Key Insights:
- Assessments made by Morningstar Sustainalytics’ Biodiversity and Natural Capital Stewardship Program reveal that the majority of private sector companies are only at the very beginning of their journey in managing risks posed by biodiversity loss.
- Looking through the lens of governance, although 43 out of the 50 companies in the program recognize biodiversity as a material issue, only 26 have board-level oversight of the topic.
- A similar trend holds when assessing companies’ strategies to address their nature and biodiversity risks. While 40 of the engaged companies have made a high-level commitment to addressing nature and biodiversity loss, only around half of these (21) companies have set out a strategic approach to address the issue.
The UN’s upcoming 16th session of the Conference of the Parties (COP16) on October 21, 2024, marks a critical juncture as the first biodiversity-focused conference since the adoption of the Biodiversity Plan, formally known as the Kunming-Montreal Global Biodiversity Framework (GBF) at COP15 in December 2022.
Dubbed the “implementation COP,” COP16 will focus on evaluating progress since then and exploring proposals to implement the Biodiversity Plan. Ahead of the conference, countries are expected to revise their National Biodiversity Strategies and Action Plans (NBSAPs) to align with global biodiversity goals. Key discussions will include operationalizing the monitoring framework to track progress against targets and mobilizing financial resources.
This article highlights the key role of the private sector in addressing biodiversity loss ahead of the October summit. It leverages data from our engagement program to reveal how companies recognize biodiversity as a material issue, whether they give the issue board-level oversite, and whether they have a strategic approach to addressing nature and biodiversity loss. It concludes by stressing the need for comprehensive regulatory support to ensure continued progress.
The Importance of Private Sector Participation
There is growing acknowledgement of the severe economic risks posed by biodiversity loss. The World Economic Forum’s latest Global Risks Report identifies biodiversity loss and ecosystem collapse as the third most severe risk over the next ten years.1 All businesses, directly or indirectly, rely on biodiversity. Yet, they have also been major contributors to the decline in biodiversity; for example, through land use change due to agricultural expansion.2 As a result, businesses also play a central role in halting and reversing biodiversity loss.
However, with insufficient regulatory and market signals, the decline in biodiversity has gone unchecked and has even been incentivized through harmful subsidies.3 A proactive approach, including regulatory frameworks that motivate businesses to reduce negative impacts and implement actions to protect and restore biodiversity, is essential. Publicly advocating for ambitious policies is one important step businesses can take to drive the systems change needed.
The significant presence of the private sector at COP15 sent a powerful message to governments that businesses recognize the critical importance of biodiversity and the need for clear regulations to drive meaningful action. Their presence encouraged the assignment of explicit roles and responsibilities to businesses, such as Target 15, which requires businesses to disclose and reduce biodiversity-related risks and impacts.
To sustain this momentum, companies and financial institutions must continue to support ambitious outcomes. It is encouraging to see that over 130 businesses, representing USD 1.1 trillion in revenue, are urging governments to strengthen policy ambition and accelerate the Biodiversity Plan’s implementation.4 This collective action underscores a growing commitment within the private sector to align financial flows with biodiversity goals.
Progress Since COP15
COP15’s Biodiversity Plan called on the private sector to assess and disclose their risks, dependencies and impacts on biodiversity. Since then, various new regulations, frameworks and coalitions have emerged to facilitate this shift. Examples include:
- Biodiversity Disclosure Requirements: The Corporate Sustainability Reporting Directive (CSRD) mandates biodiversity disclosure for in-scope companies.5
- Taskforce on Nature-related Financial Disclosures (TNFD): Over 400 companies have signaled their intent to adopt the TNFD recommendations.6
- Science-Based Targets Network (SBTN): SBTN has published guidance for companies to assess their most significant impacts on nature and set science-based targets. A few proactive companies have already participated in SBTN pilot programs.7
- Business for Nature Coalition: The “Now for Nature” campaign encourages organizations to develop and publish nature strategies. This global campaign released a list of companies’ strategies to reduce negative impacts on nature.8
The Current State: Most Companies Are Just Beginning to Manage Biodiversity-Related Risks
Morningstar Sustainalytics’ Biodiversity and Natural Capital Stewardship Program engages with 50 companies to manage their biodiversity-related risks. However, our assessments reveal that the majority are only at the very beginning of their journey.
For instance, looking through the lens of governance, although 43 out of the 50 companies recognize biodiversity as a material issue, only 26 have board-level oversight of the topic (see Figure 1 below). This number drops to just three companies when assessing whether there is board-level expertise to address biodiversity-related risks and opportunities. Yet, establishing strong governance structures and building board-level expertise are critical steps for companies to effectively align their operations with biodiversity goals and take transformative actions over time.
Figure 1. Number of Companies With Governance and Expertise on Biodiversity-Related Issues
Source: Morningstar Sustainalytics. For informational purposes only.
A similar trend is observed when assessing companies’ strategies to address their nature and biodiversity risks. While 40 of the engaged companies have made a high-level commitment to addressing nature and biodiversity loss, only around half of these (21) companies have set out a strategic approach to address the issue (Figure 2). Developing a strategic approach, based on an understanding of the business’ impacts and dependencies on nature, that outlines clear actions to deliver on commitments is essential to drive meaningful impact.
Figure 2. Number of Companies With a Strategic Approach to Address Nature and Biodiversity Loss
Source: Morningstar Sustainalytics. For informational purposes only.
Conclusion: Opportunities and Responsibilities
Despite progress in private sector action on biodiversity over the past two years, Morningstar Sustainalytics’ Stewardship Program highlights that many companies are still in the early stages of addressing biodiversity risks, as reflected by the lack of governance, board-level expertise, and strategic approaches to address the issue.
As we approach COP16, collaboration between governments and the private sector will be critical for the successful implementation of the Biodiversity Plan. Ultimately, governments must implement the Biodiversity Plan in ways that accelerate business action and enable the alignment of financial flows to halt and reverse nature loss. This includes eliminating harmful subsidies, scaling up positive incentives, and integrating biodiversity into relevant policies and regulations. Countries’ NBSAPs will be the primary tool to formalize the roles and responsibilities of non-state actors, such as businesses. While the private sector has a crucial role in leveraging finance and investing in biodiversity, clear governmental frameworks and policies will be essential to guide and support these efforts.
References
- World Economic Forum. 2024. “The Global Risks Report 2024.” January 10, 2024. https://www.weforum.org/publications/global-risks-report-2024/.
- IPBES. 2019. “Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. IPBES secretariat, Bonn, Germany.
- UNEP. 2023. “State of Finance for Nature: The Big Nature Turnaround – Repurposing $7 trillion to combat nature loss.” December 9, 2023. https://www.unep.org/resources/state-finance-nature-2023.
- Business for Nature. 2024. “More than 130 businesses and financial institutions call for renewed policy ambition to implement the Biodiversity Plan and halt and reverse nature loss this decade.” https://www.businessfornature.org/business-statement.
- Carabia, A. 2023. “Implications of CSRD: What the Final Standards Mean for Investors and Issuers.” October 25, 2023. https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/implications-of-csrd--what-the-final-standards-mean-for-investors-and-issuers.
- Taskforce on Nature-related Financial Disclosures. 2024. “TNFD adoption now over 400 organisations and new sector guidance released.” June 28, 2024. https://tnfd.global/tnfd-adoption-now-over-400-organisations-and-new-sector-guidance-released/.
- Science Based Targets Network. 2024. “Leading the way: Initial learnings from SBTN’s target validation pilot.” https://sciencebasedtargetsnetwork.org/case-studies/leading-the-way-initial-learnings-from-sbtns-target-validation-pilot/.
- Business for Nature. 2024. “First nature strategies featured as part of ‘It’s Now for Nature’.” https://nowfornature.org/news/first-nature-strategies/.
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