The risks resulting from a loss of nature and changes to natural capital have the potential to disrupt society and the stability of the global economy. Most research on financial risks related to natural capital has historically focused on climate change. However, there is a growing awareness of the risks associated with other aspects of natural capital, such as the loss of biodiversity. In this article, we outline industry trends observed in ESG reporting of biodiversity. We also provide a summary of metrics and KPIs to account for biodiversity in sustainability disclosure frameworks.
What is biodiversity and why is it significant?
The term Biodiversity refers to the variety of life: the diversity of all living organisms from the various ecosystems of the planet. It “includes diversity within species, between species and of ecosystems” in which they live.
The significance of biodiversity is best understood when looking at ecosystem services, which are the benefits humans gain from the natural environment. Businesses also depend on ecosystem services because they directly use natural resources and make use of environmental functions such as waste decomposition and detoxification. Ecosystem services depending on biodiversity include:
- pollination
- pest and disease control
- fresh water
- soil formation
- and climate regulation.
Reduced pollination and declining resilience of ecosystems and species illustrate the consequences of biodiversity loss for economic activity. While determining the exact impact of biodiversity loss on the solidity of financial institutions remains challenging, specific risk channels are clearly identifiable.
Biodiversity-related Corporate Reporting
Biodiversity-related corporate reporting is a fast-moving, developing area. Additionally, there is ongoing work to create harmonization, particularly related to measurement and disclosure.
Businesses and financial institutions may experience increased pressure to assess and mitigate their impact on biodiversity. During 2022-2024, the World Benchmarking Alliance completed the first iteration of the Nature Benchmark, assessing and ranking 816 companies across more than 20 industries. One key finding revealed a significant nature blind spot: only 5% of companies assess their impact on nature, and fewer than 1% understand their dependencies. This gap is particularly concerning given evolving regulations—such as the EU Corporate Sustainability Reporting Directive (CSRD), which will require many large businesses to disclose material sustainability impacts and dependencies starting in 2025.
Initiatives are also being taken internationally to raise awareness of the ramifications of biodiversity loss, including the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) and the Natural Capital Coalition (NCC). These contribute to an improved understanding of the risks involved.
Taskforce on Nature-related Financial Disclosures (TNFD)
The Taskforce on Nature-related Financial Disclosures (TNFD) was established in response to the growing appreciation of the need to factor nature in financial and business decisions. The TNFD is a global, market-led initiative with the mission to develop and deliver a risk management and disclosure framework for organizations to report and act on evolving nature-related risks and opportunities. The ultimate aim is to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
In 2023, TNFD released its final recommendations, which are now being adopted by companies and financial institutions globally. The TNFD framework integrates with the Taskforce on Climate-related Financial Disclosures (TCFD) and aligns with new ISSB standards and EU CSRD biodiversity reporting requirements. The TNFD defines nature as “the natural world, with an emphasis on the diversity of living organisms (including people) and their interactions among themselves and with their environment,” covering four realms: land, ocean, freshwater, and atmosphere.
The table above lists a draft of TNFD disclosure recommendations to address ecosystem services, so companies can begin to align governance, strategy, and risk management incorporating principles to address nature (including biodiversity):
Unlike carbon, biodiversity does not have an intrinsic value and is more complicated to assess. Additionally, a key challenge around effectively reporting on a company’s biodiversity impact is that it requires extensive effort to monitor the state and condition of biodiversity at given locations. The following summary describes a few methodologies and guidelines that are being used by businesses and financial institutions to address measuring biodiversity impact.
Frameworks for Measuring Biodiversity Loss, Impact and Risk
Below are examples of metrics, KPIs, tools, and frameworks that account for biodiversity in sustainability disclosure frameworks:
- Focus on impacts on ecosystems/habitats/land cover:
- Biodiversity Footprint Financial Institutions (BFFI)
- Global Biodiversity Score (GBS)
- Corporate Biodiversity Footprint (CBS)
- Focus on species:
- Species Threat Abatement and Restoration Metric (STAR)
- Environmental Profit & Loss (EP&L): Monetary values
- Model or extrapolate biodiversity impacts from indirect environmental pressure data (e.g., GHG emissions and water use):
- TheProduct Biodiversity Footprint (PBF) approach aims to bridge the gap between LCA and ecology. Also, the objective is to enable the comparison of variants of a given product to inform eco-design, addressing the five drivers of biodiversity loss as defined by the MEA (Multilateral Environmental Agreements).
- Biodiversity Footprint Financial Institutions (BFFI)
- Environmental Profit & Loss (EP&L) tools, which help to reduce their environmental footprint and generate tangible benefits
- Use primary biodiversity data to measure changes in biodiversity:
Other Measuring tools:
- GBSFI – Global Biodiversity Score for Financial Institutions
- BIA-GBS – Biodiversity Impact Analytics powered by the Global Biodiversity Score
- ENCORE – Exploring Natural Capital Opportunities, Risks and Exposure
- Water Watch – Tool that highlights the business activities with the greatest impact on water (quantity and quality along the whole value chain) Water Watch – CDP Water Impact Index – CDP
Frameworks for biodiversity disclosure:
- TNFD
- CDP
- SASB
- GRI
- MSCI
Where to Start with Managing Biodiversity and Nature-related Risk
Companies should not wait for globally agreed frameworks or perfect tools to be available to approach the topic of biodiversity and nature. On the contrary, companies should begin to understand and manage biodiversity and nature-related risks and opportunities, and prepare to align with the TNFD recommendations and meet regulatory expectations such as the EU CSRD biodiversity requirements.
Thus, to get started, companies should:
Plan and Educate
Familiarize leaders across the business with biodiversity concepts, tools and frameworks. Build internal capability, begin to align to the TNFD framework, and develop a plan for managing biodiversity-related financial risks and opportunities, including setting targets.
According to the World Benchmarking Alliance Nature Benchmark, 72% of the world’s population faces water insecurity. While 29% of companies report water use reductions or disclose usage from water-stressed areas, only 15% report metrics on discharged pollutants, and a mere 4% have set targets to reduce them. This highlights the urgent need for companies to accelerate water stewardship efforts as part of their broader biodiversity and nature-related risk management.
Monitor and Disclose Targets
Monitor and disclose biodiversity performance, including actions to identify, measure, and manage biodiversity risk. Set science-based targets where possible and build internal accountability for biodiversity across the business
Support
Actively support biodiversity initiatives and pledges, contribute to policy development, and engage in collaborative efforts to improve biodiversity management.
How Cority Can Help
Cority provides comprehensive, customized sustainability and ESG advisory services, guiding you through every stage of your reporting journey. One notable advantage of our Strategy & Transformation service is its support for biodiversity. We help in increasing awareness, evaluating impacts and dependencies, setting goals and key performance indicators, creating action plans, and establishing policies. Discover more here.
References
Learnings-from-soy-supply-chains.pdf (globalcanopy.org)
Are you ready for the TNFD framework? – United Nations Environment – Finance Initiative (unepfi.org)
https://capitalscoalition.org/project/transparent/
https://ec.europa.eu/environment/biodiversity/business/align/index_en.htm
