The Biodiversity Consultancy Financial Materiality
Where business and nature thrive
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 the latest science into clear commercial implications, advising forward-thinking companies and financial institutions about how to incorporate nature into their business and operating models. The Financial Materiality of Nature Loss
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, storm surges, water shortages, 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.
Impacts on the state of nature Adapted from Capital Conditions
O E
Transition risks and opportunities (e.g. Policy)
Why the State of Nature is Critical
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.
Impact e . g . water pollution
Capital at risk
BUSINESS
FINANCE
NATURE
Financial Return
Dependencies e . g . water supply
Physical risks and opportunities (e.g. impaired water supply)
Navigating Nature-Related Financial Materiality
UNDERSTAND
ASSESS
MEASURE
ALIGN
RESPOND
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.
Assess level of nature-related R&O across value chains and portfolios. Prioritise areas with the greatest exposure. Financial materiality assessment on priorities.
Define key metrics for measuring and monitoring
Align with industry standards and frameworks and voluntary disclosure, e.g. TNFD, CSRD.
Develop and execute actions that manage nature-related risks and grasp opportunities, concentrating on the issues of most financial importance.
nature-related exposures over time.
Future-proof reporting and have
Integrate nature into existing due diligence, reporting systems and financial models.
comparable benchmarks.
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
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Turning insight into strategy
Embedding nature into business
Screening of R&Os for all assets
Understand sector/ location specific R&Os
Understand critical dependencies
Initial Understanding of R&Os
Range of metrics using sector-specific guidance
Inclusion of location-specific consideration
Inclusion of financial materiality consideration
e.g. SBTN high impact commodities, ENCORE
Location-specific data (e.g. Ecoregion, Intactness Index, Cropland, Expansion)
Inclusion of future scenario data (e.g. from academic papers/models)
Risk Screening CSRD Resource Planning
Supply chain / sector risk management Supplier & transaction due diligence and policies Client / supplier questionnaires
Capital allocation decisions Procurement decisions CAPEX Credit risk assessments, allocation decisions and financing terms.
Some of the clients TBC works with:
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.
Our assessment of financial materiality spans commodities, geographies, and types of finance.
Contact the team For more information about our services
Grant Rudgley, Business Director grant.rudgley@thebiodiversityconsultancy.com
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