Simon Chiva, Head of Climate Action at Sustainable Energy First, explains why the threat to global biodiversity is a serious business risk.
“Global ecosystem degradation and collapse threaten UK national security and prosperity.” Those words aren’t from an environmental activist or pressure group – they’re the first line of an official security briefing. The report rightly got headlines, not just for its content but also for a delayed publication that left some suggesting a coverup.
The briefing – full title Global biodiversity loss, ecosystem collapse and national security – sets out the possibility that ecosystems around the world could collapse over the next few decades. The reasons to fear this are obvious. Degradation of major ecosystems would mean limited access to the essentials of life, like clean water and crops. It would also affect many other things we take for granted, like housing, clothing and medicine.
Every business needs natural resources
There isn’t a business on earth that doesn’t rely on natural resources in some way. So the news of ecosystem degradation should be the concern of every business decision-maker. According to the report, the problem is happening in every region of the world. Some ecosystems look set to collapse in the years from 2050. Others, like the snow forests below the Arctic Circle, could collapse as early as 2030. No country is safe and no sector of the global economy is safe.
One ecosystem, myriad consequences
All business strategy needs to include an accurate assessment of nature-related risks. I’ll give an example relating to the food sector, as we work with many supermarket and hospitality businesses.
As the report says, ecosystem degradation threatens the ability of people in other countries to feed themselves and they are “likely to act to secure their interests”. As a first step, this means prioritising their own food supply over exporting to other countries.
One of the specific scenarios outlined in the report is the possible failure of coral reefs in South East Asia. Coral reefs support a huge variety of marine life. If the reef ecosystem collapses, coral-dependent species will die out while other species migrate to different areas. The science is clear that this means “substantial yield loss” for fisheries in the area.
According to industry stats, the Asia-Pacific is the “largest and fastest growing cold-chain regional market” for seafood. So a coral reef failure affects UK seafood importers, who are already coping with supply chain problems like labour shortages, trade agreements and so on. Their customers in food retail would also feel the effects of a scarcer and costlier seafood supply.
But of course, it’s not just seafood. If the previously thriving fishing sector in a south-east Asian country starts suffering, that will have repercussions well beyond one foodstuff. For example, it could affect the price or availability of exported rice if local consumption goes up to fill the gap.
Interdependence and fragility
I’ve given an example from the food sector, but I could have painted a similar picture about pharmaceuticals, packaging or electronics. Most sectors of the UK economy rely on complex international supply chains, which themselves rely on fragile ecosystems. That’s the norm for most Western countries.
This interdependence and fragility is why legislation pushes businesses to acknowledge environmental risks. If a single business drops the ball on it, tough luck for them. But if a significant number of the world’s businesses fail to explore the environmental risks and their investors make decisions based on poor information, this could lead to economic collapse.
Governments and international finance bodies have been working to head off this possibility through regulation. That’s why:
- The Task Force on Climate-Related Financial Disclosures (TCFD) was created
- We now have a common global language on climate disclosures from the International Sustainability Standards Board
- This country is currently working on the UK Sustainability Reporting Standards (SRS).
Double materiality
A key element of corporate ESG reporting is a concept known as “double materiality”. Put simply, it’s not just about the risks (or opportunities) environmental factors pose. It’s also about how the company’s own actions could affect the environment.
Going back to the coral reef example, it’s clear how declining reefs could affect fishing yields. Hopefully it’s equally obvious how overfishing and unethical fishing practices can harm the coral. So a business that deals with seafood should look at both:
- How collapsing coral reefs could affect its supply chain
- How its own choices around suppliers could affect coral reefs
Palm oil is another great example (among thousands) of a raw ingredient where environmental factors could drastically affect the supply and our own choices could make a big difference to the environment. Business in multiple sectors, from food to cosmetics to medicine, should be mapping out their relationship with palm oil using a double materiality approach.
If your business hasn’t previously considered the environment in its strategy, this dimension might seem daunting to consider. But getting started on environmental reporting will help to futureproof your business as much as realistically possible. It’s key to staying ahead of compliance requirements, but more crucially it could help your business to spot and avert serious challenges to its viability.
Sustainable Energy First helps businesses with mandatory climate disclosures and with developing a strategy that takes the environment into account. For expert advice, get in touch for a no-obligation chat.