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Biodiversity is still a blind spot for most companies around the world

Biodiversity is still a blind spot for most companies around the world


Only about one-third of Europe's biggest companies have set biodiversity or deforestation targets, while adoption rates are even lower among the largest companies in Asia-Pacific and the U.S.

Most companies with biodiversity targets aim to reach their goals by 2030, which aligns with the proposed timeline of a biodiversity framework under consideration at COP15, the UN’s major biodiversity conference in December 2022.

Only a small share of companies have committed to preserving biodiversity or addressing deforestation across their supply chains, where most of the damage is being done.

Investors and the private sector are paying more and more attention to the topic of biodiversity, but only a small share of companies globally have set targets to protect biodiversity or address deforestation, according to an analysis of new data from the S&P Global Corporate Sustainability Assessment, or CSA.

This trend holds true even for regions where governments have set ambitious biodiversity goals, such as in the European Union. The EU in 2020 launched a biodiversity strategy that aims to complete 100 target actions by 2030, such as turning at least 30% of its land and sea area into legally protected areas, restoring degraded and carbon-rich ecosystems and enabling at least €20 billion per year in biodiversity-related financing.

Yet only 29.5% of the largest companies in the S&P Europe 350 index have set biodiversity targets, CSA data shows. An even smaller portion of the major companies in the S&P indices for the stock markets in Asia-Pacific and the U.S. have set nature-related targets.

While protecting nature is still only a nascent priority for companies, there are significant business risks in allowing nature to degrade further. Economists have shown that nature underpins much of the global economy: About $44 trillion of global economic value generation, which was over half of global GDP in 2019, is moderately or highly dependent on natural assets and their ecosystem services such as pollination, according to the World Economic Forum. At the same time, pollution, deforestation and other unsustainable land use, paired with climate change and the spread of invasive species, have put about 1 million animal and plant species at risk of extinction, many within decades, according to the UN.

Healthy and diverse ecosystems also play a key role in absorbing emissions and helping both the natural world and human society adapt to the physical impacts of climate change. Forests, which cover about 31% of the earth, absorbed 7.6 gigatonnes of carbon dioxide from the atmosphere every year from 2001 to 2019, according to a 2021 study published in the scientific journal Nature Climate Change. Forests are key to preserving biodiversity and can help lower the overall ambient temperatures of regions.

And while the global rate of deforestation has slowed in recent years and some of the loss has been offset by conservation or reforestation programs, the world still experienced a net loss of about 100 million hectares of forests — a surface area more than double the size of California — over the past two decades, according to an October 2022 Forest Declaration Assessment report sponsored by the government of Germany.

Yet ending, slowing, or offsetting deforestation is a priority to only a small fraction of many of the world’s largest companies. Specifically, 34.2% of the largest companies in the S&P Europe 350 index have set targets to reduce, offset or end deforestation in their operations and/or supply chains. Meanwhile, the EU is considering new regulations that would ban the sale of certain products linked to the destruction of forests.

As for large and mid-cap companies in other regions, about 15.1% of companies in the S&P Asia Pacific LargeMidCap index have set deforestation-related targets, followed by about 13% of companies in the S&P 500.

The 2022 CSA reviewed the nature-related commitments and targets of 3,753 companies from around the world, which is a larger universe of companies than in the 2021 CSA.

Overall, the 2022 CSA found that utilities across multiple industries, as well as the construction materials industry, had the highest share of companies with biodiversity targets.

Among utility industries, 35.2% of electric utilities, 33.3% of multi-utilities and water utilities and 27.6% of gas utilities globally have set biodiversity commitments. On the other end of the spectrum, several industries had no companies with biodiversity targets: the biotechnology, restaurants and leisure facilities, household durables and communications equipment industries.

When it comes to setting deforestation targets, food products, and paper and forest products companies have the highest adoption rates, with 35.1% and 33.3%, respectively. Agriculture – cattle, palm oil and soybean farming in particular — is responsible for around 70% of the 10 million hectares of natural habitat that the UN Food and Agriculture Organization estimates is lost to deforestation globally each year. Several assessed industries showed no companies with deforestation commitments: biotechnology, aerospace and defense, casinos and gambling and communications equipment.


Though uncommon, nature-related commitments are trending up

While there are relatively low levels of biodiversity and deforestation commitments in the private sector in 2022, companies appear to be making modest progress compared to the prior year.

A year-over-year comparison of the biodiversity goals of companies across 13 industries globally from the 2021 CSA to the 2022 CSA shows more companies are setting biodiversity targets. For example, the beverages industry saw an increase of 9.4 percentage points (from 3.1% to 12.5%) in the share of companies that have a biodiversity target in 2022 compared to the prior year. The food and staples retailing industry’s share of companies with biodiversity targets increased 8.9 percentage points year over year (from 10.3% to 19.2%). Gas utilities — an industry with a relatively high adoption rate in 2021 — saw a big uptick of 8 percentage points in 2022, from 24% to 32%.

Moreover, governments, investors and companies have made ambitious public pledges to protect and restore nature over the last two years, and additional action could be ahead. Much is at stake, as the previous targets set in 2020 under the UN Convention on Biological Diversity have remained largely unmet. This month, delegates from around the world are meeting in Montréal, Quebec, to consider an action plan for nature covering the rest of this decade. Up for discussion at COP15, the 15th Conference of the Parties to the UN Convention on Biological Diversity, is a draft agreement, known as the Global Biodiversity Framework, that includes 22 targets including conserving at least 30% of land and water areas globally by 2030.

Many corporate biodiversity goals align with this 2030 timeline. Of the 318 companies globally that have biodiversity targets identified by the 2022 CSA, nearly 56% aim to reach their goal by 2030, while only about 8% have their targets set for after 2031. The remaining 35.5% of companies with commitments do not identify a target date.

In November 2021 at COP26, the UN’s annual climate conference, countries including Canada, Russia, Brazil, Indonesia and the Republic of the Congo, which together represent 85% of the world’s forests, announced they would work to reverse forest loss and land degradation by 2030. The pledge was supported by $12 billion of public finance from a dozen countries.

Meanwhile, a number of companies are pilot testing a draft disclosure framework created by the Taskforce on Nature-related Financial Disclosures that would guide companies in disclosing risks and opportunities related to nature and natural capital, as well as how they can measure their impacts on nature. The TNFD is preparing a final draft version of its framework for release in March 2023, with final recommendations planned for publication in September 2023. S&P Global is a member of the TNFD.


Biodiversity loss poses risks to companies

The rapid loss and degradation of biodiversity globally due to human activity and climate change presents risks for companies over the near and long term.

The world has experienced an average decrease of 69% in the populations of mammals, birds, reptiles, amphibians and fish since 1970, according to the World Wildlife Fund. Countries that make stopping biodiversity loss a priority might do so by establishing new protected areas or expanding current ones — a topic of discussion at COP15 this month, and already a part of the EU’s strategy. A potential hurdle for companies lies in the possibility that areas where companies currently operate or could develop in the future could become legally protected areas for preserving biodiversity.

There is a wide range of designations and statuses that different jurisdictions may place on areas of land or water, with varying levels of legal restrictions or protection. One approach companies can take to mitigate this potential challenge is to avoid World Heritage sites and areas already identified as protected by the International Union for Conservation of Nature. However, only a small percentage of the 3,753 companies reviewed in the 2022 CSA for their biodiversity policies and practices have committed to not operate, explore, or mine in close proximity to World Heritage Areas or IUCN-defined protected areas.

The loss of biodiversity poses a more direct economic risk to companies: It can lead to the disruption or collapse of ecosystem services that companies and society rely on such as pollination, disease control, climate regulation, flood protection and water regulation, as confirmed again by the 2021 Dasgupta Review, a landmark study of the economics of biodiversity. The loss of ecosystem services can, in turn, create direct economic and financial losses for companies and economies, the review noted. Hitting what the World Bank has called “ecological tipping points” of damage to some natural services could hurt global GDP by $2.7 trillion annually by 2030.

Much of this business risk exists in supply chains, especially for companies that source raw material or agricultural inputs. Most corporate biodiversity commitments only cover companies’ own operations and do not extend to Tier 1 suppliers or further up the supply chain, CSA data shows. That holds true for deforestation commitments specifically as well. The consumer staples sector, which includes the food and beverage industries, is an outlier in that more companies have deforestation policies covering their suppliers than their own direct operations.

Deforestation has been a focus for financial institutions looking to integrate biodiversity-related data into their investment and lending decisions. For example, a group of more than 35 financial institutions with more than $8.9 trillion in assets under management have pledged to eliminate agricultural commodity-driven deforestation risks in their investment and lending portfolios by 2025. A one-year progress report in November 2022 by that group indicated some members have published a list of investor expectations for companies, established internal policies related to this goal, or created new financial instruments for nature-based solutions.

But while these are steps in the right direction, companies and countries still need better information to understand their impacts on nature, the risks they face and to track their progress.

A January 2022 report to the Convention on Biological Diversity by a group of 50 international scientists and experts suggested existing biodiversity monitoring systems may not be comprehensive enough to reliably track change for all regions and attribute trends in biodiversity loss to specific drivers.

The group of experts noted that while the overall number of biodiversity observations has "increased immensely" in recent years, "monitoring capacities are unequally distributed across the globe,” resulting in biases toward some countries and biomes while leaving others underreported. Although the majority of the Earth’s biodiversity is found in developing countries, the data from just 10 countries — the United States, Australia, South Africa and seven others in Europe — accounts for 82% of all available biodiversity records, the report said. All other countries comprise the remaining 18% of records, the report said.

This lack of granular data across geographies could make it harder for companies to understand their biodiversity-related supply chain risks, particularly if their supply chains extend into developing nations. In addition to efforts by the TNFD to help companies assess biodiversity risks, the Global Reporting Initiative, an international independent standards organization, on December 5, 2022, proposed and sought comment on an updated biodiversity reporting standard. The updated standard would, among other things, have companies report on supply chain impacts.

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