While global economic growth has provided numerous advantages to people around the world, it has often come at a significant cost to nature. However, an increasing number of governments, financial institutions, and businesses are starting to understand that this approach jeopardizes the long-term stability of our global economy. This month, these various sectors are convening at the United Nations Conference on Biodiversity (COP16) in Colombia to tackle the escalating nature crisis, recognized as being on par with climate change and closely intertwined with it.
In response to the urgent need to confront the deterioration of nature and its effects on humanity (such as the decline in pollinators, loss of natural flood defenses, carbon storage, and access to clean water), initiatives like the Task Force on Nature-Related Financial Disclosures and the Science-Based Targets Network have emerged. These initiatives aim to enhance the measurement and reporting of the private sector’s impacts and dependencies on nature (essentially, how businesses affect nature and how much they rely on it).
A new tool, co-produced by the Natural Capital Project (NatCap) from Stanford University and the Morgan Stanley Institute for Sustainable Investing, evaluates nature-related risks and opportunities linked to companies’ physical assets. In a recent publication in Communications Earth & Environment, the research team showcases this methodology across eight biodiversity and ecosystem service metrics (the advantages ecosystems offer to humans) and applies it to over 2,000 globally traded companies with 580,000 mapped physical assets.
This ecosystem services footprinting tool delivers corporate ESG (environmental, social, and governance) metrics that focus on nature’s impacts, offering more transparency and potential for external validation than many other ESG frameworks.
“Such information can be invaluable for investors, corporations, and stakeholders in assessing and addressing corporate impacts on nature. Our hope is that it can guide more sustainable business choices, like prioritizing sites that cause the least damage to nature and society or tapping into the growing demand for sustainable investments while managing risks related to environmental impacts, such as losing the social license to operate,” stated Lisa Mandle, lead scientist and director of science-software integration at NatCap.
Additional insights include:
- On average, companies in the utility, real estate, materials, and financial industries exert the most substantial impacts, although there’s considerable variation across all sectors.
- For instance, the team analyzed a selection of lithium mines, crucial for the renewable energy shift. By utilizing satellite imagery, they assessed the spatial footprint of these mines and their locations to evaluate the implications for specific ecosystem benefits for humanity. This analysis can indicate where to source resources with minimal environmental and social impact.
- Focusing solely on the biodiversity impacts of corporations fails to capture their broader effects on essential ecosystem services, such as water quality or the mitigation of coastal flooding. The findings underscore the necessity of high-resolution spatial data and an understanding of both biodiversity and ecosystem service values for a comprehensive assessment of corporate impacts on nature. Framing these impacts in terms of ecosystem services highlights the potential repercussions for companies, the economy, and society, often making these insights more relevant than merely assessing biodiversity impact.
- This methodology has the potential to enhance ESG metrics, providing a more thorough evaluation of the societal significance of companies’ environmental impacts, rather than just focusing on the risks posed to them.
“We aim for this open-source tool to broaden the accessibility of natural capital analytics, strengthen the connection between finance and nature-related valuations, and drive the market through enhanced innovation,” expressed Matthew Slovik, managing director and head of global sustainable finance at Morgan Stanley.
