Date posted: 29/05/2024 5 min read

Assessing nature-related risk

Many organisations are tracking and disclosing biodiversity risks and opportunities. Where should you start?

Quick take

  • Inextricably linked to climate change, biodiversity loss generates significant and long-term risks to society and the economy.
  • Target 15 of the Kunming-Montréal Global Biodiversity Framework requires transnational companies and financial institutions to monitor, assess and disclose risks and impacts on biodiversity.
  • The Taskforce on Nature-related Financial Disclosures released its final framework in September last year: a solid starting point for assessing nature-related risks and opportunities.

In December 2022, almost 200 countries signed the groundbreaking Kunming-Montréal Global Biodiversity Framework (GBF) at the UN Biodiversity Conference, known as COP 15. The historic event, which followed four years of negotiation, signalled a commitment to halt biodiversity loss by 2030 and sent a powerful message for companies to begin tracking and disclosing biodiversity-related information.

The GBF sets 23 targets for the conservation and sustainable use of nature. They include protecting 30% of the planet for nature by the end of the decade, mobilising at least US$200 billion per year from public and private sources for biodiversity-related funding, and restoring 30% of the planet’s degraded terrestrial, inland water, coastal and marine ecosystems.

Target 15 has captured the attention of organisations as it calls for transnational companies and financial institutions to “monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity” through their operations, portfolios, supply and value chains.

While some companies are already tracking and assessing their biodiversity risks and opportunities, many others are considering where they should start.

Conserving natural capital

The World Economic Forum estimates US$44 trillion of economic value generation is moderately or highly dependent on nature and its services. That means more than half of the world’s total gross domestic product (GDP) is exposed to nature loss, and biodiversity is in dangerous decline with up to one million species threatened with extinction and ocean heat reaching record levels.

Alexandra Banks, partner and global nature lead at EY, says much work remains to be done in conserving natural capital and abating biodiversity loss. She notes that every organisation has direct and indirect impacts and dependencies on nature throughout their value chain.

“They might be reliant on water or land, or they might have impacts and dependencies on ecosystem services, which are essentially the services that nature provides to them, such as clean air,” she explains.

“Some of these impacts and dependencies are material,” adds Banks. “If a company is extracting huge amounts of water from the water table and that is resulting in nature loss, for example, they will not be able to take that dependency out of the environment if there is a significant depletion.”

Setting nature action plans

Countries like Australia are gearing up for mandatory climate-related disclosure, which is expected to kick off for many companies as early as July this year. In New Zealand, climate-related disclosure is already a requirement for certain large entities. The good news is that many of the systems and processes used for reporting climate-related impact can be adapted for nature reporting.

For example, the Taskforce on Nature-related Financial Disclosures (TNFD), which released its final framework in September last year, has been designed to complement the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Dr Marnie Telfer, director at climate change and sustainability consultancy Anthesis, says the TNFD recommendations are a useful place to start understanding, measuring and disclosing nature-related risks and opportunities. She notes that it includes a LEAP approach to help organisations ‘Locate, Evaluate, Assess and Prepare’ for nature-related issues.

Telfer says organisations can approach the framework in stages.

“We have some companies that are looking at the ‘L’ and the ‘E’ of the LEAP process, or are just starting with a TNFD discovery session,” she says. “The important thing is that progress is being made and companies are becoming more aware of their impact on nature.”

Banks adds that the framework provided by the TNFD enables organisations to explore where their value chain intersects with nature.

“If that intersection is with an area of nature that is precious or degraded, what is happening where that intersection occurs? What are the impacts or dependencies and how could that manifest as risks and opportunities?

“Companies can start small,” she adds. “They might just start by looking at their own operational footprint and expand into the broader value chain over time. It’s important to note, however, that the TNFD has explicitly called out the consideration of human rights, indigenous people and communities in the way that companies consider their impacts and dependencies on nature, so this can’t be overlooked.”

The GBF will see more companies setting nature action plans, embedding them into their sustainability strategies and reporting against the TNFD.

Banks says there is no time to waste. “Organisations should not think of this as something that’s far off in the distant future, because everything that is happening internationally shows that nature loss is an issue for today,” she says.

“Climate and nature are inextricably linked, and we’re not going to be able to solve climate change without also addressing the serious degradation and impacts on nature. This realisation is really starting to come to the fore, and the architecture for climate risk has been picked up and replicated for broader nature risk.

“Senior executives and financial institutions are increasing their understanding of how a non-financial risk can materialise eventually as a financial risk, and that is now being applied to nature.”