Business and the biodiversity crisis: The Role for TNFD in managing risk

Judy Kuszewski is CEO of Sancroft

On the face of it, the datacentre business looks like a great business to be in. The world runs on data and a future involving AI, 5G, not to mention technology which is supposed to help us overcome the challenges of climate change, datacentre capacity is expected to double by 2030 to fuel the data economy.

One significant challenge sits in the way of future growth for this booming sector, however.

At community, state and national level in the US and Europe, new datacentre builds are being stopped in their tracks. This is because of the heavy toll existing and proposed facilities are taking on scarce water resources, land and biodiversity.

As a result, firms who are failing to meaningfully incorporate their impact on nature not only find themselves with limited options for growth but with their existing operations under the microscope.

Nature risk is a business risk

Datacentre operators aren’t the only ones who cannot take for granted the services that nature provides in their future business planning.

According to the World Economic Forum, around half of global GDP is moderately or highly dependent on thriving ecosystems, healthy soil, clean air and water.

For businesses like Unilever which relies on cocoa, soya beans and palm oil for its products consumed by 3.4bn people every day, its long term reliance on productive land is obvious. It has recently doubled down on its ambition for 100% sustainable sourcing of products key to its operations because it realises it needs to do more, faster.

Others are being taken by surprise. It is only when new developments such as global ship hold-ups caused by the lack of water feeding the Panama canal, as has happened this year, or when local communities object to intensive water abstraction, that businesses who aren’t directly linked to food or agriculture see how they too rely on nature’s systems to function.

While the majority of senior level executives in business still see biodiversity as a medium- to long-term issue, abstract, academic and secondary to climate change, this is a profound and dangerous misconception.

The limits that nature is putting on businesses are already being felt today and the failure to address biodiversity with the same urgency as climate change is placing business operations and supply chains in even greater jeopardy.

TNFD: mapping a path for action

As the rate of nature degradation and biodiversity loss accelerates there are two urgent actions businesses need to take: to understand their dependency on nature, regardless of what they might do to help or harm it, and understand the scope, speed and nature of actions required to reduce the risk arising from this dependency.

The new guidance from the Taskforce on Nature-related Financial Disclosures offers business a roadmap to navigate these challenges and tools to act on each area.

It provides a framework which helps identify the dependencies and impacts on nature across the business and map the regulatory changes and stakeholder concerns which influence nature degradation.

While TNFD is designed to be a standardised voluntary reporting framework for nature-related financial risk, its immediate value for business lies in its ability to help identify the scale and severity of nature-related risks today and in the future.

Armed with this insight, businesses can ensure that the sustainability of resource use and the availability of nature’s services are factored into business strategy and tat risk management or mitigation plans are created.

They can also quantify the financial impact of nature loss and start to formulate business cases for future operational change.

Get ahead of the game

At a time when business is still getting to grips with the challenge of climate reporting and adaptation, some businesses will be reticent to bring biodiversity to the table in this way from a perspective of capacity or prioritisation.

A number of drivers will ensure that voluntary action on biodiversity will soon be replaced by compulsory requirements.

The first is the relatively under-reported but highly significant establishment of the Kunming-Montreal shared international goal to halt and reverse nature loss by 2030.

While not legally binding, the actions that the 196 signatory countries will take to meet the target will significantly influence business regulation with respect to nature and biodiversity. The EU is already taking this in hand with the Corporate Sustainability Due Diligence Directive which will oblige companies to show what action they are taking to protect the environment.

The second is the emerging disclosure expectations around nature-based risk. Again in the EU, the Corporate Sustainability Reporting Directive has already incorporated the TNFD’s guidance on reporting and risk assessment. Although TNFD reporting is not mandatory, investors are now demanding to see nature-based risk disclosure, notably 160 signatories of the Finance for Biodiversity pledge. Many expect TNFD to follow the same voluntary-to-mandatory trajectory as its climate-equivalent, TCFD.

Last of all, and most significantly, is the overlap between action required on climate and biodiversity. Climate change contributes to nature loss but many of the measures which combat climate change, such as preservation of carbon sinks including peat bogs and mangroves, help biodiversity. From a strategy, finance and resource perspective there is an imperative that both be considered in tandem today.

The climate blueprint

As climate has taken centre stage, biodiversity and nature loss remains a blind spot for business. Fortunately, having already faced a similar challenge with climate, the kind of actions we need to take are clearer and the tools we need to use to assess and mitigate business and financial risk are familiar. And as with climate, this can only happen with a clear understanding of the scale challenge and a commitment to action at board level.

If it came as a shock that data centre development plans could come undone because of biodiversity concerns, the reality of a business’s impacts and dependencies on nature will only increase in salience. The tools and guidance available from the TNFD provide the perfect foundation for every business to start the journey.

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