Biodiversity is an area of increasing interest for financial institutions with the Dutch, French and European central banks and the Network for Greening the Financial System (NGFS) recognising the impacts and dependencies of the financial system on biodiversity. With the TNFD (Taskforce for Nature Related Financial Disclosures) framework due to be finalised in 2023, the Post 2020 Biodiversity Framework expected to be agreed at the UN Biodiversity Conference of Parties (COP) in December this year and the Finance for Biodiversity initiative already underway, biodiversity and nature related risks are moving to the fore alongside their climate cousins. In this blog we explore the benefits humans get from biodiversity, the interactions with climate change and how organisations can face into these developments.
Harm to biodiversity undermines the health of ecosystems which deliver benefits to people, society, and our economies. Understanding our dependence on biodiversity, including its interactions with climate change is key to understanding how combined risks emerge.
Biodiversity underpins many vital socio-economic ecosystems including food and healthcare. For example, 75% of food crops are dependent on animal pollinators and soil biodiversity essential for nutrient cycling, storage and water purification. For healthcare, over 75% of antibacterial agents and 60% of new cancer drugs approved between 1983 and 1994 had their origins in the soils; this highlights their critical importance including for future discoveries. Approximately 70% of cancer drugs are natural or synthetic products inspired by nature. Biodiversity loss, climate change and land use change are all significant factors in disease emergence and the proliferation of pandemics. Wetlands are one of the most biodiverse habitats on earth, but as well as providing habitats for many species, they play a critical role in flood protection, preventing coastal erosion, reducing storm surge and filtering pollution, in addition to being one of the most effective carbon sinks available.
Having examined the benefits from biodiversity, we consider its current state, and the conclusion is not good. Nature is deteriorating worldwide, and humans are responsible. 75% of global land surface has been significantly altered by human activity, 85% of wetlands and 50% of live coral have been lost and these are merely examples that demonstrate the scale of the problem. Not only do these changes put the previously discussed benefits at risk but they also bear consequences for climate change mitigation.
Biodiversity loss impacts climate change and climate change impacts biodiversity loss
Saltwater and land ecosystems are carbon stores. To date they have absorbed around 60% of global emissions. Destruction of these ecosystems releases carbon into the atmosphere, hampering their ability to act as carbon sinks, which further contributes to climate change. Conversely, climate change is a major and increasing driver of biodiversity loss as it disrupts habitats. Higher ocean temperatures cause heat stress and coral bleaching, extreme weather events cause flooding and land loss, ocean expansion contaminates soils with salt water and ocean acidification disrupts the ability of organisms like krill to calcify their shells with effects felt up the entire food chain.
There are feedbacks and interactions between these processes too. The loss of snow and ice habitats due to climate change bears consequences for biodiversity as well as reducing the amount of solar energy reflected by the earth causing further warming. The loss of natural structures like wetlands reduces protection from flooding and storm surges, the frequency and severity of which are increasing due to climate change. The joint Intergovernmental Panel on Climate Change (IPCC) and Intergovernmental Science Policy Platform on Biodiversity & Ecosystem Services (IPBES) report, notes that “the mutual reinforcing of climate change and biodiversity loss means that satisfactorily resolving either issue requires consideration of the other.”
While actions taken to improve climate change or biodiversity will have co-benefits to the other, this is not guaranteed. There are some actions that may result in trade-offs, for example, trees planted on previously un-forested land to increase carbon uptake in areas like grasslands and savannahs that harbour rich biodiversity contribute to the conversion of these areas which can even reduce the eventual carbon benefits. The picture is complex and to start to consider and mitigate against such eventualities, use of system wide thinking and an appreciation for both the up and down stream impacts of decisions must become prevalent at all organisational, governmental and social levels.
The challenge for organisations
So, what does this mean for companies who are taking climate action seriously by preparing TCFD reports and setting strategies to align themselves with the Paris goals? What are the industry expectations and developments in this area?
The Dasgupta review, The TNFD and the draft post-2020 framework highlight the need for financial flows to align with biodiversity goals. Greater financial resource must be mobilised to identify and report on biodiversity risks and impacts and use this information to take action to reduce those impacts. This approach recognises the issue of double materiality and that in the long term, today’s actions determine tomorrow’s risks. Additionally, some physical biodiversity impacts may become financially material over the short-term, accelerating the worst climate change impacts.
Like climate risks, companies will need to perform impact and dependency assessments, devise strategies for action, embed considerations into risk management and devise metrics for monitoring and reporting progress over time. A key element will be understanding how these fit with pre-existing climate change ambitions and processes. This includes understanding interactions between the two risks – for example where they may amplify each other as well as considering how actions taken to mitigate one may present synergies or trade-offs for the other.
As companies develop their approach to climate change, including identifying risks and opportunities, scenario analysis, developing targets and reporting processes, it would be sensible to future proof these to take account of developments in the biodiversity sphere. At the very least, when developing climate strategies and actions, care should be taken to identify any trade-offs and synergies. It is important to note that biodiversity is a trickier problem, with impacts specific not only to corporate activity itself but also the geographical location in which companies operate. Whilst for climate change, impacts can broadly be measured by assessing carbon emissions, biodiversity impacts depend much more on the local situation – for example activities that require high amounts of water as an input are detrimental when they are carried out in areas exposed to water shortages, whereas they may be fairly benign when carried out in another location – the where is as important as the what. Additionally, data, metrics and targets for biodiversity are less well developed which causes challenges when trying to align with climate policies. These are areas that will need to be addressed going forward but are necessary to deliver on sustainability ambitions. For governments, the reference to nature based solutions in the COP 27 final text was a first, highlighting how nature based solution are a key part of managing climate change; countries must now step up their ambitions at the biodiversity COP to deliver on both the climate and biodiversity agenda.