Costing the earth

This article was written by Chloe Parkin, for Corporate Citizenship - part of SLR. Corporate Citizenship provides ESG strategy, reporting, social and environmental impact and other sustainability consulting services to multi-national companies.

After years of the corporate environmental agenda being dominated by climate change, in 2022 the corporate sustainability focus is now broadening towards an environmental transition that is both inclusive and more holistic, considering multiple interlinking environmental issues.

Key recent trends include increasing efforts to ensure that any climate transition is just and inclusive (explored in a separate instalment of this series); and recognising the interdependence between multiple environmental crises, especially between those affecting climate and nature. While the growing momentum behind the corporate race to net zero has been a necessary and welcome trend to combat runaway emissions, this shift to look at environmental issues more holistically is a critical evolution. Part of net zero’s success in galvanising businesses, has been its simplicity as a concept; however, the next stage of the corporate journey must elevate us beyond the risk of a narrow “balance sheet” GHG accounting mentality, and ensure that our actions are focused on impact, with an awareness of how our natural systems interact.

2022 has been touted a “pivotal year” for nature action, for two key reasons: growing awareness of its urgency, and the growth of tools and frameworks to help companies understand and act upon their nature-related risks and opportunities.

Growing awareness of urgency of the nature crisis

The links between nature loss and worsening climate change have been articulated increasingly prominently at forums such as COP26 in Glasgow. The IPCC’s Sixth Assessment Report in February 2022 made the scientific basis for these interdependencies clearer than ever: if we fail to protect and restore nature in the near term, achieving net zero will be impossible.

Even as a standalone crisis, the current rate of nature loss and its impacts on our planet are startling. Human activity is estimated to have significantly altered three quarters of global land surface and two thirds of ocean area, while over 85% of global wetlands has already been lost. Deforestation is currently estimated to contribute a staggering 10% of global greenhouse gas emissions, with an area of forest the size of a football pitch cut down every two seconds. Scientists also predict, based on current trends, that a million existing species are on track for extinction within decades.

Grave as these statistics are, their relevance to businesses becomes urgently clear, based on the World Economic Forum’s estimation that over half of global GDP ($44 trillion) is moderately to highly dependent on nature and its disappearing services. What can businesses do then, to understand and safeguard their future operations and supply chains from the risks threatening nature?

Emerging nature-related tools and frameworks

In the absence of unified frameworks, businesses looking to understand their nature-related impacts and dependencies have faced several challenges, such as the lack of a single unit of measurement (comparable to climate’s tCO2e), or a standardised assessment methodology. However, several frameworks are now emerging to guide companies’ actions more consistently, with the aim of balancing ”the complexity of science with the practical needs of the market”. The Taskforce on Nature-related Financial Disclosures (TNFD)’s ongoing Beta framework outlines an assessment and disclosure framework and methodology, while complementary efforts from the Science Based Targets Network (SBTN) develop target-setting guidance, and CDP’s corporate disclosure questionnaires are expanding to cover broader environmental topics such as biodiversity.

With these developments in mind, here are three practical actions that companies should take to begin tackling their nature-related risks and opportunities in an impactful way:

1. Understand your business’s impact and dependencies on nature

All businesses depend on natural resources and ecosystem services to survive, in both their direct operations and supply chains. While for some industries these links may be more obvious (such as in food and beverage, or mining and extractives), all companies will rely on services such as food provision, water, climate regulation, among others. We recommend following the TNFD’s initial assessment approach to gain a balanced overview of impacts and dependencies, and their materiality. It is strongly recommended that companies in any of the TNFD’s “priority sectors”[1] take early action to begin this assessment process.

1. Contribute investment towards closing the nature finance gap

A recent UN report highlights that in order to achieve our global climate, biodiversity and land degradation targets, a $536 billion annual investment in nature is required, while currently only $133 billion is being invested in nature-based solutions (NBS) per year. Of this, private finance contributes only 14%. This highlights a huge opportunity for companies to scale up financing to NBS that can protect and restore nature.

One well-established way for companies to invest in NBS that have dual climate and nature-related benefits, is via the carbon credit market; it is yet to be seen whether a comparable “nature credits” market will emerge over the coming years in addition. It is worth re-emphasising the crucial importance of protecting our existing natural assets in the near term here. Regarding climate mitigation beyond a company’s value chain, much current net zero guidance (such as the SBTi’s Net Zero Standard[2]) encourages companies to focus their efforts on carbon removal projects, which actively capture carbon from the atmosphere, over projects that reduce or avoid emissions outside their value chain (eg by preventing deforestation). While carbon removals are an essential long-term component of the global transition to net zero, a dogmatic focus on these projects over the protection of existing natural assets, could lead to counterproductive situations where companies are rewarded for growing new forests at the expense of the destruction of existing ones. Focusing instead on the holistic impact of a company’s overall climate strategy, may help further incentivise investments into the much-needed protection of existing nature.

1. Consider opportunities for value chain collaboration

Nature-related impacts and dependencies will significantly affect many companies’ supply chains: for example, utility suppliers providing energy, agricultural producers for food products, forest managers for timber. The TNFD emphasises that companies must approach their nature-related risks from a value chain perspective, much in the same way that GHG accounting requires emissions to be assessed across scopes 1, 2 and 3. One great opportunity enabled by value chain action, is the potential to collaborate with other stakeholders to achieve mutual benefits. For example, if one of a company’s key suppliers is a farm which needs financial support to transition to nature-restoring regenerative agriculture practices, the company could consider partnering with another of the farm’s customers to co-finance that transition, from which both customers’ nature strategies would benefit.

Nature-related assessment, strategy and disclosure are set to become a more pivotal part of corporate sustainability strategies in the coming months. Seeing how far corporate climate strategy has evolved in recent years, if the view of commentators that “Nature is the new climate” is to be believed, then the next few years promise to carry us on a demanding, but ultimately exciting journey.

SLR, including Corporate Citizenship, is a member of the TNFD Forum and is a leader in specialist environmental services. Our expert teams, including specialist net zero strategy, climate risk and natural capital experts, are available to help you understand your nature-related risks and opportunities, and integrate this with existing climate and other environmental strategies.

[1] The TNFD proposes eight non-financial “priority sectors” for which sector-specific guidance will be developed first, based on industries that are more likely to be financially impacted due to exposure to dependencies and impacts on nature. These are food and beverage; renewable resource and alternative energy; infrastructure; extractives and mineral processing; healthcare; resource transformation; consumer goods; and transportation.

[2] The SBTi’s Net Zero Standard importantly emphasises that companies must focus on reducing their own emissions as top priority, alongside any investments outside their value chain. The Standard highlights near-term investments into “beyond value chain mitigation” activities are optional but encouraged, while long-term neutralisation of residual emissions using carbon removals is mandatory to achieve science-based net zero.