Hundreds of companies and asset managers including Anglo American, GSK and Norway’s sovereign wealth fund have pledged to start disclosing their impact on nature.
So what? Boards’ understanding of the risks to their business from the collapse of biodiversity, and the impact they have on the natural world – from soil to forests to living creatures – still lags some way behind climate, but the threat is just as serious.
Just as emissions reporting is now being included in domestic regulation, companies can expect to face mandatory reporting of their nature-based risks in future. The corporate pledges by GSK and others, made at Davos, followed the release of final recommendations from the Taskforce on Nature-Related Financial Disclosures (TNFD).
Dame Amelia Fawcett, chair of the Royal Botanic Gardens at Kew, says the focus is shifting: “Nature is now top of the stack. It has become a critical global priority for business.”
But it’s trickier than climate, for two reasons:
- It’s indirect. With exceptions (such as the impact of farming on forests) the interface between businesses and water use, soil health or declining wildlife are often hidden in supply chains.
- It’s hard to measure. Unlike tonnes of carbon, it can be hard to quantify the value of a swamp that’s been destroyed and it can’t always be replaced like-for-like in a different location; an acre of temperate forest gained in Wales doesn’t compensate for an acre lost in tropical jungle.
But there’s plenty of financial innovation, such as debt-for-nature swaps that have cut developing countries’ debt in exchange for conservation commitments and “rhino bonds” linked to an increase in African black rhino populations.
Last month, the New York Stock Exchange dropped plans to allow the listing of “natural asset companies” – whose main purpose would be to manage and improve ecosystems – under pressure from Republican states, but exploration of the idea continues in private markets.
The spotlight on nature raises practical questions for:
Companies and asset managers, who are unfamiliar with the risks and returns from investing in biodiversity, and so struggle to compare the potential gains with more familiar investment decisions.
Regulators, who need to digest the lessons of the flawed voluntary carbon markets (whose credibility has been eroded by claims they failed to reduce carbon emissions, while harming the way of life of indigenous people).
The UK government, as the UK’s coastline combines some of its most deprived towns and a fragile and degraded environment. A cleaner coastal environment, with a revived ecosystem, could boost prosperity.
And the neglect of nature lies at the heart of two public policy challenges:
Food. Globally, agriculture is a threat to 24,000 of the 28,000 species at risk of extinction. A number of the world’s biggest food businesses, including Nestle and Unilever, say they are encouraging farmers in their supply chain to shift to “regenerative” agriculture that has better environmental outcomes, but the investor network FAIRR warns that the phrase lacks a clear definition.
Housebuilding. Last year, the Environment Agency objected to the building of new housing in Cambridgeshire over concerns that water supply posed an environmental risk. Many areas of population growth in the UK are places where water supplies are already under stress.
With its universities and pharma companies, Kew and the London Zoo, Britain is well placed to be a global hub for biodiversity. A public-private partnership could take nature-based solutions from the margins of finance and scale them to meet the size of the challenge.
