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9 December 2020

Businesses are realising the huge cost of nature loss

More than half of global GDP is generated by work dependent on natural systems. As businesses learn to work with nature, they are realising how much they rely upon it.

By Mark Nicholls

The river Ingol in Norfolk, in the east of England, provides a haven for breeding birds, amphibians, bats and water voles. But the waterway also contains a natural treatment plant for Anglian Water. Each day, the company pumps millions of litres of water into the wetland, where it is filtered and cleaned by the ecosystem before it is returned to the river.

The restoration work needed to create this wetland treatment site cost Anglian Water £500,000. The alternative – upgrading a treatment plant – could have cost millions. Others have been quick to notice its success; in the east of England alone, 59 similar projects are now planned or under way.

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Thousands of miles across the Atlantic, scientists at Natura Group, the Brazilian company that owns The Body Shop and Aesop, discovered that the seeds of the ucuuba tree – an endangered species that was previously felled to make roofing materials and broomsticks – could be used in valuable cosmetics. Now, a tree that was worth 12 reais (circa £2) when cut down can generate three times as much every year for local communities.

“It makes sense from a business perspective, it makes a lot of sense for the community itself and, in this case, it reversed the curve of extinction of the ucuuba tree,” says Marcelo Bicalho Behar, Natura’s head of sustainability.

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However, just as companies discover the vast (and mostly unvalued) economic opportunity that natural systems present, they are discovering that our failure to protect nature and biodiversity against a rapidly evolving crisis also carries a huge economic risk.

“The science is absolutely unequivocal,” says Robin Smale, a director at consultancy Vivid Economics in London. “There’s a mass extinction process going on, and it’s actually more rapid than the climate situation… which is worrying, because while we started getting serious about climate about 20 years ago, we’re still not getting serious about biodiversity.”

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It is not only companies that work with nature that are affected by biodiversity. Last year, the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) warned that a million species are now threatened with extinction.

This is a tragedy with profound economic implications. According to the World Economic Forum and PwC, industries that generate $13trn a year are highly dependent on nature. These include construction, agriculture and food and beverages. That figure rises to $44trn a year – more than half of global GDP – if companies that are moderately dependent on nature are also included.

A substantial proportion of the world’s economy relies either on the direct extraction of natural resources from forests and oceans, or on so-called ecosystem services provided by natural systems, such as healthy soils, clean water, pollination and a stable climate.

The IPBES report warns that the destruction of natural resources may not only lead to more expensive goods. It describes nature loss as “a fat-tail risk like the 2008 asset-price bubble”, with potentially wide-ranging and unpredictable outcomes.

In the short term, Smale explains, companies will see direct effects such as higher input costs or supply chain disruption. They also face “transition risks” from the introduction of regulations or legislation designed to protect nature, similar to those designed to tackle greenhouse gas emissions.

“It used to be completely free to throw CO2 into the atmosphere, but it’s not now, in many parts of the world,” he says. “It’s not going to be free in the future to go and exploit biodiverse areas… That will affect the price of farmland, and that will have a very big impact.”

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Many companies are now setting targets to address their exposure to biodiversity risk. In November, UK-based pharmaceutical giant GSK announced a new goal to have a “net positive impact on nature” by 2030.

GSK has not explained in public what its pledge means in practice. But the company has said it will seek to measure its impact on nature, and set targets using the approach set out by the Science Based Targets Network, an alliance of environmental groups. Once that process is complete, it will set goals to reduce its impacts and undertake projects to compensate for any remaining damage GSK causes to natural systems.

For Danone, the French multinational food company, protecting biodiversity is partly about creating resilience, but is also a source of growth. Eric Soubeiran, the company’s nature director, explains that biodiversity represents “a huge opportunity: more taste, more choice, more diversity – it’s what consumers want”, he says. “We don’t need to synthesise new things – we just have to see what nature can bring in terms of taste, texture and flavour.”

Soubeiran adds that the Covid-19 pandemic has shown how human impingement on natural systems can have hugely damaging effects on businesses. “Seventy five per cent of viral diseases [are a result of] the destruction of biodiversity.”

Despite the voluntary efforts of companies such as Danone, GSK and Natura, biodiversity loss is, like climate change, a problem too big to be meaningfully addressed by anything other than international regulation. Many businesses are actively encouraging this; the Business for Nature Coalition, which lobbies governments to introduce policies to protect nature, has 600 corporate members representing combined revenues of $4.1trn.

“From a business perspective, it’s important to have that political leadership,” says Eva Zabey, Business for Nature’s executive director. “We need to transform our economic and financial systems so they account for the true value of nature, and therefore recognise and reward the most sustainable companies.”

A particular focus for the coalition is the forthcoming meeting of the UN Convention on Biological Diversity (CBD). Charged with agreeing international post-2020 biodiversity targets, the meeting was to have taken place in Kunming, China, this October, but is now due to be held sometime next year.

Zabey is concerned that its current draft goals are not ambitious enough. “The language needs to be stronger,” she says. Among other things, Business for Nature wants the agreement to commit to reversing biodiversity loss by 2030.

“The parallel with Paris on climate is helpful,” she says. “We saw a strong business voice give courage and comfort to policymakers to encourage them to adopt the [2015] agreement. That in turn spurred a lot of innovation and action within companies.”

“That’s the path we need to be on with nature,” she says.