Too few businesses understand the value of biodiversity — to the planet and their competitiveness. Deborah Aarts interviews Prof. Ryan Riordan, Director of Research at the Institute of Sustainable Finance at Smith School of Business, Queen’s University

Your Firm’s Most Undervalued Asset? Try Nature by Deborah Aarts. First posted on Smith Business Insight. With kind acknowledgments to Amber Wallace.

When you think of sustainability and business, your mind likely zips to climate change. By now, companies and investors are well-versed in the imperative to decarbonize and pursue net-zero objectives — whether they want to or not. 

But the planet is also facing another environmental crisis — one of biodiversity loss. Three-quarters of Earth’s land surface has been significantly altered by the actions of people; 66 per cent of ocean area now shows the effects of human activity. With their habitats transformed, degraded and/or destroyed, monitored populations of wildlife have declined by an average of 69 per cent in the past 50 years. One million of the planet’s estimated eight million species of plants and animals now face extinction. 

This is very much a business matter. Economic activity is now operating beyond the threshold of safety in six of the nine “planetary boundaries”  defined by the Stockholm Resilience Centre — zones within which humanity can thrive and sustain our development. More than half of global GDP is moderately or highly dependent on nature. The World Bank forecasts that ecosystem collapse will prompt annual declines in global GDP of 2.3 per cent by 2030. Moody’s has pegged the risk of nature loss to business in the trillions. As the authors of a 2021 Boston Consulting Group report sum it up: “Biodiversity loss has massive implications for business.” 

It’s increasingly clear that a healthy economy hinges on a healthy living planet. Yet biodiversity remains something of a missing link in corporate environmental, social and governance (ESG) strategies. In fact, fewer than one in four businesses have policies in place for how to measure, manage and mitigate their impacts and dependencies on the natural world. 

Smith Business Insight contributor Deborah Aarts spoke with Ryan Riordan, professor of finance and director of research at the Institute for Sustainable Finance housed at Smith School of Business, about the increasingly pressing need for businesses to recognize the value of biodiversity — and the competitive advantages of doing so.  

To begin, what are we talking about when we talk about biodiversity? 

From a sustainable finance perspective, what we’re talking about is healthy, intact, productive ecosystems that generate some sort of economic or social benefits for humanity. These benefits take all sorts of forms: It could be that we get clean air, that we get spaces for recreation, that we get clean water, that we have pollinated crops. 

Those are all lovely things, but how do they add value from a business point of view? 

Organizations are sitting on all these natural assets whose values are currently being reflected at zero on their balance sheets. Think about a company that owns some land that is not currently developed. They might look at that and see something that’s not producing any economic activity. But that land has great value. It’s doing a lot of things. It’s cleaning the air, it provides habitats, it might be a place for recreation. It has all these ancillary benefits. The problem is, until very recently, businesses had no framework to value that.

How is the work of the Taskforce on Nature-related Financial Disclosures (TNFD) changing that? 

The TNFD is a multinational coalition of industry experts that provides a voluntary disclosure framework for businesses and financial institutions around biodiversity. Its goal is to put some structure around how organizations can disclose and manage risks around everything related to their natural assets. You know the old adage that what gets measured gets done? In this case, it’s kind of like what gets measured gets protected, and what gets measured gets improved. 

The Institute for Sustainable Finance is, along with CPA Canada, the secretariat of the TNFD in Canada. We’re pulling together resources for businesses. We’re helping to organize some information sessions. We’re helping to collect questions and funnel them towards the global TNFD group. The TNFD only officially launched its disclosure framework late last year. Right now, we have a handful of early adopters in Canada.

Useful links:

• Link up with Ryan Riordan on LinkedIn
• Read a related article: Biodiversity and Nature-Related Financial Disclosures
• Download the Harvard-CoBS publication on climate change
• Discover Smith School of Business, Queen’s University, Canada
• Apply for an MBA at Smith.

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