Episode 4: Business + Nature

Full transcript

Ivy Kuo:Hello, I'm Ivy Kuo, PwC Asia Pacific sustainability leader, and you're listening to PwC's ESG (Environmental, Social and Governance)  podcast, Defining Asia Pacific's Future, the podcast for bite-sized updates on the latest sustainability trends, from climate change to social and labour rights due diligence. We bring together ESG practitioners to discuss and solve today and tomorrow's sustainability challenges, reflecting PwC's strategy of building trust and delivering sustained outcomes. Following the success of earlier episodes, I'm pleased to announce that we will feature various PwC sustainability specialists in this podcast series. 

In today's episode, we'll dive into the subject of biodiversity, a crucial matter that doesn't just shape our environment, but also weaves into the very core of businesses across Asia Pacific. In the relentless pursuit of growth and profitability, companies often turn a blind eye to the hidden risk tied to our planet's ecosystem, but there's a riveting thought: What if your company is more intertwined with nature risk than you've considered? This could be a game changer, opening up a world of opportunities, not just to safeguard, but also thrive in harmony with our nature world. 

Joining me today is Perpetua George (PwC Malaysia), AKA, Pep, PwC's Asia Pacific specialist in biodiversity and nature. We'll discuss what biodiversity and nature means for business and why it matters. 

Welcome, Pep. Let me start with why are biodiversity and nature so important to business? Why do they matter? 

Perpetua George:Thanks, Ivy, for having me here. It's great to be part of this podcast. That's a good question and I think one that businesses often ask. The simple reason is this. Nature is an important factor for businesses, and many companies are actually very intertwined with ecosystem services and very much dependent on nature to ensure that their economic activities survive. 

PwC did some research on this in 2022¹, and what we found going through economic data was that 55% of global GDP (Gross Domestic Product), which is equivalent to a huge sum, it's US$58 trillion, is moderately or highly dependent on nature. Now, that means that, if you are a business and you're not necessarily thinking of yourself as linked to nature, so if you're not necessarily an agriculture company or an extractive company, you may not consider business as a component of that, but our research finds that lots of companies are linked to nature and have dependencies on that. 

Intertwined with that is the fact that we are also seeing our natural world, nature and biodiversity deteriorating faster than at any other time in human history. I'm going to say some scary stats here. 14 out of 18 categories of ecosystem services are declining. 75% of our Earth's land surface has already been significantly altered by us, by humans and, the last one, which is quite sobering, 66% of our oceans have been impacted by human activities because of things like fishing and pollution². 

This is an important contextual point. At the same time, if we focus in on Asia Pacific, we see here that a lot of our products and services are actually provided by natural capital. 54% of that in Asia Pacific or US$18 trillion of our region's economic value comes from these sectors that are very dependent on nature's ecosystem services. I mean, we just think about agriculture and forestry, but also, I think aspects that we maybe don't think about in terms of impacted through businesses like, perhaps, the tourism industry or transport. 

It's this ongoing decline of nature that does severely threaten our economic well-being, I mean even if we're not necessarily thinking about nature in the same terms, but it is. It's very much interlinked. I guess the point here with this question is businesses really do need to start looking at nature and biodiversity as part of an ongoing due diligence component of their business. 

Ivy Kuo:Pep, that was great. I love how you quote the difference, the impact percentages, but can you share or provide examples on what impact biodiversity and nature can have on business? I think we would like to see some examples particularly around nature-related risk. 

Perpetua George:Let's look at positive impact, and perhaps we go to the frontlines so we're looking at the forestry sector. Here, there are studies that really show, and these are studies in really high-value science articles, and they are done by timber, but also ecologist experts and, from here, the studies show quite dramatically that, if there are more diverse or more types of tree species in a forest area, then that forest can generate significantly more value. That's 35% more, and this is from the fact that the trees grow better when they are not competing with each other, if you think about trees. If they're all the same, they will have the same nutrient requirements, the same sunlight requirements, but if you've got a mix or a more diverse species selection, they're not necessarily fighting each other, and so all of the tree species can benefit better, and that increases the amount of timber that is produced and, therefore, the economic value goes up. 

That's a clear example of how biodiversity and nature are directly interrelated to safe production, but there's also I think some data to show where, if you don't think about risks, this can have huge impacts on your values and your yields. If we look at the wildfires in Australia, so this was in 2019 and 2020, the data that was compiled by the government, an example I'll give is the Victoria State Department of Treasury and Finance. When they looked at the losses, they found that losses for sectors that weren't considered directly linked to the fires, tourism, transport, these came to AUD$126.5 million. 

How does that compare to the other industries that were more maybe directly linked? We're looking at agriculture land, we're looking at timber, so more the land sectors, those guys, their losses were much less. It was like US$86.8 million compared to, for example, a sector that maybe you didn't directly link to nature, was actually much bigger impact in terms of the finances. This is where you can see that interrelatedness and that if you don't start thinking about how you're going to adapt your business to the potential risk of nature, then you're going to start to see your pocket hurt. 

Ivy Kuo:That was very interesting. Now, if I'm a business, how do I start to turn nature ambitional interests into actions? What do I need to do? 

Perpetua George:Yeah, we get this question a lot. I think the first thing is to demystify what nature means. I think a lot of people say, well, okay, what is nature? Oh, I've never really thought about it, but what is it? Actually, if you sit them down and say, well, think about everything that you've been doing in your business that relate to elements of nature management, and then they'll start to see that these components have been things that they've been doing for a while. For example, how you look at waste, how you look at water stewardship, how you manage and use fertilisers for example and chemicals, all of these relate to actions that are part of nature management. These already align with the core TNFD (Taskforce on Nature-related Financial Disclosures) reporting metrics, and so it's relevant to all sectors. 

This kind of action altogether, basically sitting down, identifying what is related to you, identifying where your dependencies and your risks are, all of this translates into what we call nature-positive business. That simply means that you're adapting your business to, one, avoid any major impacts to nature. I think what stereotypically what most people think about this, but the second component of it which is more linked to the opportunities is how do you make your business much more able to thrive in the face of all these natural risks that are coming up. This is the main component of this and why businesses should start to adapt to being more nature positive. 

Ivy Kuo:That's all good, but I think there's a lot of regulations that's coming through, right? We are hearing about the TNFD that you mentioned. So as a business, what kind of nature-related regulations do I need to be aware of, and am I impacted? What do I need to do to be more compliant or to get value out of it? 

Perpetua George:I think regulation and legal requirements have started to come up in the last three, four years, is driving more of this focus on nature and biodiversity for many businesses because you need to start somewhere. I think it's always helpful to get a nudge from regulators to say, hey, we need to start understanding how your business is being impacted by or impacting to nature. These regulations include things like the EU CSRD (European Union Corporate Sustainability Reporting Directive) which requires the disclosure of climate and nature components and due diligence for any kind of company that is doing business within the EU. That impacts a lot of us here in Asia Pacific, too, but it's also I think for both listed companies and non-listed companies. Many stock exchanges in the region are already starting to require disclosure of TCFD (Task Force on Climate-Related Financial Disclosures)  for example, the climate disclosure components, and starting to roll out ISSB (International Sustainability Standard Board) requirements which starts to pull together the financial reporting aligning with climate and nature components. 

If you think about a traditional business and they will have a finance department, they'll have operations, then maybe, if they're lucky, they'll have a sustainability team. Traditionally, the topic of nature would have been sitting with the sustainability team, but what these regulations are bringing to the fore now is that you have to start rolling this up into the entire business. The accountants and finance will need to understand what are the numbers that relate to impact to nature. What are we doing? What are we spending on adaptation to nature or climate risks? They've never had to do that before, but this is now where it's coming together. 

I mean there's also hard-hitting regulations coming in that potentially could preclude you from doing business or could potentially shut down entire sectors. A key example is the EUDR (EU Deforestation Regulation), so the EU has been quite specific. This is going to come into implementation for us at the end of 2024 where anything out of seven commodities, if you're selling this into the EU, so if it's cattle or cocoa, coffee, oil palm, rubber, soya and timber, all of these things have to have confirmation or due diligence done on them to ensure that it hasn't come from deforested areas after December 2020. 

It's putting a huge amount of responsibility on companies in Asia Pacific, but also globally to ensure that they understand the origin of the materials that they're buying, but also, meaning, that we're required now to put in place into the EU market products that aren't causing destruction to nature and, specifically, I think to forestry.  

I mean these are the things that we also need to look at, but, fundamentally, if we're looking at how do we begin, there's five key steps. One is understanding and identifying where there are current areas to focus on environmental issues and sustainability. It's just understanding what you have. Second is you need to confirm your priorities. There's lots of elements of nature and biodiversity, but not everything is relevant to every company, and so you need to confirm what those priorities are for you in your business specifically. Third is you’ve got to know the sectors that you're dealing with and where you're dealing with and where those risks sit because then you can adapt how you interact or how you put in action some of your plans. Fourth is we talked about the regulatory framing, so a lot of these things you can refer to for guidance, tools, and standards, and that just helps to make everything more consistent across what you're doing. 

The fifth piece is engage, engage, engage because you can't do things necessarily if you're not talking to your supply chain, if you're not talking to your buyers. You've got to create a chain of responsibility on nature which then helps your own implementation as a business. Those are the five steps I think are key for us to keep in mind. 

Ivy Kuo:Pep, that was great. That was a lot of information. I really love your five steps in managing nature risks, but if you were to summarise the top three things that businesses need to know or do to prepare themselves for the progress ahead or to address the biodiversity issue, what would you suggest? 

Perpetua George:Thanks, Ivy. Yes, it's a lot to digest, but my biggest message is for companies to just get started and not be afraid to do that. Okay, three things, the first is that businesses just need to understand their dependency on nature, and what that means is how much of the nature risks are there that have an impact on you as a business? The second point is the converse of that. It is looking at how much your businesses have an impact on what's surrounding you in nature and looking at how you can minimise those impacts. The third thing is not to be so perfectionist in the approach and not to wait until you've got everything in order and all your ducks in a line before you actually start on the journey to manage nature risks, so really focusing on progress, so, one, understanding your dependency, two, understanding your impact and, third, just focusing on getting started on progress. 

I think the other thing to bear in mind is that it's important to not just focus on compliance and frameworks, and a lot of businesses when they start on this journey focus on that. It's also important to think about your business in terms of part of a supply chain and a portfolio, looking at where you can identify value in that transformation journey.  

Ivy Kuo:Pep, it's been a pleasure to have you join us for this episode focusing on the crucial role nature has to play in business. 

Perpetua George:It was a delightful session, Ivy, and I really enjoyed having this conversation. Thank you. 

Ivy Kuo:It is undeniable that climate and nature are closely intertwined, yet, with every challenge, comes even greater opportunities. The time to act is now. Let me leave you with a few thoughts or questions. Have you embarked on your reporting journey or your climate or Net Zero journey? If so, how are these initiatives connected to nature or biodiversity? If you have already set off on this journey, how are you engaging with your supply chain partners to progress together? 

There are immense opportunities for businesses to stay ahead of the curve and build enduring value for the future. The question is are you ready to seize them? To learn more from Pep on managing nature risk, have a read on our thought leadership located in the Related Content section of this page. Let's connect and join forces to seize the opportunities and drive a cleaner future.

^{1, 2    ipbes, The global assessment report on biodiversity and ecosystem services: Summary for policy makers, 2019}

© 2024 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.