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Putting a price on biodiversity: the need to integrate nature into the P and L

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The protection of nature is going to be central to meeting climate and sustainability goals. Kathleen Enright, global managing director at Salterbaxter, explores how putting a price on nature could help that happen.

  • With $44 trillion of global GDP reliant on nature, entering it on the balance sheet is critical.
  • Business needs a framework to measure the risk and opportunity of its impact on nature.
  • Regenerative agriculture offers a model for prioritising biodiversity in business operations.

Our inability to truly value nature has seen two-thirds of the planet’s wildlife lost in the last 50 years due to ecosystem fragmentation, climate change and habitat destruction.

Yet more than half of global GDP – $44 trillion of economic value generation – is reliant on high-functioning biodiversity and ecosystems. Our decimation of nature is driving the world towards economic catastrophe and putting both lives and livelihoods at risk.

Now is the time to start counting the cost. While independent attempts have been made to put a price tag on environmental impacts – notably Jochen Zeitz’s work with Puma in the early 2010s – the need to act has become critical. Soon all businesses will be required by regulators to factor nature’s contribution into their corporate reporting. If the biodiversity which underpins the world’s economy is to be both protected and restored, a value must be applied to the goods and services that nature has previously provided for free.

The urgent need to integrate nature into the P&L

The 30×30 agreement reached at COP15 sets goals for safeguarding 30% of the planet’s land and 30% of its oceans by 2030, with corporations expected to play a significant role. The speed with which the Taskforce on Nature-Related Financial Disclosures (TNFD) has released its beta framework suggests that corporations have limited time to get their own biodiversity measurement and reporting systems ready in order to demonstrate that they are meeting the requirements of 30×30.

Since the TNFD initiative was formally launched in June 2021, it has worked at a swifter pace than its climate-related peer, the Task Force on Climate-related Financial Disclosures. After the latter released its recommendations in 2017, disclosure of climate-related information has remained voluntary and is still far from universal. By comparison, the TNFD’s full framework is expected to be ready for market adoption in September this year.

Companies must therefore prepare for action on nature. Incorporating natural capital into financial reporting and integrating it into the P&L is going to take time. Businesses need to start identifying both the risks and opportunities presented by changes to biodiversity and ecosystems through their supply chain. They need to be formulating metrics and tracking data now in order to be ready for when transparency starts being demanded by regulators, customers and the value chain.

Sadly, history suggests that organisations only take action on voluntary reporting when they identify a risk or cost to the business of not doing so. In addition, few will want to be first movers in measuring and reducing their impact on nature if it means having to increase prices in the current economic climate. Consequently, there remains a damaging disconnect between the real cost of biodiversity and pricing.

The biodiversity pricing challenge

Valuing the true worth of nature to the immediate and long term future of a business will allow for its protection to be entered on the balance sheet. But how should corporations begin quantifying the complexity of natural capital and the impact of its loss?

Following the success of the Montréal Biodiversity negotiations, we now know the ‘what’ – the greater question is the ‘how.’ Out of the Davos sidelines emerged huge interest in scoping and valuing nature. Internalising the externalities will catalyse business transition and will inevitably lead to tradeable credits and a more accurate valuation of risk and opportunities. But therein lies equal amounts of frustration – we can’t agree and regulate carbon pricing, how are we expected to do it for nature and biodiversity?

But there are lessons to be learnt and, although nature is more difficult to measure then carbon, it’s certainly more tangible, more emotive and easier to quantify
when factoring in aspects like soil degradation and resource scarcity. Valuation frameworks for nature have been proposed, such as the Natural Capital Protocol that
offers an internationally standardised framework for the identification, measurement and valuation of impact and dependencies on natural capital. However, the adoption of a universal measure of biodiversity and its monetary worth to business has thus far been lacking.

The TNFD hopes to change that. By adopting an open innovation approach, it is encouraging the market to contribute to the development of its framework, which should ensure relevance, effectiveness and usability – and also accelerated uptake. By creating a framework based on existing standards and metrics, the TNFD hopes to make it easy for businesses already reporting on climate liabilities to adopt. And by outlining how nature impacts an organisation’s financial performance in the immediate term, as well as longer-term financial risks, the TNFD framework will help corporations incorporate nature-related financial risks and opportunities into their strategic

But frameworks alone won’t fix the crisis. The corporate world has run out of credit, and as well as ceasing to draw on the Bank of Mother Nature, it has to start repaying its debt. Businesses don’t just need to stop the activities that are damaging natural capital and build protective walls around conservation areas – they have to reverse the destruction they have wrought through regenerative goals, strategies and activities.

Agriculture as a framework for valuing nature

Putting natural regeneration at the heart of business operations may seem a momentous task, but by starting with the biggest impacts and specific goals, significant change can be wrought relatively quickly. Agriculture is a prime example.

In recent decades, farming has worked against, rather than with, nature. Pesticide poisoning, habitat destruction and soil depletion can all be laid at its door. But raising crops and livestock is impossible in depleted ecosystems. Regenerative agriculture is the only long-term solution and businesses must start fostering regenerative practices in their supply chain – from agriculture to nature to water sources.

Implementing regenerative agriculture at scale can be hampered by the requirement to use different techniques to farm in different environments. But global averages don’t tell the whole story. Research by the Syngenta Foundation shows localised solutions can be scaled by bringing smallholders and bigger market players together to innovate, develop and share restorative farming methods and implement them wherever suitable.

In fact, a focus on nature in farming demands a localised view, and fundamentally a focus on people, leading to better overall outcomes. The social and business benefits of regenerative agriculture include reviving indigenous farming approaches; building loyal producer-consumer relationships; creating networks of regenerative ranchers; stronger communities; and the foundation of co-operatives that increase the market power of small producers.

Regenerative agriculture and the broader principles of restoration are the inclusion of the Global South and force us to reassess the value of indigenous traditions and solutions. However the ability or need to put a value – or commodify – Nature is incompatible with how many indigenous people regard it. Consider First Nations people of Australia (Aboriginal, Torres Strait Islanders and Maori) whose culture understands people to be part of nature, they regard themselves to be very much of the earth, so putting an external value on themselves is irreconcilable with their view.

So does this mean that we shouldn’t find a way to value nature? No. But we need to find ways that are empathic and respectful of these views and also compatible with how progress can be delivered in the capitalist system in which we operate. Cultural awareness and intensive engagement with traditional owners is needed.

Regenerative agriculture is about taking a fully restorative approach – to nature, to business in society, to how we live as citizens. Taking it as their model, businesses across all sectors can benefit from identifying where natural resources constitute value to their operations and assessing their role in the depletion of nature in order to create a circular business model that pays the planet back for what they take.

Focusing on the long term opportunities this creates, and the investment that’s needed to secure it, makes it easier to place this on the balance sheet with Mother Nature not as
your supplier but as a vital, long term business and investment partner.

The opinions of guest authors are their own and do not necessarily represent those of SG Voice.

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