- Net zero goals from governments and businesses that now cover 90% of the world economy are unachievable without ending deforestation within the decade and protecting marine life that absorbs up to 30% of global carbon today.
- Depleting natural capital puts half of global GDP at risk.
- It may be tempting to lean back and take a “wait and see” approach to managing and disclosing climate-and nature-related risks.
- Don’t let the perfect be the enemy of the good. Begin embedding a holistic sustainability strategy into your business practice now.
Ebony and Ivory, a song made famous by Paul McCartney and Stevie Wonder, was a metaphor for racial harmony. It’s also an appropriate metaphor to describe the relationship between climate and nature. The twin crises of nature loss and climate change are inextricably linked. For too long, however, both have been discussed and dealt with in silos. Capital markets do the same, treating both issues as separate and distinct. They are not.
Financially, nature represents trillions of dollars of value. Nature risk is now also viewed as a material financial risk, quickly becoming on par with how regulators and investors scrutinize climate-related financial risk. Depleting natural capital creates significant short-term operational costs, threatens livelihoods and the supply of critical resources, and puts half of global GDP at risk.
Nature and climate are interrelated risks and opportunities.
The World Business Council for Sustainable Development (WBCSD) – representing over 200 of the world’s leading sustainable businesses – recently found that nature-related topics are material for 87% of a representative sample of its members. Yet only 27% conduct a financial valuation of nature-related impacts and dependencies.
Depleting natural capital creates significant short-term operational costs, threatens livelihoods and the supply of critical resources, and puts half of global GDP at risk.
Take, for example, agriculture. Our research in the food and agriculture sector shows that a cluster of risks – climate change, diminishing biodiversity, a disconnect between long-term and short-term interests, soil degradation and nutrient preservation – produces the most severe aggregate risk to the industry ($1.29 billion).
Manage and Disclose: Converging climate- and nature-related disclosures.
Clearly, more needs to be done to integrate natural capital into strategic decision-making. It is important to break the causal pathways between these inter-related risks and prevent one risk from spreading to another.
New tools and guidelines are at hand to support companies in managing and disclosing these integrated agendas and demonstrating performance to capital markets, including the Taskforce on Nature-related Financial Disclosures (TNFD). This framework brings together climate- and nature-related risks, building on widely-adopted climate tools.
WBCSD members have worked on applying KPMG’s Dynamic Risk Assessment, which analyzes clusters of inter-related risks, enabling companies to assess how the presence of one risk may change the likelihood of triggering a connected risk.
The beta framework is open for feedback right now. Our work in TNFD builds on years of work with leading companies within the Taskforce on Climate-related Financial Disclosures (TCFD) on response and development, including scenario analysis. The recently proposed climate disclosure rule from the U.S. SEC is heavily informed by the TCFD. It references using climate scenarios as a way to stress-test business strategies against various potential climate futures. Earlier this year, WBCSD released a suite of resources that provides a standard, transparent approach to the use of climate scenarios to support strategic resilience assessment in the energy system, which received valuable input from the TCFD and support from our members and Bloomberg Philanthropies.
This work will bridge the gap between climate scenarios and nature by developing a set of consistent climate scenarios for land use in the food, agriculture, and forest products sectors. It addresses a need expressed in a WBCSD-conducted survey of over 20 major companies across the food and forest sectors. The survey revealed that although the vast majority of business leaders (>90%) want to use scenario analysis to inform strategy, they face significant barriers to doing so since current market scenarios don’t offer adequate levels of sector-specific information.
A coalition of leading companies – some of which include Bayer, Cargill, CMPC, Danone, DSM, International Paper, Mondi, Rabobank, Tyson Foods, Viterra and Weyerhauser – are working together to develop a set of new climate transition scenarios that are specific to these sectors by the end of the year.
Don’t let the perfect be the enemy of the good.
Amid developments in TNFD and TCFD, it may be tempting to lean back and take a “wait-and-see” approach to manage and disclose climate- and nature-related risks in an integrated manner. Our advice: don’t wait.
Leading companies are committing to ending deforestation in their supply chains, while new proven solutions, technologies and models of transparency and collaboration make these commitments achievable.
Begin embedding a holistic sustainability strategy into your business practice now. It is critical that business practitioners inform framework development to ensure they don’t pose an undue burden on reporting entities and that the resultant disclosure is helpful for investors. Perfect frameworks are elusive, while reliable and decision-useful information is not. External assurance is critical to enhancing the credibility of these disclosures, which is why the U.S. SEC’s proposed climate disclosure rule includes assurance requirements. Help is available for investors to understand how to use third-party assurance to gain insights into the quality of sustainability disclosures.
Drive progress within priority supply chains to support Scope 3 disclosures for both climate and nature, thereby improving supplier relations and resiliency. Corporates are already taking action. Leading companies are committing to ending deforestation in their supply chains, while new proven solutions, technologies and models of transparency and collaboration make these commitments achievable.
There is no net zero without nature. Capital markets and businesses can act on this now. Net zero goals from governments and businesses that now cover 90% of the world economy are considered unachievable without ending deforestation within the decade and protecting marine life that absorbs up to 30% of global carbon today.
Recognize that nature and climate are business-critical as the leaders around the world galvanize around a common destination to halve global emissions and become nature-positive by 2030. That’s eight short years away – how will your business rank by then?