Your company’s impact on biodiversity loss: PwC

Public discourse around sustainability, climate transformation and reporting has been evolving to include a previously overshadowed consideration: businesses’ impact on nature and biodiversity. Nature degradation and the resulting biodiversity loss poses critical risks that companies can’t afford to be complacent about, and the drive to reverse it should also generate opportunities.

The degradation of ecosystems — from overharvesting, overfishing, resource extraction, and more — has resulted in land conversion that is driving biodiversity loss. These perils can lead to market shocks with potential impact to companies in every sector. Think raw material price spikes, lower-valued or stranded assets, and supply chain disruptions. And that means that these issues are climbing the agendas of the global business community, investors, standard setters and regulators.

The challenge is that most organizations don’t have the information needed to understand how their financial performance can be affected by their dependencies on nature — nor how company operations affect ecosystems. Consider this a call to action in the same vein as recent climate change regulations. You’ll need to assess your company’s nature-related dependencies and impacts, develop strategies for mitigating risks and acting on opportunities, and then prepare to disclose nature-related reporting as a way to build trust in the marketplace.

What is driving the attention on nature and biodiversity?

Business interests

A recent PwC report found that $58 trillion of global GDP is generated from industries such as agriculture, construction and packaged foods that are highly or moderately dependent on nature — warning of a high reliance on ecosystem services.

Regulator attention

In the second half of 2023, the Task Force on Nature-related Financial Disclosures (TNFD) will release its final recommendations for a voluntary disclosure framework aimed at helping companies understand and act on nature-related dependencies, impacts, risks and opportunities. While nature and biodiversity data is limited (but evolving), TNFD could enable global businesses to coalesce around a specific framework. It could also inform new country or regional regulations. For example, the TNFD is explicitly referenced in the European Union’s Corporate Sustainability Reporting Directive (CSRD) that impacts European companies as well as companies based outside the EU that meet certain criteria.

Investor pressures

Investors have publicly supported initiatives such as the TNFD because they are increasingly using nonfinancial data in their strategies to help them accurately price securities.

Consumer preferences

A 2022 Union for Ethical BioTrade survey found that a majority of respondents agree that companies have a moral obligation to assure they have a positive impact on people and biodiversity. Those results could signal that consumers may shift to favor companies that are working to that end.

Ecosystem services: Considerations for companies

Nature provides four essential types of ecosystem services. Here is a look at how companies depend on cost effective access to these services and how the impacts of their operations affect nature’s ability to deliver these benefits.

How can you assess your dependencies and impacts on nature?

As a starting point, you will need to analyze your company’s dependencies and impacts on nature. Companies in all industries rely on cost-effective access to four types of ecosystem services as key components of their production inputs: supporting services, regulation services, provisioning services, and cultural services. The size and scale of that dependency will be largely determined by your business model, size, product lineup and asset locations. An information technology company might have a relatively low dependency on nature, whereas a paper and packaging goods business is likely to have a high dependency on natural resources to provide material for its products — both on the supporting capacity of the soil for the growth of trees and the provisioning capacity for the trees to be used for timber and pulp. Without analyzing these dependencies, companies can’t appreciate how their costs of doing business could be affected by their interactions with nature - should its capacity to provide relatively free ecosystem services become impaired.

Critically, you also need to understand how your business operations impact ecosystems. While impacts can be both positive and negative, public attention largely focuses on the negative: how company operations contribute to changes in the state of nature, thereby diminishing ecosystems’ capacity to provide the benefits all businesses depend on. Consider the release of effluents that contain fertilizers and detergents into waterways leading to ocean dead zones, mining that leads to pollution runoff, or extraction and burning of fossil fuels that contribute to climate change.

Because dependencies and impacts can occur throughout the value chain, both direct and indirect impacts (i.e. from vendors, suppliers, or consumers) need to be assessed. To help with this assessment, TNFD developed the LEAP approach — a step-by-step process for companies seeking to understand their nature-related dependencies and impacts.

Locate: Understand how assets and operations in certain locations interact with ecosystems, with particular attention to locations that depend on vulnerable ecosystems or areas of water stress.

Evaluate: Evaluate the size and scale of the dependency on ecosystem services at each relevant location.

Assess: Assess current risk mitigation efforts and whether additional actions should be considered.

Prepare: Determine what to do with information collected. Consider curating the information and reporting on the data points that make the most sense given any goals or targets your company has set. Once identified, consider disclosing that information in line with the TNFD framework.

How you can prepare for TNFD’s recommendations

While there is plenty of data on nature that can be collected, this information may be incomplete, academic and difficult to understand, or from unverifiable sources. You may likely face data quality challenges and encounter a lack of clarity about what to measure and how to do so.

The market expectation is for progress, not perfection. Reporting and metrics will evolve over time as global frameworks, related standards, and data collection tools mature. When finalized, TNFD’s framework could help companies report consistent data, understand how they affect the communities where they operate and identify how biodiversity loss could alter financial performance.

If your company is in the early stages of developing a reporting plan aligned with TNFD, you may want to focus on just a few nature-related data points at the outset — while continuing to enhance your knowledge and processes. The good news is that there are actions you can take before completing a full inventory of your dependencies and impacts.

Based on our work with companies on biodiversity strategy, we recommend starting with the following four areas:

Governance: Assign roles and responsibilities for nature-related risks and opportunities to increase your board’s understanding of their relevance throughout your operating and supply chains and to begin building capacity within team members whose roles intersect with this work.

Location: Understand that nature-related risks and opportunities are highly specific to location. Start collating geospatial data for your company’s customers and its operational and supplier assets, a key early step in TNFD’s LEAP process.

Tools: Utilize available tools to assess dependencies, impacts, risks and opportunities. A list of some of the available tools, developed with PwC's participation, can be found in the TNFD tools catalog.

Readiness: Gauge your organization’s maturity against the TNFD’s beta disclosure recommendations and monitor developments ahead of the release of the final report, expected in the second half of 2023.

Next up: Understand nature-related risks and opportunities that arise

Once you’ve assigned roles and responsibilities — and assessed location data and available tools — you should develop a plan to address the risks and opportunities that arise related to nature and biodiversity. Consider how dependencies and impacts can manifest into material risks, and think about proactive opportunities that can transform your business.

Potential risks related to nature and biodiversity loss:

Physical risks: Habitat destruction, invasive species and species loss/collapse that can impact operations (commodity price volatility, supply chain disruptions, damage to assets).
Transition risks: Misalignment between company strategy and the changing regulatory and policy landscape in which it operates. Companies identified as having a negative impact on nature could see higher costs of doing business.
Market risks: As consumers shift to emerging products and services that are nature-positive, a company’s business model may become obsolete.
Systemic risks: Risks arising from the breakdown of the entire ecosystem, rather than the failure of individual parts; modest tipping points that combine to produce large failures.

Identify transformative opportunities related to nature:

Resilient operations: Build lasting, sustainable value by identifying and mitigating material risks to operations.
New products and services: Consider creating new products and services that protect, manage or restore ecosystems.
Resource efficiency: Evaluate your company’s value chain and devise strategies for reducing dependencies on natural resources. The use of recycled, regenerative, renewable or ethically sourced inputs could improve operational efficiency and reduce costs.
Access to capital: Companies that prove their commitment to mitigating negative impacts on nature could receive improved financial terms.
Reputation and brand health: View nature-related disclosures as an opportunity to meet increasing market expectations to enhance your transparency on these issues. Brand health could benefit if consumers shift to purchasing products from companies whose mission matches their values.

Build trust in your biodiversity strategy

Companies that set out to develop a nature and biodiversity reporting strategy may be tempted to simply replicate the process they use for climate-related reporting. Although you may be able to glean valuable lessons from established climate processes, nature reporting is a different undertaking.

Taking the above steps can go a long way toward educating the C-suite, boardroom and all levels of the enterprise about how nature and biodiversity fit into your company’s broader sustainability strategy. This enhanced knowledge of how biodiversity loss can impact assets, supply chains and markets may even ignite a sense of urgency to mitigate these risks.

Learn more about TNFD’s disclosure framework

The aim of TNFD is to increase the transparency of information that can facilitate better strategic decision-making, leading to a shift in global finance flows away from nature-negative outcomes toward those that would have a regenerative impact on global ecosystems (nature-positive). PwC has supported this work as a task force member and by leading a data and analytics working group to increase data quality and availability within the market.

As a sister initiative of the TCFD, TNFD’s framework builds on the TCFD approach. Both frameworks encourage companies to disclose information around the same four key pillars.

Governance: Your company’s governance of nature-related risks, opportunities, dependencies and impacts.
Strategy: The actual and potential impacts of nature-related risks and opportunities on your businesses, strategy and financial planning.
Risk and impact management: How your company identifies, assesses and manages nature-related dependencies, impacts, risks and opportunities.
Metrics and targets: The metrics and targets used to assess and manage relevant nature-related dependencies, impacts, risks and opportunities.

If your company reports on the impacts of climate change using TCFD, you’re probably familiar with some of the recommendations carried over from that framework. This may include describing the process your company’s board uses to oversee nature-related risks and opportunities — and how those risks and opportunities impact management’s strategic decision-making over the short, medium and long-term.

TNFD has published four draft versions of its disclosure framework, each using input from the public to refine what and how information should be disclosed. Recent drafts have sought to provide guidance on a company’s link to and interplay with nature; approaches to materiality, target setting developed in partnership with the Science Based Targets Network; scenario planning; and specifics on certain sectors, realms and biomes.

The draft recommendations also suggest companies disclose how they engage external stakeholders and communities when they assess nature-related risks and opportunities. There’s particular emphasis on engaging indigenous groups, or “rightsholders,” because of their strong cultural interconnection and stewardship of biodiverse areas (which are also the areas most prone to extraction-led conflict).