Biodiversity impact disclosure underpins any form of economic recovery

The GEC Insights series is a new curated collection of online articles at the intersection of environment and economics, each written by leading thinkers from the worlds of business, government and civil society. Part of our Economics for Nature project, they bring together diverse perspectives to answer the question: how can we re-design our economies to protect and restore nature?

As we plan for our shared future during these times of crisis, a compelling case is being made for making a green recovery towards a new nature-positive economy. But what does “green” or “nature-positive” mean in practice for business?

As the world fails to meet a single UN CBD Aichi target, the private sector, including financial institutions, needs to focus on mitigating its biodiversity impacts instead of assuming that dealing with greenhouse gas emissions or water use will implicitly take care of biodiversity loss and the extinction crisis.

Growing calls for immediate business action on biodiversity

Repeated calls have been made over the past decade by policy makers, the conservation community and, increasingly, by companies and financial institutions themselves to enhance business accountability and transparency on biodiversity impact measurement. Between 2001 and 2016, 66 companies made No-Net-Loss or Net Gain environmental commitments, with 33 making specific biodiversity commitments (De Silva et al, 2019). This has been driven by standards set by the finance sector, including the International Finance Corporation’s Performance Standard 6, as well as regional and national legislation and policies, such as in the European Union , Uganda and the United States.

In 2021 we will see the Convention on Biological Diversity (CBD) adopt the Post-2020 Global Biodiversity Framework, along with an updated set of targets to measure progress in implementing the Framework. All these processes are converging towards mainstreaming biodiversity impact measurement, reporting and disclosure across businesses and industries, and into both direct operations and supply chains.

The poor state of corporate biodiversity disclosure

Over 90% of the world’s 250 largest companies now report on their sustainability practices and impacts, with most of them using the Global Reporting Initiative (GRI) standards. But despite the environmental focus of sustainability reporting, the limited extent and poor quality of biodiversity disclosures have been corroborated by several studies targeting different samples. Recent examples include a review of voluntary non-financial reporting of 377 European organisations and a CBD note on Business Reporting on Biodiversity. In South Africa, assessments of the biodiversity disclosure of Johannesburg Stock Exchange-listed companies were undertaken in 2018 and 2019.

Notably, a recent assessment of the top 100 of the 2016 Fortune 500 Global companies’ sustainability reports shows that only 49 mentioned biodiversity in their reports. 31 made clear biodiversity commitments, of which only five were specific, measurable, and time bound. While a variety of biodiversity-related activities are mentioned e.g. managing impacts, restoring biodiversity, and investing in biodiversity, only nine companies provided quantitative indicators to verify the magnitude of their activities (e.g. area of habitat restored). However, these quantitative estimates of beneficial activities for biodiversity are not compared to the quantified magnitude of negative impacts on biodiversity that these companies generate.

If companies want to address the biodiversity crisis, they need to get serious about biodiversity net impact measurement and disclosure, akin to what we have seen in the climate change space with growing, standardised greenhouse gas emissions accounting and disclosure (Zhang and Liu, 2020).

What future for biodiversity accounting and disclosure by business?

While mandatory disclosure of biodiversity impacts is still rare, some countries like France are moving towards compulsory reporting of corporate biodiversity footprints. The recently-formed Task Force for Nature-related Financial Disclosure (TNFD), which launched Phase 1 of its Informal Working Group in July 2020, is leading the global charge towards widening the adoption of biodiversity impact disclosure. In aiming to ‘create resilience in the global economy by redirecting flows of finance to allow nature and people to flourish’, the TNFD has the potential to be a catalyst towards standardised and comparable biodiversity impact disclosures.

Yet, for it to be successful, it would need to be based on robust disclosure principles of accuracy, completeness, consistency and transparency. The TNFD will need to ensure that reporting organisations adopt credible and comprehensive disclosure practices covering several key aspects:

• business policy, strategy, science-based targets and governance;
• disclosure boundaries and exclusions, with clear (up & downstream) impact inventories;
• net impacts on ecosystem and species over time and space;
• dependencies on biodiversity (e.g. reliance on genetic materials, changes in stocks of wild fish);
• risks/exposure and opportunities, including both financial implications for the reporting organisation, and externalities (loss of ecosystem services to stakeholders, disclosure of asset value at risk or stranded assets due to trade restrictions);
• action plans, procedures, key performance indicators and outcome monitoring; and
• independent verification and third-party audits.

Towards standardised disclosures: The emergence of the Biological Diversity Protocol

While there has been substantial progress in the development of quantitative metrics to assess biodiversity impacts at the site, project, product, supply chain and even corporate level, reporting on these elements remains a challenge. The forthcoming Biological Diversity Protocol should help fill a key gap by providing an accounting framework to consolidate biodiversity impact data across a whole business, from direct operations to its supply chains and clients.

Developed through extensive stakeholder consultations in 2018 and 2019, the Protocol is based on the adaptation of double-entry bookkeeping from financial accounting to allow the production of Statements of Biodiversity Position and Performance, using non-monetary quantitative values and the mitigation hierarchy. It enables companies to show their net impacts on ecosystems and species.

In the end, the globalised nature of the world economy requires a level-playing field across nations. This necessarily means major institutional and political reforms, especially with respect to fiscal policy (including those imbedded in imports/exports), to make biodiversity measurement, accounting and disclosure essential to all businesses, across supply chains.

Dr Joël Houdet is a Consultant on the Biodiversity Disclosure Project of the Endangered Wildlife Trust in South Africa, and also a Senior Research Fellow at the Albert Luthuli Centre for Responsible Leadership, Department of Business Management, University of Pretoria.

References:
de Silva, GC, Regan, EC, Pollard, E, Addison, PFE. The evolution of corporate no net loss and net positive impact biodiversity commitments: Understanding appetite and addressing challenges. Bus Strat Env. 2019; 28: 1481– 1495. https://doi.org/10.1002/bse.2379
Zhang, Y., Liu, J. Overview of research on carbon information disclosure. Front. Eng. Manag. 7, 47–62. 2020. https://doi.org/10.1007/s42524-019-0089-1

Image credits:
Photo by Alex Ip on Unsplash
Photo by Zdeněk Macháček on Unsplash

The Green Economy Coalition believes that dialogue and discussion are cornerstones of effective policy-making. Therefore we publish articles from a broad range of contributors, covering a wide range of views. The views expressed by our guest authors do not necessarily reflect the policy or positions of the GEC; furthermore, since our coalition and our contributors are reflective human beings navigating a complex world, our views are subject to change over time.