The business case for investing in nature: mitigating risks and unlocking opportunities

Introduction

In the face of ongoing climate and biodiversity crises, companies worldwide are increasingly recognizing the urgency of taking climate action. The commitment to achieving net-zero emissions has become a prominent goal for many businesses. However, while climate change is receiving significant attention, the equally pressing issue of biodiversity loss is not getting the same level of focus.

The need to address both climate change and biodiversity loss is crucial, as we have already surpassed six of the nine planetary boundaries, signaling a critical state for our planet. With one million animal and plant species facing extinction, the urgency to invest in nature conservation and restoration cannot be overstated. Despite the evidence of the devastating consequences of biodiversity loss, many companies are missing the opportunity that lies in investing in nature-based solutions.

The necessity of private capital investment

Public financing alone will not be sufficient to address the magnitude of the biodiversity crisis and implement necessary Nature-based Solutions (NbS). To close the staggering $4 billion financing gap required for NbS, more private capital needs to be redirected towards conservation and restoration efforts. This investment is crucial not only to halt biodiversity loss but also to limit global warming to the critical 1.5-degree Celsius target.

The voluntary carbon market has developed into a promising tool to finance Nature-based Solutions. Additionally, new biodiversity credit markets are emerging. However, the commitment by companies to invest in nature is still lagging behind.

Companies' reluctance to invest in nature

Less than 10% of Fortune 500 companies have established targets to combat biodiversity loss, as reported by McKinsey. Although there has been a slightly more positive trend in Europe, with almost 30% of S&P Europe 350 companies committing to nature-related goals, this still pales in comparison to the level of climate commitments. The main challenge lies in the complexity of measuring biodiversity and its impact, making it harder for companies to see the immediate return on investment compared to the more tangible CO2e reduction metrics used in climate action.

The business case for nature

To encourage companies to invest in nature, it is essential to present a strong business case. Companies must understand the value of acting now instead of reacting to the consequences of biodiversity loss in the future. Four dimensions play a significant role in demonstrating the value of investing in nature:

Mitigating supply chain risks

Nature underpins more than 50% of global GDP, directly or indirectly impacting every company. While some industries, such as food and beverages, construction, and energy, rely heavily on nature both in their operations and supply chains, others may not immediately recognize their dependence. Regardless of the industry, companies are increasingly discovering that nature-related risks to supply chains are real and can significantly impact their bottom line. By investing in Nature-based Solutions, even if outside their direct value chain, companies can indirectly reduce their nature risks and ensure greater supply chain resilience.

Creating a competitive advantage

Consumer awareness about the environmental impact of products and services is growing. As sustainability concerns rise, customers are actively seeking goods and services that align with their values. By investing in nature and promoting eco-friendly practices, companies can gain a competitive edge, attracting environmentally conscious consumers. Additionally, such investments will play a pivotal role in attracting and retaining top talent, as the workforce increasingly values sustainable and purpose-driven employers.

Responding to capital market requirements

Investors and financial institutions are becoming increasingly aware of nature-related risks and are incorporating them into their decision-making processes. Participation in initiatives like the Taskforce on Nature-related Financial Disclosures demonstrates a commitment to understanding and managing nature-related risks. Failure to do so may result in financial repercussions, as evidenced by major asset manager BlackRock's stance on board director re-election. By investing in nature, companies can align with investors' expectations and minimize exposure to nature-related financial risks.

Preparing for regulatory requirements

Global governments and organizations are taking significant strides to address biodiversity loss. Initiatives like the EU's nature restoration law and the UN's target to protect 30% of nature by 2030 indicate that regulatory requirements will likely follow suit. By proactively investing in nature, companies can prepare for future regulations and demonstrate their commitment to responsible business practices. With the introduction of the Corporate Sustainability Reporting Directive (CSRD), more than 50,000 companies in the EU will also need to assess and report their impact on nature, further reinforcing the importance of nature-positive actions.

Conclusion

Investing in nature is not only an urgent necessity for the well-being of our planet and its biodiversity but also makes compelling business sense. Companies that recognize the value of investing in Nature-based Solutions can mitigate risks within their operations and supply chains, gain a competitive advantage, prepare for future regulations, and respond to capital market requirements. While the challenges are real, various frameworks are available to guide companies in assessing their nature impact and risks. Importantly, companies can integrate their climate and nature efforts by investing in Nature-based Solutions, thus contributing to both vital agendas simultaneously. It is time for the business world to embrace the business case for nature and play a crucial role in safeguarding the future of our planet.

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