Corporate efforts to confront the risk posed by global warming have become increasingly common, but the critical threat tied to loss of biodiversity has garnered much less attention by companies, warned a paper from S&P Global Ratings.
In the white paper, the rating agency examined the issue of eroding biodiversity, noting that the latest estimates from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services indicated that approximately one million of the earth’s eight million plant and animal species are currently threatened with extinction.
“Increasingly, biodiversity loss driven by habitat degradation and climate change, as well as by the introduction of invasive species and other anthropogenically-induced factors, is being recognized as a systemic risk with far-reaching consequences,” S&P said.
In particular, the agency reported that the World Economic Forum estimates that more than half of the world’s GDP is “moderately or highly dependent on nature and its services.”
Certain corporate activity is part of the problem.
For instance, the paper reported that the production of several consumer staples, namely palm oil, beef, and soy is closely connected with the loss of biodiversity.
“These soft commodities are responsible for around 70%-80% of the 10 million hectares of natural habitat that the UN Food and Agriculture Organization estimates is lost to deforestation globally each year,” the paper said.
At the same time, commercial fishing is harming marine biodiversity, it added, noting that the populations of sharks and stingrays have dropped by more than 70% since since 1970, “driven by an 18-fold increase in fishing pressure, meaning that extinction is now a near-term risk.”
Losing these sorts of species could have “far-reaching and unforeseen effects,” it said.
Yet these issues are not on the ESG radar of most investors, the paper noted. The complexity of nature, and the less direct relationship between corporate action and biodiversity loss, has helped obscure the risk, it suggested.
Moreover, while there are links between climate change and biodiversity, efforts to combat global warming won’t benefit biodiversity to the same extent, the paper said. As a result, “any nature-based climate solution should give equal consideration to biodiversity protection.”
To start, the paper said that factoring “natural capital” into assessments of wealth and performance is fundamental to addressing the loss of biodiversity.
“The complexity of nature means that capital markets are not yet truly aware of their growing exposure to biodiversity loss. In theory, nature-focused accounting can raise awareness of our use of nature for productive purposes,” said Michael Wilkins, senior research fellow, sustainable finance, S&P Global Ratings, in a release.
Among other things, the paper called for “targeted action to reduce deforestation linked to soy, beef, and palm oil,” as a key part of government and corporate efforts to address the issue.
And, it said that existing efforts by the palm oil industry to combat deforestation highlight the importance of “developing robust supply chain monitoring, a reassessment of commodity producer incentives, agreement on standards, and better use of degraded land.”
“We are starting to see tentative signs of progress to protect nature — both at a national level and among corporates,” Wilkins said. “However, any meaningful halting or reversal of biodiversity loss will require us to completely reassess our interactions with nature.”