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Integrating biodiversity into business risk management strategies

According to the United Nations Environment Programme (UNEP), half of the world's gross domestic product (GDP) depends on nature. Most, if not all, industries and businesses depend to a significant extent on biodiversity and the services various ecosystems provide. In addition, banks and other financial institutions may finance activities that are highly dependent on ecosystem services. The link between organizations and businesses with biodiversity does not stop at exploitation, but also at how they affect it through their strategies.

Dependence of businesses in all sectors of economic activity on ecosystems services and biodiversity is high.

Factories, industries, and various types of businesses may negatively affect biodiversity through their activities, such as infrastructure development, energy and agricultural production, and extractive industries. However, few companies are investigating their impact on biodiversity loss throughout their supply chain. And only a few leading companies have published reports with quantitative data on their impacts and strategies to protect biodiversity in the areas where they operate.

The risks from the impact on biodiversity for businesses and financial institutions and the failure to include them in their strategies and annual reports are numerous and can be catastrophic for their future.

The risks to businesses and financial institutions from their impact and their connection to biodiversity and their failure to include it in their strategies and annual reports are numerous and can be catastrophic for their future. Certainly, climate change as an issue is more mature and understandable as a business risk and, therefore, has been included in business plans. However, biodiversity is a complex issue and is well behind climate change. So, proper understanding and management of its risks is required.

Of course, there are also the risks that can arise from the impact of external factors on the biodiversity (e.g., climate change, natural disasters), which are not the result of a company's actions but will affect it directly or indirectly by possible changes that will occur in the area where it operates.

The list of risks is long and we will analyse some of them in the table below (IDFC, 2022).

Table 1. Physical, transitional, and systemic risks and their impact on businesses and financial institutions

Businesses should aim to integrate biodiversity into their strategies and operations. The steps that businesses will need to take to integrate biodiversity into their strategies and operations are summarised below (IDFC, 2022).

Step 1. Internal discussions and raising awareness of the degree of risk of not including biodiversity risks.

Step 2. Understanding the legislative framework.

Step 3. Identify biodiversity risks, impacts, and opportunities.

Step 4. Biodiversity strategy and objectives.

Step 5. Development of skills.

Step 6. Risk and impact management.

Step 7. Increase biodiversity-friendly investments.

Step 8. Monitor and report results.

Step 9. Knowledge and publication of information.

Since biodiversity is a factor in economic decision-making, there is an urgent need to develop quantitative metrics and indicators to assess, monitor, and communicate the risks and opportunities associated with it, as well as the objectives and commitments of each company. The GRI Standards has indicators (GRI 304) related to biodiversity. But few to none are the companies that go so deep into their supply chain and value chain to quantify the impact of their activities on biodiversity. Industries and factories usually carry out an «Environmental Impact Assessment» before starting a project, but this is not sufficient to systematically monitor biodiversity impact and quantify risks.

The Taskforce on Nature-related Financial Disclosures (TNFD), with the second edition of the TNFD framework, plans to help companies understand the risks and opportunities associated with biodiversity and how to report their performance.

Businesses need to put biodiversity on their agenda, as capital and investors slowly move away from those that create negative impact on ecosystems

It is in the interest of businesses to add biodiversity to their agenda, as capital and investors are slowly moving away from businesses that create negative impact on ecosystems, just as they are doing with climate change. In addition, for financial institutions, there is Green Finance, which aims to increase the level of financial flows to institutions that adopt environmentally friendly practices.

This means increasing investment and capital directed to projects that contribute to the conservation of biodiversity, sustainable use, and/or restoration of ecosystems and their services to people. To this end, the EU Taxonomy has been developed, which provides a framework for the categorisation and financing of such economic activities.

E-ON Integration can support businesses in the steps they need to take to integrate biodiversity into their strategies and operations, as identified above. These include the monitoring and reporting of quantified and non-quantified results, as well as the knowledge and disclosure of biodiversity-related information. We have developed a cloud platform that can provide easy access to data on biodiversity risks, opportunities, and indicators across a company's supply and value chains, and then generate relevant reports. This way, in-depth information is provided to all stakeholders inside and outside the company to help them develop their strategy.


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