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With soaring business costs, ongoing supply chain disruptions, labour market shortages and the uncertain geopolitical and macroeconomic environment, it can be difficult to adapt your business to accommodate the impact of climate change and the need to improve sustainability. 

However, by starting to think about natural capital and biodiversity now, you could better manage risks and potentially take advantage of new opportunities by getting ahead of the curve on an issue that is sure to gain greater prominence in the coming years.

What is biodiversity?

Most of us are broadly familiar with the idea of biodiversity: it describes a mix of species that enable stability and resilience within ecosystems. You might think of the rich biodiversity of a coral reef, for instance. But biodiversity also has business consequences. Research has shown that single-species forest plantations are more susceptible to storms, forest fires and disease than mixed woodland: greater variety makes commercial sense.

What is natural capital?

Natural capital is the global stock of natural assets, such as geology, soil, air, water and all living things. Biodiversity adds to the world’s natural capital, by making it richer, and more varied and robust: it effectively acts as a multiplier of the value of natural capital.

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  • As individuals – and companies – we derive a wide range of ecosystem services from natural capital, such as food, fibres used to make textiles, plant materials used for fuel, building materials and medicines. There are also less obvious ecosystem services, such as the pollination of crops by bees or the natural flood defences provided by peatland. Seagrasses, woodland and many other environments also play a crucial role in capturing and storing carbon and mitigating climate change.

    Jonas Persson, Head of Sustainability and ESG Finance says “These ecosystem services don’t come with an invoice so they are not often part of business decision making, but a lot of the capital that powers businesses and the global economy ultimately comes from the natural world. The concept of natural capital makes ecosystem services visible and ascribes value to them, and companies can therefore make better-informed decisions that can benefit both them and the wider world.”

  • Ever since the industrial revolution, human activity has been steadily eroding the world’s stock of natural capital. We are extracting value from nature at a rate faster than it can replenish itself. Shrinking rainforests and depleted fisheries are just the most visible signs of this.

    The long timescale over which natural capital is diminished can make it difficult to assess the risks involved. Perhaps most important, the mind-boggling complexity of the natural world count against it: assessing the impact of any one interaction with nature is extremely challenging.

  • As well as supply chain and regulatory risks, companies also should consider reputational risks linked to natural capital as well as the everyday impact their business has on the environment and how it is perceived by consumers and the wider public. 

    This is an increasingly important issue given demographic shifts. Millennials are now the largest consumer group by size and spending, and have stronger views about sustainability than previous generations: they expect apparel, entertainment and other brands to share their values. 

    As a result, many businesses are shifting to a purpose-driven approach and seeking to become better corporate citizens – an idea that aligns with biodiversity and natural capital. 

    Jonas Persson, Head of Sustainability and ESG Finance says “Understanding biodiversity and natural capital is essentially about risk management. Some of these risks are relatively easy to understand, especially in sectors such as ecotourism (which is impossible if the environment it operates in is degraded), and the food and drink or fashion industries which depend directly on natural resources. But productivity and resilience for companies in all sectors can be impacted by supply chain risks: we all ultimately depend on natural capital.”

  • Integrating the concepts of biodiversity and natural capital into business activities is at an early stage and, given the complexity of nature, many challenges – such as pricing and valuation – remain to be solved.

    Regulation is fast approaching and companies would benefit from understanding their relationship with nature sooner rather than later. However, valuing nature is about more than just data, disclosure and ticking boxes. The bigger question is why companies need to consider biodiversity and natural capital: integrating these concepts into business models and decision-making makes companies more resilient and successful.

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How to start thinking about the implications to your business

  1. What benefits does my business derive from ecosystem services such as food, building materials or climate stability?
  2. What are the potential risks to these ecosystem services in the short, medium and long term?
  3. What is the business case for managing them?
  4. What frameworks exist for identifying and measuring risks and opportunities to inform financial and business decision-making?
  5. What cultural change is required to embed biodiversity and natural capital in my organisation and drive change?

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