Protecting biodiversity is set to get the same attention as cutting carbon emissions. The financial sector must be ready to respond, says Jim White, of Nature Positive.
While corporates – including the financial sector– have been keen to shout about their credentials in cutting carbon emissions, efforts by business to protect and restore natural environments have been largely overlooked.
This, however, is set to change. Just as COP27 raised the bar on what the world is doing to meet net zero, COP15 aimed to shine a light on safeguarding nature. In the same way as investors and clients take a keen interest in how companies are tackling climate change, COP15 means they will soon be watching how they are protecting biodiversity.
Currently, this issue falls way behind in terms of business priorities. At Nature Positive, we undertook a report looking at the FTSE100 UK companies – a fifth of these were in the financial services sector – to see what the UKs biggest companies were doing by analysing their biodiversity commitments in their annual reports and on their websites.
According to our analysis, we found that 45% of companies in the financial sector made no mention what they were doing on biodiversity – one of the worst performing sectors in the FTSE100.
Just over half (55%) in the financial sector– or 11 companies in total – referred to biodiversity in their publicly available materials. And while four addressed biodiversity directly, three companies only addressed aspects of biodiversity indirectly and four companies mentioned biodiversity merely in passing – pretty much akin to greenwashing in that they were using it as a buzzword with little or no substance behind it.
No companies in the financial sector had done a biodiversity audit of their full value chain and only one company had done a biodiversity audit of its direct operations. In terms of other sustainability references that indirectly benefit biodiversity, our analysis showed a mixed bag: 50% of companies had discussed sustainable sourcing or farming; 80% had discussed reducing waste or creating a circular economy; 20% had discussed pollution control and 55% had discussed water use.
The global reach of the financial sector in particular will be critical in reversing the current trend of biodiversity loss. The increase in ESG reporting and monitoring is welcomed, but significant change is necessary to ensure that biodiversity is given appropriate emphasis and attention. This is further underpinned by there being no evidence of 95% of the companies in the financial sector auditing their biodiversity impacts.
If the biggest companies in the financial sector are failing to address their impact on biodiversity, then it’s likely that others are failing to do so too. So it’s clear that the industry needs to do more – not just because it’s the right thing to do, but because measures will become mandatory or certainly expected as a matter of course by either governments or stakeholders.
Signs of what financial companies can expect to have to do following COP15 are starting to become clearer. For example, in September 2022, at a pre-COP15 meeting, the UK co-introduced the 10-point plan for financing biodiversity. This received little fanfare, but it requires businesses to assess and disclose their nature-related risks and dependencies, and to set quantitative targets to not only reduce negative impacts but increase positive impacts as well. It also commits governments to develop the appropriate regulatory and policy frameworks to facilitate this.
Secondly, although Science-Based Targets for Nature and the Taskforce for Nature-Related Financial Disclosures (TNFD) are both still in development, I expect COP15 to give these initiatives momentum. Disclosure of climate-related financial information aligned with the Taskforce on Climate-related Disclosures (TCFD) recommendations has accelerated over the past couple of years, so the logical next step will be greater adoption of nature-related information under TNFD.
Nature Positive has been helping companies in various industries implement biodiversity strategies. So, what could the financial services sector start doing to be ready for policy changes?
Undertake full biodiversity audits
Emissions involving supply chains can be significantly higher in comparison to direct emissions. As above, only one company in the financial sector had done a biodiversity audit of their full value chain. By restricting their analysis to their direct impacts, financial services companies cannot truly understand their impact on nature and may fail to recognise some of their biggest sustainability challenges.
Set corporate vision beyond reducing negative impact
Set an ambitious overarching corporate vision for reducing biodiversity impacts and delivering a nature-positive outcome. As the 10-point plan for financing biodiversity made clear, this needs to commit to making positive impacts, not just reducing negative ones. Interpret and prioritise the impacts and dependencies for your business as a whole and maximise collaboration across your company’s value chain.
Formulate a biodiversity strategy
This should set meaningful targets for improving performance on biodiversity within the wider corporate social responsibility approach. Follow the mitigation hierarchy of avoid, minimise, restore and offset.Interpret and prioritise the impacts and dependencies of your business to work out where you can make the biggest difference. Implement the biodiversity strategy by working towards defined goals through actively reducing impacts on biodiversity throughout the supply chain; monitor progress towards targets and aggregate to report against selected indicators; and review success and adapt procedures, if necessary, in the light of emerging evidence.
It’s not all doom and gloom. Examples of good practice already exist. For example, NatWest Group does not lend to projects involving unsustainable vegetation clearance or peatland clearance or extraction and has restrictions on commodities linked to deforestation.
But such examples are few and far between. Protecting biodiversity may have fallen behind cutting carbon emissions in terms of government and business priorities until now – but COP15 means the financial sector must prepare for change.
Jim White is a Principal Consultant at Nature Positive, an environmental consultancy which is part of the RSK Group.