Managing nature risks: From understanding to action

Three things to do now

It may not be long before nature-related issues affect your company’s bottom line. For that reason, we recommend that executives place nature on a par with climate change in their risk assessments. Forward-thinking leaders will look for possibilities to create nature-positive business models that don’t just mitigate risks but also strengthen financial returns and benefit society. They might also find opportunities to deal with climate priorities and nature priorities at once. For example, many nature-based solutions to climate change, such as reforestation, help capture emissions while also enhancing biodiversity, directing capital to developing economies, and supporting indigenous peoples and local communities.

Regardless of whether they prioritize risk mitigation, value creation, or both, all executives stand to gain from taking three actions to manage their company’s nature dependence:

Measure your nature baseline. As in other realms, a good step toward effective management of nature is assessing baseline performance, or the extent of a company’s nature dependence and impacts. Various resources can help you set a nature baseline at multiple levels of detail. For instance, the Integrated Biodiversity Assessment Tool (IBAT), the ENCORE database, and the Aqueduct water-risk tools can help identify potential impacts and dependencies at the regional level; and new technologies such as low-cost environmental DNA (eDNA) sampling can enable accurate site-level monitoring of changes in biodiversity. Then, executives can translate material dependencies and impacts into risks and opportunities. Risks can be inferred by playing out scenarios in which an ecosystem failure disrupts business operations. One apparel company we know applied a combination of qualitative and quantitative measures to gauge nature dependencies and impacts throughout its value chain. That information helped the company find opportunities to reduce nature impacts, along with operating costs, by increasing its use of recycled materials.

Improve decision-making and transparency with better data. To manage nature dependencies and impacts well, you will need highly reliable data sources, systems, and controls. These resources will also help with meeting disclosure requirements and explaining to investors and other stakeholders why you’re choosing to pay attention to nature issues. That said, the same resources could take some time to put in place, so leaders should plan accordingly. CDP, an organization that benchmarks corporate sustainability reports, estimates that companies need 12 to 18 months to prepare for partial nature-related disclosures, and two to three years to get ready for full disclosure. The process might involve accounting for site-specific requirements, given that nature-related risks and opportunities can be highly localized.

Set ambitions to manage risk and capture opportunity. Once you know your company’s baseline levels of nature dependence and impact, you can set goals for mitigating risk and creating value by better managing interactions with nature. The Science Based Targets Network (SBTN) provides one framework for companies to formalize their nature ambitions using scientific measures of various outcomes. In more general terms, levels of ambition range from “do less harm” to “cause no net biodiversity loss within own operations” to “achieve a net positive impact on biodiversity along the value chain.” An example of how companies progress from assessing dependencies to setting ambitions can be found in Kering, a luxury goods group. When Kering conducted a land-use valuation exercise, it found that conventional agricultural practices in its supply chain were degrading ecosystem services on which the company depended. In June 2020, Kering published its biodiversity strategy, committed to have a net positive impact on biodiversity by 2025 and launched a fund to pay for implementing regenerative agriculture (a practice that seeks to make working farms into healthy ecosystems) on 1 million hectares by the same year.