Written by: Akanksha Khatri
At the World Economic Forum’s Annual Meeting in Davos in January this year, there was unprecedented interest in and commitment to fighting the climate and nature emergencies facing humanity. Although the world’s 7.6 billion people represent just 0.01% of all living things by weight, humanity has already caused the loss of 83% of all wild mammals and half of all plants. Supporting the concept of stakeholder capitalism, leading CEOs, government leaders and heads of civil society organizations came together in the Swiss Alps to galvanize support for an integrated nature action agenda across the issues of climate, biodiversity, forests, oceans and sustainable development.
Despite increasing attention on the topic of nature loss, there is still limited understanding on how nature loss can be material to businesses and what the private sector can do to address this challenge. The World Economic Forum is launching a series of New Nature Economy (NNE) reports in 2020, making a business and economic case for safeguarding nature. Nature Risk Rising, the first of the NNE series, aims to show how nature-related risks are material to business and why they must be urgently mainstreamed in risk-management strategies.
Here are the five key lessons from the Nature Risk Rising report:
1. Economic growth has come at a heavy cost to natural systems
The economic growth model of the 19th and 20th centuries has brought remarkable development and prosperity. Globally, we produce more food and energy than ever before. The human population has doubled, the global economy has expanded four-fold and more than a billion people have been lifted out of extreme poverty.
However, we have caused great harm to the planet. Three-quarters of ice-free land and 66% of the marine environment have been altered and 1 million species are at the risk of extinction in the coming decades, mostly due to human activities.
2. Five direct drivers are responsible for 90% of nature loss
Five direct drivers of change in nature have accounted for over 90% of nature loss in the past 50 years. Namely, land-and-sea-use change, natural resource exploitation, climate change, pollution and invasive alien species. These five drivers ultimately stem from a combination of production and consumption patterns, population dynamics and other human activities.
There is often a dissonance between economics and earth system science. While present economic frameworks see nature as an externality, nothing could be further from the truth. The global economy is embedded in Earth’s broader ecosystems and is dependent upon them.
When focused on measuring progress against the single indicator of gross domestic product (GDP), we risk failing to recognize and prevent the loss of our ecological foundations.
3. Nature loss is often hidden
Nature is often hidden or incorrectly priced in supply chains, blurring the link between nature loss and the bottom line. There are three ways in which the loss of nature creates risks for businesses:
i. Dependence of business on nature: Businesses depend directly on nature for their operations, supply chain performance, real estate asset values, physical security and business continuity. Our research shows that $44 trillion of economic value generation – over half the world’s total GDP – is moderately or highly dependent on nature and its services, and is therefore exposed to risks from nature loss. Together, the three largest sectors (construction, agriculture, and food and beverages) that are highly dependent on nature generate close to $8 trillion of gross value-added (GVA). This is roughly twice the size of the German economy.
ii. Fallout of business impacts on nature: The direct and indirect impacts of business activities on nature loss could trigger negative consequences, such as losing customers or entire markets, costly legal action and adverse regulatory changes. Consumers and investors are becoming increasingly aware of the environmental damage caused by industries and are demanding action. Companies that stay at the forefront of this shift in consumer consciousness and preferences stand to benefit.
iii. Impacts of nature loss on society: When nature loss aggravates the disruption of the society in which businesses operate, this can in turn create physical and market risks. For instance, the degradation and loss of natural systems can affect health outcomes. The onset of infectious diseases has been connected to ecosystem disturbances, including the strong links between deforestation and outbreaks of animal-transmitted diseases such as Ebola and the Zika virus.
4. A risks framework for nature
As the global community works towards transitioning to a nature-positive economy, an urgent reframing of the financial materiality of nature risks is required. The climate change agenda leveraged the Task Force on Climate-related Financial Disclosures (TCFD) framework to tackle this issue. Over 870 organizations – including companies with a combined market cap of over $9.2 trillion and financial institutions responsible for assets of nearly $118 trillion – have signed up to support the TCFD. A similar initiative – that draws lessons from the TCFD and which is backed by public and private stakeholders – is now needed for nature.
5. Business as champions for nature
As we are facing an unprecedented planetary emergency, businesses have an important role to innovate and advance solutions for a nature-positive economy and society. Some economies have shown how nature and business can work hand in hand. Costa Rica, for one, has in the last three decades stopped tropical deforestation, doubled its forest cover and reached near 100% renewable electric energy while GDP per capita has tripled. By realizing how nature-loss is material to their operations and growth models, businesses can and must be a key part of the solution. As the trend for greater transparency and accountability continues, costs are likely to rise for businesses which have not begun to include nature at the core of their enterprise operations. The World Economic Forum along with key partners and constituents will be furthering a business for nature mobilization to halt biodiversity loss and invest in nature over the coming years. The next steps are to identify the areas where strategic transformation of current business models can contribute most to halting and reversing nature loss, and the ways to finance this transition.
Republished with permission from World Economic Forum