In 2022, the World Economic Forum listed destruction of biodiversity as the third most severe risk in the next decade, just after climate action failure and extreme weather. But isn’t nature risk something that happens far away?
As of February 2022, koalas were officially an endangered species in some states — like rhinos and tigers. Koalas! Let that sink in.
Nature destruction is a global phenomenon but — it might surprise you — Australia is at the very centre of it.
With more than half of global GDP directly dependent on nature, and the fate of the climate dependent on halting the destruction of ecosystems, it’s no surprise that nature-related risks are high on the global business and finance agenda.
So how is the destruction of nature a risk for Australian businesses? And what can Australian businesses do right now to ensure they are part of the solution?
Like no place on earth
Australia is one of only 17 countries in the world considered to be megadiverse, and we’re the number one in the world for endemic species — that is, we have more unique plants and animals than any other country.
Around 85% of life here cannot be found anywhere else on earth — that means if a species becomes extinct in Australia, they are lost to the whole world.
Of our 20 UNESCO World Heritage sites, like the Blue Mountains and the Great Barrier Reef, 12 are listed because of their outstanding universal natural values.
Our nature is what we are famous for, but more than that it is part of who we are.
Photo: Doug Gimesy
Nature underpins this country’s identity, prosperity and the health and wellbeing of all Australians. For First Nations people who have fished, farmed, and managed the land with fire for tens of thousands of years, this country is inseparable from culture.
Because Australia’s nature is uniquely valuable and also extremely vulnerable, there is a lot at stake and businesses have a heightened responsibility to know and manage their impacts.
In fact, according to SWISS RE, the world’s largest reinsurer, Australia is the second most at-risk economy in the G20 when it comes to the loss of ecosystem services.
What is nature risk?
It isn’t just about iconic species like the koala. Our entire society and economy is embedded in nature — we are utterly dependent on it.
In 2020, the World Economic Forum calculated more than half of global GDP, or US$44 trillion, is directly dependent on nature.
It also found a global transition to ‘nature positive’ practises would generate $10 trillion in new investment and create 400 million jobs — so managing nature related risks represents a significant opportunity for individual businesses and the economy.
Nature-related risks and opportunitiescome from an organisation’s impacts and dependencies on nature and via changes to the state of nature.
Impacts are the positive or negative effects an organisation has on nature, such as through financing the restoration of a wetland, or the destruction of a rainforest.
Dependencies are the ecosystem services, or nature’s contributions to people, that an organisation relies on to function, such as accessing fresh water, pollination, or the mitigation of hazards, like floods.
Farmer Bruce Currie has reduced access to fresh water Photo: Louise Gronold
The decline in natural systems is reducing the availability of freshwater, depleting soils and the pollinator insects that provide most of our food, damaging the natural beauty of the places we love and escape to, and threatening species like the koala which we all hold dear. The destruction of nature even makes pandemics like COVID-19 more likely.This decline in nature is not only a risk to a businesses' strategy or bottom line through a dependency. Businesses also increase risk to society through their negative impacts — a concept known as double materiality. Businesses have to manage both.
Types of nature risk
The Taskforce on Nature-related Financial Disclosures (TNFD) is building on progress made on climate risk by the Taskforce on Climate-related Financial Disclosures (TCFD). In its beta version released in March 2022 it outlines three categories of nature risk.
- Transition risks and opportunities: The transition to an economy built around improving nature, i.e. nature-positive, will involve policy, legal, technological and market changes. Transition risks may involve a new cost to a business for the negative impact they have on nature including via compliance costs, litigation risks, changing consumer preferences, or reputational harm, say for a company found to be contributing to the decline of koalas.
- Physical risks and opportunities: Physical risks can lead to damaged assets, disrupted supply chains, or loss of access to an ecosystem service. They can relate to one-off events like floods or long-term changes, such as permanently reduced rainfall.
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Systemic risks: On top of direct material risks to individual businesses, impacts and dependencies across the economy create the potential for systemic nature risks. This could be when a critical natural system reaches a ‘tipping point’ and no longer functions. It could be risks that affect whole industries. And it could be risks to economy-wide stability, such as more frequent pandemics.
The nature crisis is as urgent as climate change and neither can be solved without addressing the other
Globally, biodiversity is being destroyed at a rate that is unprecedented in human history. Over one million species are threatened with extinction and many of earth's most vital ecosystems are approaching tipping points. The nature crisis is as urgent as climate change and neither can be solved without addressing the other.
The threats to nature in Australia are as acute as anywhere else on earth. The 2019/2020 summer of bushfires put our environmental record into global focus and crystallised our understanding of the vulnerability of our landscape and species. In the summer of 2022 we have experienced record-breaking floods.
Even before the fires, Australia led the world in mammal extinction. Queensland has one of the highest rates of land clearing and deforestation in the world, mostly to increase beef production. And nineteen of Australia’s most important and iconic ecosystems, including the Great Barrier Reef and the Murray Darling River Basin, are collapsing — in every case, climate change is a factor in their decline.
Murray Darling basin is in collapse Photo: Hypervision Creative
Equally, protecting and restoring those ecosystems will not only enhance their contributions to people, it will help tackle climate change. Forests, mangroves, wetlands and coral reefs not only support biodiversity, they are critical climate sinks and offer protection from extreme weather.
At COP26 in Glasgow and the UN biodiversity conference launched in Kunming, China in 2021, countries acknowledged we must solve climate change and nature destruction together or we will solve neither.
Global goals for nature
This year, China will host the conclusion of COP15 of the UN Convention on Biological Diversity (CBD). It is the most important biodiversity conference in a decade. At the meeting, countries will sign off on a new post-2020 Global Biodiversity Framework (GBF) — a set of goals and targets for the next 10 years that countries will try to deliver together, to reverse biodiversity destruction.
Leading businesses, and many nations, are backing an ambitious commitment to reverse nature destruction so that by 2030 nature is in better health than it is now.
To reduce individual and collective risk, and to level the playing field, businesses should demand ambitious goals that match what science tells us is needed. Much like the Paris agreement, the global goals for nature will, along with initiatives like the science-based targets for nature, give businesses and nations alike something to aim for.
Why compliance with Australian environment laws is not enough
Australia’s environmental laws are failing to protect nature. Koalas were listed as vulnerable in Australia in 2012, yet in the 10 years to 2022 the federal government approved the clearing of 25,000 hectares of koala habitat. Koalas are now endangered in three states.
As a result of regulatory failure, Australia is a world leader in extinction and a deforestation front just as the Amazon and Congo are. In NSW land clearing rates have tripled over the last decade. In QLD, they have doubled in a year.
In October 2020, Professor Graeme Samuel completed a comprehensive review of Australia’s national environment law — the Environment Protection and Biodiversity Conservation Act (EPBC Act). It found our national environment law was “outdated”, “ineffective” and “not fit to address current or future environmental challenges” like climate change or the collapse of ecosystems. Simply complying with ineffective environmental regulations will not be enough to ensure a business is sufficiently reducing its impact on nature.
All business, small and large, benefit from thriving nature Photo: ACF
Just as risks to businesses related to climate change must legally be addressed by company directors, consensus is emerging that managing nature related risks will very soon become integral to reporting standards.
According to Corrs Chambers Westgarth: “The loss of species and ecosystem collapse not only contribute to rising global temperatures but of themselves, form a very real material exposure for businesses in the same way as climate change. “
What should businesses be doing?
Businesses should be looking to not only reduce their harmful impacts on nature and manage their dependencies, they should be aiming to have a positive impact on nature. Here are the steps all medium to large businesses should be taking now.
- Measure and prioritise your business’ nature related impacts and dependencies. Determine the impacts and dependencies that your operations, supply chains and investments have on nature. The ENCORE tool, and Science Based Targets Network are good places to start, but to do this properly you'll need location specific information about your value chain and its interactions with nature.
- Engage with suppliers, customers and investments. As with climate risk, nature related risks and opportunities cannot be addressed by one business. Your business should work with suppliers, customers, and partners that have related risks or are themselves sources of risk, and set expectations for how they manage their impacts and dependencies on nature. The financial sector in particular bears responsibility for the transition to nature-positive practices as it determines which activities are financed or insured and under what conditions, including price.
- Set targets and science-based policies to protect nature. With nature related risks and opportunities identified, you can set targets for nature - for example, eliminating deforestation and land conversion from your value chain is a target you should set right now. The Science Based Targets Network’s interim guidance provides a good starting point for target-setting. And a comprehensive biodiversity policy should cover everything from how you will manage impacts on threatened species and ecosystems, to how you will engage with stakeholders and respect and protect First Nations peoples' rights and knowledge.
- Advocate for nature friendly public policy. Achieving targets for nature are only possible with collaborative action that depends on public policy. Through direct engagement with policy makers, industry associations and your business’ communications, you should send clear signals to regulators of the need to protect nature through strong laws, science-based global and national targets, sufficient funding for nature recovery, and comprehensive environmental accounts and data.
- Implement: embed targets for nature in your decision-making and disclose progress toward them. Once your targets for nature have been set, you need to act on them with a comprehensive and transparent implementation plan. Disclosing impacts, dependencies, and targets, with regular evidence-based updates on progress, and value chain transparency is an essential step to demonstrate good risk management. Nature should also be embedded in your business' decision-making as a component of strategy and governance with the highest level of accountability and responsibility.
Header image: Ali Sanderson
