Business can no longer ignore the importance of nature to their operations and reputation. Land degradation, water shortages, pollution, and more frequent and destructive natural disasters are risks that can force companies to increase prices, find new suppliers, and even shut down. Investors and regulators are pushing for more transparency about these nature-related financial risks. Fortunately, efforts are underway to provide companies with the tools they need to measure and address them.
Nature in Peril
Global economic growth has helped lift millions out of poverty, but the improvements came at a high cost to nature. Human activity altered 75% of the earth’s land and 66% of its marine environments, destroying much of the world’s wetlands and coral reefs. Almost a million species are now on the brink of extinction.
The devastation to nature has contributed to global warming, forced migrations, and more severe and frequent floods, wildfires, and natural disasters. Over 3.5 billion people now live in places with inadequate access to water, and 1.2 billion people are in communities at risk for floods. The World Economic Forum’s 2020 Global Risks Report ranked the loss of biodiversity and ecosystem collapse as one of the top five threats humanity is likely to face in the next 10 years.
The shortages and extreme weather could have a massive impact on human health and safety as well as global productivity. Over half the world’s economic output ($44 trillion) is highly or moderately dependent on nature. While the agriculture, construction, and food and beverage industries are most dependent on water, shortages and natural disasters impact every sector.
“Business has long seen nature as a side issue,” said David Craig, co-chair of the Taskforce on Nature-related Financial Disclosure. “But in the last 12 months, companies and the financial world have recognized that nature is being destroyed faster than can be sustained. They now see that the connections between economic activity and the natural system are far more material and direct than we had thought.”
Ignoring nature also could harm a company’s reputation. New research by the Oliver Wyman Forum finds that a growing segment of consumers expect business to do more to protect the environment. This group now accounts for 13% of consumers globally, including 20% in Germany, 16% in France, Italy, and the United Kingdom, but only 7% in the United States.
Almost three-quarters of these individuals are less likely to buy products from companies that are not committed to solving climate change. About a third already have boycotted specific businesses, and almost half expect to if companies don’t change.
Governments are becoming more aware of the risks to nature and its importance in solving the climate crisis. Forests, for example, help moderate floods and are important repositories of carbon dioxide. This sequestration will need to double by 2030 to limit global warming to 1.5 Celsius.
Nature was a major topic at the COP26 climate conference in Glasgow last year, garnering significant new financial and government support to reverse forest loss and land degradation by 2030. More commitments could come if an agreement is reached later this year at the UN Biodiversity Conference (COP15) in Kunming, China.
Business awareness is growing but still lags. More than a fifth of the world’s largest corporations have committed to reducing carbon emissions to net zero, but most don’t yet recognize the role that nature must play in reaching that target. Only five percent of European companies responding to a recent CDP survey have set robust goals for emissions, water usage, and zero deforestation.
Some businesses are still unaware of the potential risks to their supply chains and operations. Others have committed to net neutrality but need more guidance, especially about what information to collect. Unlike committing to carbon neutrality, addressing nature doesn’t yet have the needed definitions or scenarios to benchmark.
Work is underway to help companies better understand how to meet these goals. The Taskforce on Nature-related Financial Disclosures was established to help companies, investors, and lenders factor nature into financial and business decisions. TNFD released in March its beta framework for businesses to use when analyzing the risk. This includes "fundamental concepts for understanding nature" – a taxonomy that can provide a basis for consistent understanding and articulation of impacts within the four nature ‘realms’ (Land, Ocean, Freshwater, and Atmosphere). Companies currently are piloting the strategy’s so-called LEAP process, which urges companies to Locate their interfaces with nature, Evaluate their dependencies and impacts, Assess their risks and opportunities, and Prepare to address nature-related risks and opportunities. The aim is to shift financial investment from nature-negative outcomes and toward positive ones.
“Many companies grew up in a world in which they didn’t care where they were operating or where supplies were coming from,” said the Taskforce’s Craig. “If I emit a ton of carbon in New York and absorb a ton in Australia, it results in net zero. But a company’s footprint on the natural ecosystem and its use of ecosystem services depend on location. If I destroy a rain forest in Brazil, I can’t plant a bunch of trees in New York to negate it. This means we need a new valuation methodology.”
Fighting climate change can feel futile at the individual level, where any one person seemingly lacks the power to make any real change. But these emerging consumers are rejecting that defeatism, wielding the power of their spending to influence business and government. From buying carbon offsets to writing to their government representatives, “Climate Catalysts” are pushing leaders toward a sustainable future.
Reconsidering what they buy, how they consume, and the impact it has on the planet, Climate Catalysts are changing some of their basic lifestyle habits. They will accept nothing but the utmost sincerity from companies in offering sustainable products and services.
Who Is a Catalyst?
These climate champions account for 13% of the global population, according to a study by the Oliver Wyman Forum that analyzed survey research from more than 100,000 people in 10 countries. They’re typically urban women aged 35 and over, with the female share going as high as 64% in Canada and 62% in the United States. They also skew low-middle income.
Climate Catalysts are almost twice as likely as the average respondent to say they’ve personally been affected by climate change, from milder winters to buggier summers, and only a quarter believe world leaders are doing enough to limit rising temperatures.
They vary in their ideas on how to address climate change, with one-third believing energy and fuel is the right industry to start with. That lack of consensus suggests that they’re looking for a multi-faceted approach.
Why They Matter
One element of that approach is the Catalysts’ own purchasing power. Sustainability bleeds holistically into their consumer habits: More than three-fourths eat in-season food, and 65% buy local produce, while 78% say they walk more, and over half avoid plane travel.
They’re refusing to patronize businesses that don’t value sustainability and are actively looking for greener solutions. Sixty-eight percent seek out sustainable brands, and more than half would purchase such products more often if they were less expensive, easier to find, and clearly labeled as sustainable.
The demand for sustainable products is overwhelming among this group, and businesses can capture the money being left on the table. A hefty 84% of Catalysts are willing to pay a premium for those products, but 65% feel companies aren’t providing them.
Climate activism is expected to take on a new urgency, and understanding the Catalysts' expectations will help earn their trust, while enabling businesses to understand how to build their own.
– The share of Climate Catalysts who think businesses are most responsible to address climate change. The general population comes in at 44%.
Source: Oliver Wyman Forum
– The percentage of Climate Catalysts who will pay a 6%-10% premium for sustainable products.
Source: Oliver Wyman Forum
– The share of the world’s emissions gap that can be closed by 2030 from accelerating afforestation and reforestation.
Source: Oliver Wyman Forum