or food products that use palm oil.? Affordable, accessible methods exist for measuring these metrics.

d.???? Impact on society. It may seem unrelated but it is important to measure social impacts in the context of biodiversity.?One reason is that 80% of the world’s remaining biodiversity exists on land controlled by IPLCs.? Biodiversity impacts in the Global North also impact communities when soils or waters are polluted, pollination declines, and overexploitation results in fish stock collapse.

TNFD, the Science-based Targets Initiative (SBTi), and B Corporation methodology can help with other metrics and targets.?

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The circular movement is slow. How could regulation accelerate the transition and what can be learned from carbon markets?

Government Regulation is frustratingly slow in accelerating responses to the planetary crisis.? Corporate impatience is a key reason for the Voluntary Carbon Market (VCM) developed over the last 15 years.? How jarringly the world shut down when Covid hit shows what is possible when there is strong political will.? But strong governance needs money for policies to succeed.? The global funding deficit for biodiversity is ~$700 billion/year.? Achieving the Paris Climate Agreement requires an estimated $5 trillion/year.? The world is currently on track for 2.8 degrees C of warming by 2100, which incidentally is less time between today and the end of WWII.? According to www.climateclock.world , we have less than 6 years left before the world blows past 1.5 degrees C.? July 2029 is the month to remember.? A senior ARAMCO executive publicly stated at FII that the cost of a barrel of oil would need to increase to $400 to meet transition funding needs, but that the market (i.e. us) would be unwilling to pay this.? He is right.? Cost of living costs are already a major problem in countries all over the world.

The Carbon Border Adjustment Mechanism may be another way of getting consumers to pay for emissions reductions.? CBAM charges for ‘exporting’ emissions for goods consumed.? An example would be China producing goods for US markets which previously were produced in the USA, and the emissions having to be built into the good’s price.

The VCM has shown that those of us who have the privilege or power need to take responsibility even where legislation is slow.? Biodiversity credit markets should replicate the VCM by getting started, trying to build a market and iterating as quickly as possible.? There may be low hanging fruit: closing efficiency gaps in natural capital use could double GDP and sequester 78 billion tons of CO2 (about 1.5 years of cumulative human emissions).

Despite the carbon markets being small (~$2 billion per annum), and volatile, they have been effective as a tool to channel private capital to forest communities. Less than 5% of current global emissions are covered by a carbon market.? The carbon markets are projected to 10X to $20 billion around 2030.? The same growth is projected for the biodiversity credit market, but in about 1/3 of the time.? This is remarkable if true: it means a vision of a world where entire continents and seas are carbon sponges, air and waters are clean, and people and biodiversity thrive is possible in a century supported by these markets.? The transition to a nature and climate positive economy will also require political will on an unprecedented level, and biodiversity damaging subsidies to be eliminated.?

As a critical step, the integrity of measurement of both carbon and biodiversity credit markets must continue to improve to reduce skepticism.? Equity models need to get money to the people who will reduce carbon in the environment: it is as simple as that.? Bottlenecks of integrity, standardization and equity need to be worked through quickly in the carbon markets and avoided by biodiversity credit markets.? There are many challenges but we have no choice but to use carbon credits in a net zero transition.? The VCM is filling a regulatory gap, but as a project developer I hope that nature and carbon markets become regulated in global compliance markets.? Increased regulation is one way to accelerate the world’s transition.

Communications Risk: Due to the reputational attacks experienced in 2023 by the VCM, it is important that corporates engaging in biodiversity action avoid reputational risks.? It may be better for now to act, and seek recognition later.? It is better to iterate and develop a few years of learning and experience before seeking market acceptance.

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What is the role of NGOs and biodiversity credit markets to transform value chains?

Biodiversity and carbon markets can accelerate more sustainable value chains by making the supply of consumer products more accountable.? An example of this would be angora or cashmere for luxury markets produced through regenerative agriculture.? Biodiversity credits could lower the entry barriers for farmers by subsidising the farming shift.

The biggest opportunity though is for biodiversity and nature-based carbon markets to create new valuations of ecosystems.? There is more than a moral or market imperative to large-scale conservation and restoration: 38% of cumulative historical emissions have been from the loss of wild ecosystems.? Nature markets present the greatest potential tool of our generation to transfer wealth from North to South—and heal ecosystems. ?The next industrial revolution needs to be a community-centred nature repair revolution.? Nature markets provide a way for private capital to treat natural capital as an asset.? In FII Institute’s 2023 Executive Report , a survey of 50,000 respondents cited that quality of life and cost of living was humanity’s top priority in 2023.? A just transition to a nature and climate positive economy must increase peoples' quality of life as a primary goal.??

NGOs: I spent half my career in the non-profit sector, and NGO’s can be great partners to advance community rights and policy, research, and voluntary standards like Verra or Rainforest Alliance.? However, NGO’s are not best placed to develop markets: this is best left to the private sector.? NGO’s can facilitate and support markets, but for-profit companies are often better placed to drive private capital into nature due to their metrics, incentives, measurement and culture.?

Final Perceptions: FII is able to convene the global who’s who on an almost surreal level. Hearing bankers, Royalty and celebrity CEOs discuss the value of sea grass, mangroves and ocean restoration was different, but inspired hope.? More influential leaders are trying to find transaction models that allow for private capital to flow to nature restoration.? In the conservation, sustainable use and nature markets, a common theme is generating money through wiser resource use. ?There are ways of transitioning to a sustainable economy without it being seen as solely a threat to economies, especially in the Global South.

Given its influence, FII8 has an opportunity to accelerate the transition by offering a vegetarian diet (70% of nature loss comes from agriculture).? Living in African countries prone to drought, it was odd not to see any water-conservation signage, or solar panels or solar water heaters.? Admittedly, my experience of Riyadh was limited but a first impression is an impression.? It was actually cold in the convention center. FII could be progressive about air conditioning use.? A 2.8 degree C increase plus messaging would stir discussion.? It would be great to see more plug in hybrid and EVs moving speakers around, and FII could make an effort to become climate positive since FII1!

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