Strengthen nature as an asset
The current biodiversity crisis is a global phenomenon, and governments and businesses are increasingly aware of the need to integrate natural capital into policy measures. With more than half of estimated global GDP dependent on nature, the imperative to act has never been more urgent. Michael Wilkins, Principal Investigator, Sustainable Finance, S&P Global Ratings, explains.
The loss of biodiversity caused by climate change, habitat degradation and the introduction of invasive species is recognized as a fundamental systemic risk – and the consequences are far-reaching.
Currently, one in eight plant and animal species is threatened with extinction, according to the recent Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. And, with the loss of biodiversity increasingly linked to emerging infectious diseases such as COVID-19, we are already seeing how an invisible change in nature can lead to a far-reaching socio-economic crisis.
Given the world’s economic dependence on nature and its services – approximately US $ 44 trillion – it is essential to ensure its protection. Yet despite the increasing efforts of some companies, action to date has been limited.
One of the main reasons that natural capital is still largely neglected is that it is a global public good. In other words, it can be viewed or used by anyone. The ubiquity of nature and its lack of ownership gives rise to the “free rider” problem, whereby users have no financial incentive to contribute or share the cost of its preservation. In his seminal review, Professor Sir Partha Dasgupta of the University of Cambridge points out that coordination is even more difficult because biodiversity is silent, invisible and mobile, which decreases users’ awareness of the ecosystem services they use.
The problem of stowaways has amplified calls to put a price on nature. From a macroeconomic point of view, this could make us more aware of our use and impact on nature in the production process. it can also be a source of false precision because it equates value with price. As such, it is unlikely to reliably indicate the optimal use of natural capital, the points of no return associated with the depletion of nature, or the future benefits of nature, when all of these factors are subject to radical uncertainty.
Problems with accounting for natural capital notwithstanding, policymakers and institutions have started to integrate nature conservation into policy measures. Yet not all initiatives are effective, nor are they consistently applied in policy making. While one policy can support biodiversity, another can harm it. Indeed, Dasgupta points out that nature-damaging subsidies still amount to around $ 4 trillion to $ 6 trillion per year worldwide.
Form a business response
Alongside governments, businesses and investors have a key role to play in preserving biodiversity – and there are many paths to follow. One potential solution is for companies to assess resource efficiency through an input approach – that is, the total input of natural capital that goes into a product along the value chain (where the production approach measures greenhouse gas emissions, pollution and waste caused by the creation of this product).
S&P Global Ratings has identified several key areas where companies in the commodity supply chain can help stop deforestation. Since up to 80% of the 10 million hectares of natural habitat that the Food and Agriculture Organization of the United Nations is lost due to deforestation around the world each year are linked to the palm oil, beef and soy, this is a particularly important area.
Developing robust monitoring capabilities through the use of technology – such as satellite monitoring – can enable buyers further up the supply chain to identify and resolve deforestation issues. Additionally, businesses can support smallholder farmers and indigenous groups by paying for ecosystem services and not just culture, which can help de-commodify basic products.
Commodity buyers can also help foster sustainability in the supply chain by adopting universal standards. Finally, better use of land already deforested can meet supply needs and negate the need for further expansion.
The loss of biodiversity is a global crisis, and the critical need to reconfigure our connection to the natural world cannot be ignored. As such, as the political and corporate will to protect biodiversity grows, ensuring a meaningful reversal of biodiversity loss will require a fundamental shift in our approach to nature.