Unlocking Business Value Through Biodiversity: Strategies, Risks, and Opportunities

Biodiversity is more than an ecological issue – it's a central factor for business success. Companies benefit from healthy ecosystems, whether through pollination, water purification, or climate regulation. However, the loss of biological diversity poses risks: rising costs, supply shortages, reputational damage, and stricter regulations like the EU Biodiversity Strategy 2030 or the CSRD.

What matters most?

• Opportunities: More efficient resource use, new business models like Biodiversity Credits, and competitive advantages through sustainable strategies.
• Risks: Physical, regulatory, and reputational risks from biodiversity loss.
• Solutions: Tools like Natural Capital Accounting or biodiversity footprints help make dependencies and impacts measurable.

Companies that integrate biodiversity into their ESG strategies secure long-term economic advantages and strengthen their market position. The key lies in analyzing, evaluating, and strategically managing risks and opportunities.

Biodiversity: New Metric for Business & Finance with Arne Philipp Klug from MSCI | Episode 29

Tools and Frameworks for Measuring Biodiversity Dependencies

Although only 5% of approximately 400 analyzed companies measure their impacts on nature and merely 1% know their dependencies, there are now proven tools that help make the connections between business activities and natural ecosystems visible. These tools enable biodiversity to be integrated as a measurable factor in corporate management. Below, we present some approaches that create transparency and management capabilities.

Natural Capital Accounting

Natural Capital Accounting (NCA) provides a standardized framework for systematically capturing and reporting on natural capital and ecosystem services. The international standard for this is the UN SEEA (System of Environmental-Economic Accounting), which was expanded in 2021 to include Ecosystem Accounting.

For companies, Corporate Natural Capital Accounting (CNCA) is particularly relevant. This method includes seven standardized steps to create comprehensive datasets that support nature-related decisions.

A look at practice: 92 countries already use national natural capital accounts according to SEEA standards. This database can be used by companies for their own assessments. CNCA data helps evaluate, manage, and disclose nature-related risks and opportunities – in line with the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD).

A major advantage: Through standardized definitions and procedures, results become comparable. Companies can benchmark their natural capital assessments across industries and set benchmarks.

Biodiversity Footprint

In addition to the comprehensive approach of Natural Capital Accounting, there are specific tools for analyzing biodiversity impacts along the value chain. One example is the Global Biodiversity Score, which uses scientific indicators to measure both direct and indirect impacts on biodiversity.

A particular benefit lies in identifying hotspots: Companies can find out which business areas, locations, or suppliers have the greatest impact on biodiversity. This allows measures to be targeted and resources to be used efficiently.

These tools can often be seamlessly integrated into existing management systems. Many offer interfaces to common ERP systems or sustainability platforms, which significantly facilitates implementation in operational business.

Valuation of Ecosystem Services

The monetary valuation of ecosystem services addresses a central point: it assigns concrete monetary value to nature's benefits. Methods such as willingness-to-pay analysis, the replacement cost method, or the production function approach make services like carbon storage, water regulation, or pollination tangible and connect them with business metrics.

These approaches can be well combined with Natural Capital Accounting. Practical examples show the added value: A water supplier evaluates the purification power of wetlands, a food manufacturer calculates the value of pollination for its raw materials, and a tourism company measures the recreational value of pristine landscapes.

Challenges often exist in accessing high-quality and relevant data as well as in internal capacity to use this for decisions. Platforms like the UN Global Platform, the TNFD's Global Nature-Related Public Data Facility, or ARIES for SEEA are working to close these gaps and facilitate access for companies.

Collaboration between companies and government NCA initiatives plays a key role here. It increases awareness of environmental data in economic decisions and creates synergies that reduce the effort for data collection and processing. These foundations are crucial for integration into ESG and climate strategies.

Methods for Assessing Biodiversity Risks and Opportunities

Once tools are used to make biodiversity dependencies measurable, the next step is assessing the associated risks and opportunities. This systematic analysis opens up the possibility for companies to strategically integrate biodiversity as a value driver into their planning.

Materiality Analyses for Biodiversity

Materiality analysis forms the foundation for an effective biodiversity strategy. It helps identify the topics that are most relevant for both the company and its stakeholders. This considers so-called double materiality: Which biodiversity aspects – from land use changes to water consumption to positive effects like restoration projects – are both financially significant and likely in their impact?

A proven method in this process is hotspot analysis, which identifies geographical regions and business areas with particularly high biodiversity risks. Companies draw on databases like the Integrated Biodiversity Assessment Tool (IBAT) or ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) to match their activities with sensitive areas.

Another important step is engaging stakeholders like investors, customers, or NGOs. This not only helps close gaps in relevance assessment but also ensures higher acceptance of subsequently implemented measures. Building on these insights, scenario analyses and impact modeling are used to evaluate possible future developments.

Scenario Analysis and Impact Modeling

Scenario analyses go beyond the "business-as-usual" model and consider alternative future paths, such as with enhanced protection measures or technological advances. This examines dynamic feedback effects between business activities and ecosystems – often with the help of modern technologies like machine learning and satellite imagery.

An example of this is the Global Forest Watch platform, which enables companies to monitor deforestation in real-time along their supply chains. Such tools create transparency and help identify risks early.

Dynamic models also consider interactions. For example, a food manufacturer switching to biodiversity-friendly sourcing practices could trigger positive effects on pollinator populations in the region, which in turn could increase crop yields.

Particularly important is the combination of climate change and biodiversity scenarios. Rising temperatures, changing precipitation patterns, and extreme weather events affect ecosystems as well as the business foundations of many companies. These models create the basis for specifically assessing and prioritizing risks and opportunities.

Risk and Opportunity Categories

Biodiversity-related business risks can be divided into three main categories, each requiring different management approaches:

• Physical risks: These risks arise from direct dependence on ecosystem services, such as crop failures, water scarcity, or raw material shortages. They are often regionally concentrated and can be reduced, for example, through supply chain diversification.
• Transition risks: These involve risks arising from changed market conditions or regulatory requirements. The EU Taxonomy and the planned Supply Chain Act increase pressure on companies to disclose and minimize their impacts on biodiversity. Companies that react early can secure competitive advantages and avoid penalties.
• Reputational risks: Negative media reports or campaigns by environmental organizations can damage brand image. Social media amplifies these risks as critical content spreads quickly. At the same time, transparent communication about credible measures offers the opportunity to strengthen public trust.

On the opportunity side, numerous possibilities also emerge:

• Innovation opportunities: Companies can tap into new markets by developing biodiversity-friendly products and services.
• Market differentiation: Credible communication about positive contributions to biodiversity can help differentiate from competitors.
• Cost reductions: Efficient resource use and reduced dependence on natural resources make companies less vulnerable to price fluctuations and supply shortages.
• New business models: Nature conservation and restoration offer potential for new markets. For example, Carbon Credits or Biodiversity Credits create additional revenue streams.

The systematic categorization of these risks and opportunities is an important step in integrating biodiversity into comprehensive ESG strategies. This way, companies can use biodiversity not only as a challenge but also as a strategic success factor.

Integration of Biodiversity into ESG Strategies

Incorporating biodiversity aspects into ESG frameworks requires new approaches and comprehensive alignment with corporate strategy. While established metrics and methods already exist for climate protection, the development of comparable standards for biodiversity is still in its early stages. This integration forms the foundation for subsequent considerations on goal setting and linking with climate strategies.

Biodiversity in ESG Reporting and Compliance

New reporting obligations like the CSRD require detailed disclosure of impacts on ecosystems. Companies must transparently present both financial risks and negative environmental impacts, making modern data and analysis tools indispensable.

The EU Taxonomy stipulates that activities classified as sustainable must not have significant negative effects on the environment. Additionally, the Task Force on Nature-related Financial Disclosures (TNFD) provides guidelines for systematically capturing and reporting nature-related risks. This considers key elements like governance, strategy, risk management, and specific metrics.

Setting Biodiversity Goals and Performance Measurement

After clarifying reporting obligations, the next step lies in defining tangible biodiversity goals. Unlike climate goals, which are often globally comparable, biodiversity goals require stronger consideration of regional conditions and specific environmental factors. Science-based approaches focus on avoiding, minimizing negative impacts, and restoring damaged ecosystems.

Measurable indicators play a key role here. Beyond classic environmental metrics, methods like biodiversity assessment or ecological footprint analysis along the value chain can help precisely capture the state of biodiversity and measure progress.

Linking Climate and Biodiversity Strategies

Climate protection and biodiversity are closely intertwined – integrated strategies are therefore becoming increasingly important. Nature-based solutions, such as reforestation or restoration projects, can support both goals simultaneously: they bind carbon while creating habitats for numerous species.

However, CO₂ reduction measures can also have negative impacts on biodiversity. Careful consideration of such goal conflicts is essential. A holistic governance approach that links climate and biodiversity strategies helps here. This establishes biodiversity as a central component of a successful ESG strategy.

Regulatory Environment and Future Trends

After previously addressing the capture and integration of biodiversity risks, this section focuses on the changing regulatory environment and upcoming developments. Regulation in the biodiversity area is gaining increasing importance and presents companies with new challenges. While the focus was long on climate protection, protecting species diversity is increasingly moving to the center of political decisions. This doesn't happen without reason, as biodiversity loss has tangible economic impacts. The following focuses on EU and German regulations.

EU and German Biodiversity Regulation

The EU Biodiversity Strategy 2030 sets new standards: it aims to protect significant land and marine areas and restore damaged ecosystems. Companies will therefore have to meet stricter requirements regarding land use and resource conservation in the future. In Germany, the Supply Chain Due Diligence Act complements these developments. It requires companies to more strongly incorporate environmental risks – including those associated with biodiversity loss – into their due diligence obligations. These regulations not only influence corporate practice but also shape the expectations of investors, consumers, and other stakeholders.

Stakeholder Expectations and Market Trends

Investors are increasingly focusing on nature-based investment criteria and demanding more transparency on biodiversity-related risks. At the same time, consumer environmental awareness is growing, motivating companies to further develop their biodiversity strategies. Within supply chains, pressure is increasing to make sustainable procurement practices clear and traceable. Financial institutions are also working to integrate biodiversity risks into their credit assessment models. Technological advances also enable even more precise metrics and analyses to be provided in the future.

Future Developments in Biodiversity Metrics

Currently, numerous initiatives are underway to standardize goals and metrics in the biodiversity area. Advances in technologies like artificial intelligence and satellite monitoring could help capture changes in ecosystems even more precisely. In parallel, tools are emerging that enable transparent traceability of sustainable raw materials along the supply chain. These developments help integrate biodiversity aspects more strongly into financial reporting and thus create the foundation for informed decisions.

Conclusion: Creating Business Value Through Biodiversity

The importance of biodiversity for companies can no longer be overlooked today. Those who systematically capture and evaluate dependencies on natural capital can gain clear advantages in an increasingly regulated world. The ability to recognize risks and exploit opportunities becomes the decisive success factor.

A thoughtful approach to biodiversity requires a comprehensive approach. The assessment methods mentioned above offer companies the opportunity to make hidden dependencies visible while simultaneously opening up new business areas. They form the foundation for meaningfully linking measures around biodiversity and climate – and thus achieving double effects.

Linking these thematic areas opens up synergies that not only improve ESG performance but also create long-term competitive advantages. Successful companies will be those that don't see biodiversity as a mere cost center but as a strategic value driver. With the progressive standardization of metrics and their integration into financial reporting, a proactive approach becomes increasingly important.

The future belongs to those who design their business models to be in harmony with natural systems – while creating both ecological and economic value. The strategies and tools presented show how companies can take this path while sustainably securing their business success.

FAQs

How can companies benefit from considering biodiversity in their ESG strategies?

Integrating biodiversity into your ESG strategies brings you a variety of benefits. You not only strengthen your resilience against risks but also improve your brand image while meeting increasing regulatory requirements. Additionally, you can stabilize your supply chains and create long-term sustainable value.

Another advantage: Measures to promote biodiversity create space for new ideas, jobs, and better adaptation to future challenges. Companies that actively integrate biodiversity into their strategies send a strong signal for sustainable development and secure a clear advantage in a market that is becoming increasingly environmentally conscious.

What hurdles do companies face when implementing Natural Capital Accounting and biodiversity footprint assessment?

Companies in Germany face several challenges when it comes to integrating Natural Capital Accounting and biodiversity footprint assessment into their processes. Often there's a lack of sufficiently available and high-quality data. Added to this are the often complex methods for valuing nature and biodiversity in monetary terms, as well as the need to adapt to national standards and legal requirements.

However, these obstacles can be overcome: Targeted optimization of data collection, development of suitable valuation methods, and close collaboration with relevant stakeholders can be decisive here. When these approaches are also clearly integrated into corporate strategy, not only can long-term sustainable values be created, but potential risks can also be effectively reduced.

What significance does the EU Biodiversity Strategy 2030 have for companies and their sustainability goals?

The EU Biodiversity Strategy 2030 is a cornerstone of the European Green Deal and pursues the goal of protecting nature and making Europe climate-neutral by 2050. Companies are expected to better understand their dependencies on biodiversity and actively take measures.

A core goal of the strategy is to restore 20% of damaged nature by 2030. Extended reporting obligations like the Corporate Sustainability Reporting Directive (CSRD) play a central role here. The associated sustainability standard ESRS E4 requires companies to assess biodiversity-related risks and integrate concrete goals into their strategies.

Implementing these requirements offers companies not only the opportunity to meet regulatory requirements but also to create long-term sustainable value and strengthen their competitiveness.