Organisations now have a broad understanding of climate-related financial risks. These risks are related to the impacts of climate change, such as extreme weather events and the transition risks associated with the shift to a low carbon economy. On the other side of the coin, biodiversity-related financial risks are still being overlooked. Biodiversity loss and environmental degradation pose financial risk due to the direct dependencies of production activities on ecosystems, such as agriculture, fisheries or pharmaceuticals. These risks also materialise through activities having direct or indirect impact on nature. Firms facing significant risks due to biodiversity loss present credit risk to the banks that invest in them. If these risks are not understood, measured or disclosed then there a huge unknowns within investment decisions. According to Oxford University, shocks to the global economy related to biodiversity loss and ecosystem damage could cost upwards of $5 trillion.
I founded Alopias Earth because although often viewed separately, biodiversity loss and climate change are intrinsically connected. The risks mentioned above become more compounded when we consider that biodiversity is our strongest natural defence against climate change. Land and ocean absorb more than half of all carbon emissions and we will never reach net zero without nature. We also need nature to better withstand or recover from floods, droughts or other climate-related events. Despite this, over 80% of finance for nature-based solutions to climate change is from public finance. Conversely, nature-negative private investments are 140 times larger than private investments in nature-based solutions. This seems ironic when over half of global GDP is dependent on nature.
The good news is that regulatory and policy developments, both in force now and on the horizon, will increasingly require businesses to factor biodiversity into their strategies, disclosures, and risk assessments. For example, the EU Taxonomy regulation provides a classification system to help investors identify environmentally sustainable activities. This includes criteria related to ecosystems and biodiversity (and these are expected to expand), which will mean that companies will need to evaluate and disclose how their operations impact or depend on healthy ecosystems. The second example is the Corporate Sustainability Reporting Directive (CSRD), which broadens the scope of required ESG disclosures. Under the new directive, businesses will need to report more detailed information about their sustainability performance, which explicitly includes biodiversity and ecosystem considerations. As a third example, the Taskforce on Nature-related Financial Disclosures (TNFD) has developed a framework to support organisations to identify, assess, manage, and disclose nature-related risks. Although initially voluntary, many policymakers, investors, and regulators view TNFD’s guidelines as a precursor to mandatory reporting. As these recommendations gain traction, similar to the TCFD’s (Taskforce on Climate-Related Financial Disclosures) pathway, they could be incorporated into future regulations and listing rules, effectively requiring companies to disclose biodiversity-related dependencies and impacts. This means that organisations that are already factoring nature into their lending and investment decisions will have the competitive edge.
It is time to accept that nature is not external but is embedded in everything we do. Biodiversity considerations cannot wait until we have dealt with climate change but instead are intrinsically linked. Viewing biodiversity as a ‘nice to have’ not only presents significant financial risk but also misses huge opportunities to have a positive impact on the ecosystems that we, and our economies, depend on.
Eleanor Whittle
Eleanor has over a decade of experience working on climate, biodiversity and energy issues. At Defra (UK Department for Environment, Food and Rural Affairs) she worked on international environment conventions, oversaw multimillion pound global climate programmes and led field visits to projects in biodiversity hotspots. She was then a diplomat at the British Embassy Beijing and the lead on Nature in advance of UN Climate Change COP26, which brought biodiversity into the spotlight as a solution within the climate challenge.
After this she diversified her skillset by working on the energy transition for clean energy thinktank Ember, where she built a global team to tackle emissions from coal mining. This led to a greater understanding of the complexities within the fossil fuel sector and the multifaceted approach needed to solve the issues of our time.
Her lifelong passion has been for the natural world. Her experience in understanding where this sits within a complex structure of national and international agreements and diplomacy gives her a unique perspective for what will truly shift the dial to solve climate change and biodiversity loss.
