The Biodiversity Consultancy - The Financial Materiality of Nature Loss
The Financial Materiality of Nature Loss
The Biodiversity Consultancy (TBC) joins science with business to develop robust and pragmatic approaches to measure and manage the financial materiality of nature loss. We partner with both standard setters and pioneering clients to deliver approaches that are decision useful. Our dedicated nature specialists translate and apply the latest science to clear commercial implications, advising forward-thinking companies and financial institutions about how to incorporate nature into their business and operating models.
Why the state of nature is critical
Transition risks and opportunities, e.g. Policy
Nature is the world’s most precious asset. It provides vital goods and services upon which the global economy relies, but it is under increasing threat. This degradation can result in serious financial impacts to businesses and their financiers if not assessed and managed. It is an irreplaceable part of every supply chain. Ecosystem services provide inputs, system stability, enabling conditions and more for economic activities. Some businesses are more at risk than others. 55% of global GDP is moderately or highly dependent on nature.
e.g. water pollution Impact
Capital at risk
Nature
Business
Finance
Dependencies
Financial Return
e.g. water supply
Physical risks and opportunities, e.g. impaired water supply
How nature is financially material
Unsustainable business practices are degrading nature, disrupting the flow of ecosystem services. This results in a range of adverse environmental impacts, e.g. crop failure, extreme weather, natural disasters, that disrupt supply chains and increase risks to economic activities. The decline of nature causes significant financial risks and opportunities (e.g. disrupting operations, stranding assets, changing revenues and costs, impacting the cost of capital). These risks and opportunities are primarily ‘physical’ (a result of nature loss) and ‘transition’ (a response to nature loss, e.g. from policy change). The financial impacts tied to nature can be considered its financial materiality.
Stock
Value
Benefits to business and society
Nature
Flow
Ecosystem Services
Impacts on the state of nature Adapted from Capital Conditions
Navigating nature-related financial materiality
Awareness of nature-related risks and opportunities (R&O) within your supply chains and portfolios. Consider the potential impacts these nature-related exposures could have. Understand
Assess
Measure
Align
Respond
Align with industry standards and frameworks and voluntary disclosure, e.g. TNFD, CSRD. Future-proof reporting and have comparable benchmarks.
Develop and execute actions that manage nature-related risks and grasp opportunities, concentrating on the issues of most financial importance.
Define key metrics for measuring and monitoring nature - related exposures over time. Integrate nature into existing due diligence, reporting systems and financial models.
Assess level of nature-related R&O across value chains and portfolios. Prioritise areas with the greatest exposure. Financial materiality assessment on priorities.
How TBC approaches financial materiality assessment to inform action
Our approach to identifying, measuring and acting on nature-related risk and opportunities (R&O) is detailed by material we developed in partnership with our financial sector clients. It follows the industry leading approaches of Barclays and CISL (which our team helped define). This approach has been published by TNFD as a complement to their LEAP method and has been used with corporate and financial institutions considered leaders on the nature theme. Logos of those we have worked with on nature-related dependencies, impacts, risks and opportunities can be found below.
Assessing Risk and Opportunities
Step 1 Screening of R&Os for all assets
Step 2 Turning insight into strategy
Step 3 Embedding nature into business
Understand sector/location specific R&Os
Initial Understanding of R&Os
Understand critical dependencies
Inclusion of location-specific consideration
Inclusion of financial materiality consideration
Range of metrics using sector-specific guidance
Location-specific data (e.g. Ecoregion, Intactness Index, Cropland, Expansion)
Inclusion of future scenario data (e.g. from academic papers/models)
e.g. SBTN high impact commodities, ENCORE
Supply chain / sector risk management
Procurement decisions CAPEX Credit risk assesments, allocation decisions and financing terms. Capital allocation decisions
Risk Screening CSRD Resource Planning
Supplier & transaction due diligence and policies Client / supplier questionnaries
Some of the clients TBC works with :
Our assessment of financial materiality spans commodities, geographies, and types of finance. The assessments are both scientifically robust and commercially pragmatic by: Connecting our deep knowledge about the state of nature with the business and financial worlds; Connecting sustainability teams with commercial teams (e.g. treasury); and Supporting our clients to demonstrate the financial materiality of nature in the most cost-effective way, by navigating toward the most significant R&O.
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