The right climate for nature

To put this in perspective, our research found that 55% of global GDP, or US$58 trillion of economic activity, is materially dependent on nature. Nature provides a wide range of ecosystem services, vital not only for our current and future well-being but also critical to support future economic prosperity. Unfortunately, key indicators such as species extinctions, loss and degradation of natural habitats, and incidents of natural disturbances like wildfires and flooding demonstrate that nature and biodiversity are in decline. The World Economic Forum’s Global Risks Report 2024 ranks biodiversity loss and ecosystem collapse leading to natural resource shortages within the top three global risks over the next decade.

While sustainability reporting traditionally focuses on measuring companies’ activities and their impacts, it’s also important to acknowledge the other side of the coin: understanding how businesses depend on and are impacted by nature. As awareness grows, in part thanks to the Kunming-Montreal Biodiversity Plan, dubbed the 'Paris Agreement for nature and biodiversity', nature is moving up the corporate agenda and becoming an issue that clients know they need to address, both from business performance and reputational perspectives.

All businesses depend on nature to some extent, but many C-suite executives don’t currently understand where these dependencies lie, and to what extent their business could be impacted should these services and assets provided by nature become disrupted. The relevance of nature to businesses is more obvious in some sectors than others. But when considering the supply chain, it’s hard to think of an organisation that isn’t dependent or could be directly or indirectly impacted by nature. 

Another important aspect of nature that’s relevant to many businesses is land use or land conversion, which is often identified as the most significant impact driver of nature-related issues. Land use change is linked to water regulation, and minimising deforestation means protecting habitats and biodiversity, which can either directly or indirectly impact a business. Some companies and industries are more mature in their thinking and have taken action on these issues. Regulations have also emerged to encourage nature-positive corporate behaviour, such as the EU Deforestation Regulation (EUDR), which requires businesses to demonstrate that their products are deforestation-free. (See the pull-out box for more information on EUDR.)

Dan O’Brien, a Sustainability Partner in PwC Canada, and a member of the Taskforce on Nature-related Financial Disclosures (TNFD), said: 'Understanding and managing the risks and opportunities linked to our dependencies and impacts on nature will make it easier for businesses to embed nature in their strategy to capture opportunities and create resiliency where material risks are identified.'

Given that there is no net zero without nature, businesses urgently need to consider their impacts and dependencies on nature if they want to achieve their sustainability goals, as well as meet the demands and expectations of their stakeholders.

The nature-reporting landscape is evolving at pace. Nature reporting is not only key to meeting net-zero pledges but also to building a better future for businesses, society and the planet.

Nadja Picard, Global Reporting Leader, PwC Germany, shared that: 'High-quality reporting brings the increased transparency that’s required to build trust with all stakeholders. But that transparency must focus on what investors and other stakeholders need to know to assess the business in new ways and become familiar with new areas that, up to now, have not been intuitively mastered.' 

Although nature reporting sounds daunting and can be complex, it builds on the work done and follows a similar approach that many companies have already taken for climate reporting.

The TNFD is a global initiative aimed at addressing the growing risks associated with nature loss and biodiversity decline. The TNFD disclosure recommendations are structured around four pillars, consistent with the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB). They accommodate the different approaches to materiality currently in use and are aligned with the goals and targets of the Kunming-Montreal Biodiversity Plan.

The introduction of the Corporate Sustainability Reporting Directive (CSRD) by the European Union further highlights the significance of nature in sustainability reporting. The CSRD aims to increase and improve the comparability and transparency of sustainability information disclosed by companies, expanding the scope of reporting requirements to include environmental, social and governance factors. Within this framework, nature-related disclosures assume a prominent role, reflecting the recognition of biodiversity loss and ecosystem degradation as urgent global challenges. It’s worth noting that while TNFD is currently a voluntary initiative, there are parts of the CSRD that are closely aligned, specifically the ESRS E4, which requires companies to understand how their business activities interface with sensitive ecosystems and outlines the information that should be disclosed concerning biodiversity and ecosystems.

Companies that don’t (yet) face mandatory nature-reporting requirements might be tempted to put nature on the back burner as they grapple with climate reporting and other sustainability-related issues. But, nature risks are imminent, and in the absence of mandatory disclosure requirements, companies need to be proactive in their approach to identify, manage and disclose.

Reporting on your nature-related impacts and dependencies can not only help to demonstrate your commitment to sustainability and environmental responsibility, but it may improve your relationships with customers, investors, and other stakeholders. It can provide a great opportunity to engage with your stakeholders on nature-related issues, build stronger relationships with these stakeholders, and better understand their expectations and concerns

Understanding impact pathways is of paramount importance to effectively integrate nature into sustainability reporting. Impact pathways are the causal chains that link companies’ activities to environmental outcomes. Mapping out impact pathways can help businesses minimise negative impacts and maximise positive contributions to nature conservation. 

For instance, in the agriculture industry, companies can take steps to minimise deforestation and protect habitats when growing crops or raising cattle for use in food production. In the mining industry, companies can work to minimise the impact on water supply and protect habitats when building facilities. And in the manufacturing industry, companies can minimise the impact on water supply by reducing water usage in their production processes.

Companies should also consider their existing approaches to circularity, waste, value, and supply chain and supplier engagement. If organisations are already thinking about these issues and have associated data, then they’re already addressing some of the key elements of nature reporting.

CSRD requires companies to look at impacts, risks and opportunities, and there are a number of areas where our nature specialists can support organisations to identify relevant topics and develop nature strategies. As well as considering these five key questions to help companies develop their nature-related reporting, some actions to consider include:

Improve nature-related data:

• Whilst many companies are at a lower level of maturity when it comes to nature reporting, reporting requirements are demanding that they collate data that may not have previously been collected, which may in turn reveal that nature is in fact central to their decision-making processes.

• In our experience, it’s best to start by looking at the transparency and traceability of company operations (by installing or improving traceability systems). This includes the supply chain and value chain (both upstream and downstream), and the location data organisations require (and potentially already have), such as real-time information on what is happening on the ground, using remote sensing or satellite/drone imagery to report and measure their impact on nature. Where data isn’t available, clients should recognise the limitations of proxy data and develop plans to improve data quality. 

• There are data models and tools being developed to provide businesses with information outside their own operations. These tools are helping companies better understand how to manage risks across the supply chain, disclose the resulting actions to increase transparency and meet their due diligence requirements, which are a critical part of the reporting obligations.

• Together with the TNFD, PwC is convening nature data providers to collaborate on solutions to address these issues and provide businesses with access to relevant data to support their nature risk assessments and disclosures. The findings prompted the launch of the Nature-related Data (DC) Catalyst initiative, in which PwC plays a key role. The DC aims to swiftly identify and classify nature-related data platforms and tools, pinpoint growth and collaboration opportunities, and diagnose data gaps hindering organisations in measuring and reporting their interactions with nature. PwC also played a role in developing the TNFD Tools Catalogue, which provides an overview of the nature-related data tools available today.

Effectively manage risks (and opportunities)

• Organisations should assess how their nature dependencies and impacts translate into risks and opportunities. This means increasing their knowledge and understanding of nature-related materiality assessments and how their businesses are impacting nature, in the short, medium and long term.

• Managing environmental risk should not be approached from a binary perspective. Instead, companies should identify nature-related risks, and how they will choose to respond to those risks, as part of the existing risk management process. Addressing and responding to nature-related risks may help to prevent them from happening again and potentially reduce negative financial impacts in the future. Many businesses already have systems in place to monitor these risks, but they may need to evolve to be better aligned with the disclosures required under mandatory and voluntary frameworks. 

• Having an effective reporting system in place that enables companies to disclose their nature-related risks and strategy and how they are managing, mitigating or reducing those risks is an important step. 
• For more insights on these issues, take a look at the insights in our article: 'Managing nature risks: From understanding to action.'

Collaborate with local partners:

• Individual companies cannot mitigate or solve complex biodiversity problems on their own. We will need to come together to solve the biggest nature-related challenges of the future. Collaborating with local communities, indigenous people, and local governments on nature-related issues can help businesses build stronger relationships with these stakeholders and improve their social licence to operate. By engaging with these stakeholders and incorporating their perspectives into their nature reporting and management strategies, businesses can demonstrate their commitment to sustainability and build trust with these stakeholders.
• As part of the effort to collaborate on these issues. PwC Australia has produced 'A nature-positive Australia' to inform a broader discussion on the relationships between Indigenous Peoples and Local Communities (IPLCs) and biodiversity and the role they play in developing market-based mechanisms to restore and protect biodiversity.

Leverage existing frameworks to support disclosure:

• Companies have the opportunity to use existing frameworks to enhance transparency, accountability and credibility in sustainability reporting. TNFD significantly raises the understanding as the structure for disclosure and its LEAP (Locate, Evaluate, Assess and Prepare) approach can help businesses assess their nature-related dependencies, impacts, risks and opportunities (DIROs). Applying the LEAP approach can help businesses identify and collect the data needed to set science-based targets for nature.

• Organisations that want to implement and track progress against science-based targets for nature can use this five-step approach from the Science Based Targets Network (SBTN). Corporates using SBTN methods will generate data and analytical outputs that can be used to apply parts of the TNFD’s LEAP approach for the assessment of nature-related issues.

• The LEAP approach overlaps the first three stages of SBTN, and interoperability between the two frameworks can benefit businesses looking to disclose in line with TNFD’s recommendations and also set science-based targets. 

• The implementation of these methodologies enables businesses to demonstrate their commitment to managing their nature-related risks and opportunities, as well as making a positive contribution to sustainable development and supporting the disclosures requirements for CSRD, ISSB and Global Reporting Initiative (GRI).

Whilst progress has been made in nature reporting, and an increase in requirements and regulations is a positive indication of a desire to better understand the importance of nature, companies should consider how they can embed nature alongside other sustainability matters into their business strategies. Will Evison, Climate and Nature Strategy Director at PwC UK, believes that organisations can get ahead by developing a credible nature strategy: 'Firms can take advantage of the opportunity that the change in reporting requirements presents to rapidly review and enhance their nature strategies. I’ve seen first-hand how a credible nature strategy can help to mitigate nature-related risks and exploit nature related opportunities — it can be a source of genuine near-term value creation.'

To learn more, visit our Centre for Nature Positive Business.