Biodiversity: A New Frontier for Business

Intro
By Ulysses Smith, ESG Senior Adviser, Debevoise & Plimpton, New York, and Diana Moise, Associate, Debevoise & Plimpton, London

Biodiversity and what it means for business has garnered increased attention since the December 2022 COP15 Biodiversity Conference. The resulting Kunming-Montreal Global Biodiversity Framework agreement is a historic package of biodiversity measures whereby states agreed to take urgent action—through the public and private sectors—to halt and reverse biodiversity loss by 2030. For many businesses, however, biodiversity and its myriad impacts on strategy, operations and risk profile remain unfamiliar.

What Is Biodiversity?

The Convention on Biological Diversity, the foundational international legal instrument in this space, defines biodiversity as “the variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems.”

Biodiversity is essential to human life and well-being, providing the necessary conditions for food, water, medicines, energy and other resources as well as important services such as climate and natural hazard regulation, air and water quality and pollination.  The loss of biodiversity may lead to severe ecosystem degradation or even total ecosystem collapse, resulting in countless drastic consequences such as increases in zoonotic diseases and water stress, decreases in crop yields and nutrient rich foods, and damaging floods and erosion.

How Is My Business at Risk?

There has been a growing recognition of the material and financial risks presented by unmitigated biodiversity loss and a corresponding surge of momentum to address biodiversity loss as an existential global threat. For example, according to S&P Global, more than half of global GDP is “moderately or highly dependent” on nature and nature services and is, therefore, at risk due to biodiversity loss.  Biodiverse ecosystems also play an important role in mitigating climate change impacts. 

This increased focus on biodiversity has revealed risks that affect every industry. Failing to take adequate action may lead to the following:

• Business/Financial Risks.  Biodiversity loss can impact physical assets that are scarce natural resources or are dependent on at-risk ecosystems. 
• Legal Risks.  Regulatory risks may arise around setting nature-related targets, measuring and disclosing nature-related impacts and dependencies, or complying with EU or other due diligence obligations that may extend throughout the value chain.  Litigation risks may arise from impacted stakeholders challenging inadequate biodiversity strategies, disclosures and commitments. 
• Reputational Risks.  Failing to take action may create reputational risks as consumers, clients, financial institutions and other relevant stakeholders increasingly prioritize biodiversity. 

How Can My Business Prepare for These Risks?

In order to fully assess biodiversity risk exposure, organizations must identify both (1) how business operations impact biodiversity and (2) how business operations depend on biodiversity.  As with climate change, some industries—such as agriculture, extractives, and construction—are more closely tied to biodiversity and likely to face significant risk, but all organizations are implicated to some degree.

Because biodiversity-related issues are context-specific, there are no one-size-fits-all solutions.  Rather, organizations should assess their particular biodiversity-related impacts and dependencies and develop comprehensive, tailored strategies in response. 

Below are four essential steps for businesses, including suppliers and partners, to begin assessing their exposure to biodiversity-related risks.  

1. Step One: Mapping Value Chain Operations
   1. Where does your business operate?
   1. Which biomes, ecosystems and species does your business interact with?
2. Step Two: Identifying Nature-Related Impacts, Dependencies and Risks
   1. At each location identified above, what environmental resources and ecosystem services does your business depend on and impact?
   1. How do material impacts and dependencies pose risks to your business?
3. Step Three: Determining Biodiversity Priorities, Metrics and Targets
   1. Determine the areas of priority for your biodiversity strategy.
   1. Set science-based targets for nature to address the biodiversity priorities identified above that allow the company to measure progress and are consistent with the global goal of halting and reversing nature loss by 2030.
   1. Develop accurate metrics and key performance indicators for measuring your organization’s progress.
4. Step Four: Operationalizing Biodiversity Strategies
   1. Consider who in the organization will be responsible for implementing biodiversity strategies and tracking ongoing progress to ensure they are integrated through the value chain.
   1. Consider how existing policies and operations might address biodiversity-related risks and help achieve biodiversity targets. Develop new risk mitigation and management approaches to address gaps in existing strategies.
   1. Consider how best to adopt biodiversity strategies across all spheres of control and influence along the value chain that address the impacts, dependencies, risks and opportunities identified above.
   1. Consider developing a nature-related due diligence framework through your organization’s value chain in anticipation of forthcoming regulation, such as the European Union’s Corporate Sustainability Due Diligence Directive.
   1. Consider the resources and training required to implement these policies.
   1. Consider what information the organization can and should disclose voluntarily or in response to regulatory requirements (e.g., Taskforce on Nature-Related Financial Disclosures).

Responding to the increasing requirements in this area should be informed by a comprehensive strategy that takes account of the business, regulatory, enforcement, litigation and reputational risks. Through the framework above, organizations can better understand how biodiversity concepts relate to their operations.