Biodiversity: The Next Arena in Sustainable Business

In recent years, climate change has risen to the top of the CEO agenda. A recent poll shows that Fortune 500 CEOs consider climate action a top priority, not only in its own right, but also for their business: It can enhance employee engagement, strengthen bonds with customers, and open up new markets. Almost every large company has launched initiatives to reduce carbon emissions, and many have announced net zero objectives. Yet climate change is only one part of a much broader challenge to protect our biosphere—the natural system in which humanity’s social and economic systems are embedded—and avert environmental collapse.

While combating climate change has been the focus in recent years, tackling biodiversity loss is emerging as an additional key priority for the next decade. Many governments and international bodies are increasingly concerned about this issue; in December 2022, 188 countries signed the Global Biodiversity Framework at the United Nations Biodiversity Conference (COP15) in Montréal. For businesses, this will mean dealing with growing pressures from consumers and regulators to act on biodiversity—in addition to the direct risks associated with deteriorating ecosystems.

Business leaders who want to mitigate the deleterious effects of biodiversity loss need to get their houses in order now. But compliance and defensive moves are only the start: In this period of upheaval and change, new winners will be determined by their ability to reimagine their business and find new sources of advantage.

In this article, we outline how companies can tackle the biodiversity challenge on a deeper, strategic level—protecting our ecosystems while positioning themselves for success.

Separating Myth from Fact in Biodiversity

To make the right strategic pivots, company leaders need a precise understanding of the nature and dynamics of the biodiversity challenge. We have identified four myths that often set companies on the wrong path.

Myth 1: Biodiversity is important only for the sake of nature.  

Fact: Biodiversity is crucial to maintaining the ecosystem services upon which our economy, our society, and our lives depend.

Ecosystems provide a wide variety of essential services: They create the resources and raw materials that serve as inputs for our economic activities (provisioning services). They provide tranquility, serenity, and aesthetics to soothe our minds and vivify the human experience (cultural services). And they shape and sustain our physical environment by regulating the climate, preserving and regenerating soil, controlling floods, filtering pollutants, sequestering waste, pollinating crops, and much more (regulating and maintenance services). These services are the foundations of our modern societies and economies, as well as for life itself.

Biodiversity is the key factor that determines the health of ecosystems and their ability to provide these services. Preserving a variety of functional capabilities across the species of an ecosystem ensures that it can absorb shocks and adapt to changing circumstances. Significant deteriorations in biodiversity may result in a regime change of an ecosystem. For example, a rainforest may be transformed into a savannah due to the loss of keystone species; significant reduction in the number of seed dispersers, such as spider monkeys in the Amazon rainforest, would hamper plant reproduction; poaching of tigers in Malaysian rainforests may lead to an increase in herbivore populations, which could exert greater pressure on young tree saplings, inhibiting forest regeneration.

While the new ecosystem regime may be viable in its own right, the shift is still often harmful from a human perspective: Regime changes can make an ecosystem less productive for humans (e.g., eutrophication of lakes) and can necessitate challenging social adaptations (e.g., desertification in agricultural societies, aquatic depletion in fishing communities). Moreover, regime shifts at a local level may reduce the diversity of the global biosphere, undermining the complementary services different ecosystems provide—which are together essential for sustaining planetary equilibria (e.g., global deforestation harms the regulation of CO₂ levels in the atmosphere). Finally, regime changes are typically self-reinforcing and hence difficult or highly expensive to reverse.

With the ongoing, rapid decline in biodiversity—studies show that extinctions of species are now occurring at between 100 to 1,000 times the pre-Anthropocene rate, and still accelerating^[2]—there are serious concerns that a wide variety of ecosystems across the world will undergo regime shifts, losing their ability to provide services essential to not just nature, but also to humanity, society, and our economy.

Myth 2: By tackling climate change, we are already addressing biodiversity challenges.

Fact: While climate change is an important contributor to biodiversity loss, other unrelated factors are of similar significance. Moreover, some solutions to climate change are counterproductive for improving biodiversity. Hence, specific biodiversity solutions are required.

Climate change is an important cause of biodiversity loss—think of the bleaching of coral reefs. Moreover, biodiversity loss and climate change have a set of common causes, such as deforestation. However, there are also significant drivers of biodiversity loss that are unrelated to the climate problem. For example, the destruction or fragmentation of habitats, unsustainable harvesting practices (e.g., excessive logging or fishing), or pollution can all contribute to biodiversity loss.

Thus, solutions to climate change are only partially helpful for mitigating biodiversity loss, and indeed may prove harmful in many cases. For example, large-scale renewable energy projects, such as generating energy from wind, solar power, or biofuels, often require large areas of land; this can lead to deforestation, habitat destruction, or ecosystem fragmentation. The electrification of vehicles requires mining for rare metals at the expense of disrupting the local landscape. Hydroelectric dams restrict the movement of aquatic species, which obstructs migratory routes and alters the natural flow of rivers—which disrupts their ecological balance. Large-scale tree planting as a way to offset carbon emissions often creates monocultures and introduces non-native tree species, threatening local ecosystems and habitats.

There is an urgent need to move from a narrow focus on climate to a broader understanding of our embeddedness in natural systems, so that our actions can be evaluated with a full view of their consequences on the biosphere.

Myth 3: Biodiversity, like climate change, is exclusively a global problem.

Fact: While some aspects of the biodiversity challenge resemble the global collective action problem of climate change, other aspects are much more local in nature, producing entirely different dynamics and opportunities for action.

Climate change has global as well as local effects (e.g., desertification in Northern Africa). Its causes, while local and particular (e.g., carbon emissions from a specific factory), are pooled and mediated at the global level. There is no real link between the location of causes and global effects: reducing emissions in one country will not improve its climate in a commensurate way.

Meanwhile, many aspects of the biodiversity challenge are highly localized. For example, biochemical pollution and habitat destruction are typically caused by problems in the immediate area, which can be identified and addressed. This alters the dynamics of biodiversity loss in two significant ways. First, there is much greater scope for action to monitor, protect, or restore specific natural assets upon which your business depends. Second, there is much clearer accountability of actors who operate in and around a specific natural ecosystem.

Myth 4: To preserve biodiversity, businesses must simply reduce their own footprint.

Fact: Business impact on biodiversity is co-dependent with the behavior of other users and interacts with developments at larger spatial and temporal scales—which means companies need to follow a holistic and collaborative approach.

The harmful effects that companies have on the climate can be quantified and understood in a relatively straightforward manner by measuring their emissions of greenhouse gases. To be responsible on climate, a company needs to minimize these emissions.

Being responsible with respect to biodiversity is far more complicated. First, ecosystems are heterogeneous, meaning that the same species present in multiple ecosystems may play a vital role in some but a minor role in others. For example, cutting down a tree in one area could have vastly different consequences for the local ecosystem than cutting down the same species elsewhere because of different interactions with other parts of the system, such as funghi living in symbiotic relationships with the tree. Meanwhile, in terms of climate impact, cutting down a tree is equivalent to emitting around one ton of CO₂, which is more or less equally harmful across the globe.

Second, the value of biodiversity is non-linear, meaning that the cost of cutting down trees within an ecosystem is not constant over time but may abruptly change as the tree population falls below certain critical thresholds. The consequence of heterogeneity and non-linearity is that ecologically responsible companies cannot just look narrowly to reduce their own footprint, but also need to look broadly to understand the status of and changes in the ecosystems they operate in (including the footprint of others with whom they share these ecosystems). This logic of the co-dependence of impacts underpins the need for local collaboration and governance systems that achieve responsible stewardship.

Third, ecosystems interact with one another at different spatial and temporal scales. While the health of ecosystems can to a large extent be analyzed in terms of local causes, there are also important interdependencies at the regional, national, and global level—for example, shifts in the pattern of the Gulf Stream. Collaboration at global levels is therefore also necessary to understand and address these large-scale, structural changes, as well as their effects on local ecosystems.

The Collective Agenda on Biodiversity Loss

While businesses should approach biodiversity loss strategically, by mitigating risks and seeking new opportunities, they should also situate their approach within a broader collective agenda. This collective agenda lays out the key transitions necessary to embed our socio-economic systems in our natural environment:

1. Address knowledge gaps. Our understanding of the complexity and interconnectedness of ecosystems is far from complete. For example, it is estimated that less than 20% of species on our earth have been described and documented (according to a 2011 study, 84% of land and 91% of marine species were still unknown).^[3] Additionally, we know that the dynamics of ecosystem change are non-linear, but we have a limited understanding of the specific tipping points—the threshold where regime change becomes self-reinforcing, and consequently, irreversible. This knowledge gap undermines our ability to assess risks and make informed decisions.To fill these knowledge gaps, more research is needed into the state and dynamics of ecosystems across the world, as well as their importance for, and sensitivity to, economic activity. Better data is the key unlock for such research. New data collection technologies, such as sensors and satellite images, need to be advanced and scaled rapidly. There is also a clear innovation and experimentation agenda for business, as they transition towards new materials, processes, and business models that allow for circularity and reduced impact.

1. Modernize policies and institutions. Many legacy policies and institutional frameworks still incentivize behaviors that are detrimental for the biosphere, such as large-scale agricultural subsidies in the European Union or spatial planning policies that do not prevent the reduction or fragmentation of natural ecosystems. Furthermore, new policies are needed to curtail free-riding behaviors in markets, which suppress the motivation for businesses to lead the transition towards a more sustainable way of doing business. The need to curtail free riding is amplified at the global level—where much of the Global North is benefiting from ecosystem services produced in the Global South—which means there is also a need to modernize international policies, such that responsibilities and financial burdens are rebalanced for the maintenance of our global biosphere.
2. Build effective governance models. The problem of biodiversity loss challenges our traditional models for collaboration and governance. We cannot rely on the market to finance and incentivize biodiversity-positive behaviors, such as investments in natural capital, because the value of ecosystem services is typically invisible and mobile – which means it is hard to measure, capture, attribute, and commercialize. Similarly, we cannot depend on traditional government regulations to stipulate in detail how we should take care of ecosystems, as ecosystems and our interactions with them are far too dynamic and heterogeneous for rigid regulation to be effective. The biosphere is an integral part of every aspect of our economy—the government can set boundaries, but it cannot control the actions of every major actor who operates within them.Instead, there is a need for new governance systems that simultaneously enable actors to overcome collective action problems while providing space for them to be responsive to changing ecosystem dynamics. One such emerging model obligates participants who rely on ecosystem services to compensate those managing the ecosystems that produce these services. This can operate at the global scale (e.g., international coalitions funding the Brazilian government for the preservation of the Amazon) or at the community level (e.g., tourists paying local inhabitants for the preservation of natural sites). Another governance model is “common pool resources,” wherein community members develop agreements on shared use and protection of the ecosystem, which is modelled on how older civilizations traditionally managed the “commons.” To advance the use of such governance models, it is necessary to combine a bottom-up approach of experimenting locally, synthesizing learnings, and scaling success stories, with a top-down approach of adapting institutional frameworks to enable them.
3. Create universal reporting standards. Developing universal reporting standards is a critical component of the collective agenda, as it requires organizations to speak the same language. Consistent biodiversity reporting ensures that industries and sectors can collaborate on biodiversity efforts, avoiding a fragmented and inconsistent initiatives. It also allows organizations to develop shared understandings of biodiversity challenges, set targets, prioritize efforts, and track progress. Furthermore, universal reporting standards enable external parties to evaluate companies. This streamlines the regulatory process, simplifies due diligence processes for investors, and increases the transparency of a company’s practices.While there is a surge of new reporting frameworks and standards, such as the Global Reporting Initiative (GRI) and European Sustainability Reporting Standards (ESRS), much remains to be done. First, consensus has yet to emerge on standardization and interoperability of systems. Second, further innovation is necessary to build and deploy technologies that allow for more expansive and more precise data collection on the health and dynamics of ecosystems, enabling more accurate measurements and accounting. Third, there is a need to catalyze and accelerate adoption.
4. Alleviate “sustainability scarcities.” It is key to create the conditions in different industries for a swift transition towards biodiversity-positive business. Action can be taken collectively—either by alliances of businesses or by public agencies—to overcome bottlenecks and clear roadblocks. For example, a lack of ecological expertise within industries can be alleviated by investments in education; a lack of access to essential raw materials for more sustainable technologies can be addressed with collective trade agreements or investment in developing alternatives. While individual companies can move early to avoid getting trapped in their transitions by such sustainability scarcities, there is also a clear collective agenda to eliminate these scarcities where feasible.

Defensive Moves: Protecting the Current Business Model

Having better understood the dynamics of the biodiversity challenge, how can businesses tackle the issue of biodiversity loss strategically? Below, we outline five types of defensive moves to protect the current business model.

Move early on compliance.

Biodiversity is emerging as a key priority on the regulatory agenda, as illustrated by the overwhelming support for the ambitious Global Biodiversity Framework developed at COP15. One of the framework’s targets charges governments with adopting legal requirements on monitoring and mitigation for large and transnational companies. This clause places businesses at the center of the conversation on biodiversity and is moving from a language of incentivization and voluntary action to a language of obligation and mandatory action. The ambitions of the framework are already starting to materialize in legislation, for example, with the development of the EU Corporate Sustainability Reporting Directive and the Nature Restoration Law.

While compliance with regulation is necessary for every company, moving early offers opportunities for advantage. Compliance is likely to require new capabilities, such as taking stock of your dependencies on natural assets, determining your impact on natural ecosystems, and establishing processes to mitigate that impact. Anticipating upcoming regulation enables firms to attract talent, develop expertise, and experiment with solutions. For example, Tesla capitalized early on the tightening regulatory landscape for carbon emissions: Its action on the Zero Emissions Vehicle Credit and the California Low Carbon Fuel Standard gave the company a significant competitive edge.^[4]

Collaborate externally to shape standards and regulations.

Beyond merely anticipating emerging standards and regulations, companies should take the opportunity to shape them by collaborating with other organizations, such as other companies, public agencies, and academic institutions. Doing so will provide several advantages:

Staying at the vanguard of change. As standards and regulation on biodiversity are still rapidly evolving, companies can only anticipate new standards and regulations in a timely manner by being part of the vanguard that drives them. The Science-Based Targets Network (SBTN), for example, is emerging as key framework for setting climate and nature-related targets and recently published its first list—with seventeen frontrunners, such as GSK, H&M Group, and Nestlé, seizing the opportunity to pilot its implementation.

Learning from others. Biodiversity standards and regulations often involve complicated methodologies. Hence businesses can benefit greatly from exchanging know-how and best practices with others. Organizations such as Business for Nature, the Taskforce on Nature-related Financial Disclosures, and the Capitals Coalition facilitate knowledge-sharing and provide support to business leaders who want to experiment with new methods.

Better standards and regulations. The playbook on biodiversity is being developed as it is being deployed. To catalyze the realization of standards and regulations that protect the biosphere while creating opportunities for business, it is important to contribute to the development process. Communities like Business for Nature have played a leading role in shaping the Global Biodiversity Framework. In another example, IKEA and H&M, along with other corporations, worked closely with SBTN to shape methodologies for target-setting and action on biodiversity loss. SBTN was “road-tested” by more than 115 companies ahead of its May 2023 release.

Monitor the health of natural assets upon which your business depends.

Beyond complying with regulation on biodiversity-related impacts, companies should also evaluate the threat of ecosystem decline to their specific business.

The deterioration of natural assets upon which a business depends represents a significant risk. Many corporations around the world are already facing resource shortages due to the deterioration of provisioning services of ecosystems, such as forestry, fishing, and the cosmetics industry. Soil degradation is threatening the productivity of agriculture. Other companies are struggling with the breakdown of regulatory and maintenance services of nature, such as the ability of local ecosystems to absorb and break down industrial waste or restore biochemical balances in water, air, and soil.

To protect business continuity, monitoring biodiversity-related risks is imperative. This requires a four-step approach: First, analyze upon which natural assets your business is highly dependent. This step includes accounting for the use of resources across the supply chain and your reliance on maintaining and regulating the services of ecosystems. Second, inventory the state of the natural assets upon which you depend—both quantitatively and qualitatively—to estimate risks and identify the need for mitigative action. Third, track the state of these natural assets systematically over time. Fourth, anticipate future developments of these ecosystems to ensure you stay ahead of the curve.

Mitigate your negative impact on biodiversity.

Once firms have determined their dependency on natural assets and established systems to monitor those assets, executives can mitigate their depletion. Firms can use the data they collect on their natural resources to prioritize efforts and take targeted action. Mitigation can take many forms based on the industry, including the adoption of circular business models, which close the traditional take–make–waste process by using existing materials and products as inputs into their business model.

In the fashion industry, for example, H&M has piloted a variety of programs to experiment with a circular business model, including the resale of secondhand items and offering in-store repair services.^[5] In the food industry, Danone has deployed a program aiming to source 100% of its ingredients in France from regenerative agriculture by 2025.^[6]

Invest in the replenishment of natural capital.

Beyond protecting key natural assets upon which their business depends, companies can invest in replenishing them. Similar to investing in human capital—for example, through employee training—firms can invest strategically to increase their natural capital by supporting the ecosystems that they rely on. For example, IKEA has partnered with the World Wildlife Fund (WWF) to develop reforestation projects in nineteen locations, aiming to make Ikea’s operations biodiversity-positive—including the restoration of 18,500 hectares of rainforest in Borneo, Malaysia.^[7]

Strategic Opportunities: Reimaging the Business Model

While defensive moves are necessary for protecting today’s business, they are the lowest form of adaptation. Tomorrow’s winners will embrace the opportunities for competitive advantage offered by the biodiversity challenge by reimagining their business models to overcome constraints and break trade-offs. By demonstrating precedents for positive benefit to business, they will also encourage other businesses to engage in protecting and building biodiversity.

Innovate to overcome new constraints.

Biodiversity is creating new constraints for businesses to grapple with, such as the rising scarcity of resources and regulatory limits on waste production. In response, companies can either compromise—for example on costs or the quality of their product—or they can innovate to overcome these constraints. While adopting existing approaches to monitoring and mitigating biodiversity-related risks is necessary, innovating to find new pathways towards an ecologically sustainable business creates new opportunities for differentiation and advantage.

One approach is resource substitution. Biohm, a biomanufacturing company, has developed sustainable building materials using the by-products, or “wastes,” of other industries.^[8] In doing so, the company has developed an innovative solution to biodiversity constraints that positions them along the frontier of sustainability practices within their industry.

Monetize biodiversity-positive services.

Beyond targeted innovations to address their own biodiversity risks, companies can unlock new revenue streams by offering biodiversity solutions to others. Successful business practices that solve biodiversity challenges can be repackaged into products and services for other companies. GROW Oyster Reefs, for example, has designed a concrete mix that restores oyster ecosystems, which are essential to prevent the erosion and collapse of shorelines.^[9] The company has deployed this successfully as part of infrastructure projects in England, the United States, and Mexico.

In building biodiversity-related services, a best practice is to leverage existing assets, technologies, and capabilities, thus creating new potential for synergies. Dow Chemical Company, for example, partnered with cosmetics brand Natura & Co to identify plant species on the former’s lands in the Amazon (where it operates charcoal and silicon plants) that are of commercial interest to the cosmetic and pharmaceutical industries.^[10] Through the sustainable extraction and sale of these plant species, Dow has unlocked a new revenue stream from its natural assets in the Amazon—which in turn incentivizes the company to preserve the biodiversity within this ecosystem.

Leverage nature as an innovation partner.

Biodiversity has always been a key source of innovation for humanity, from the discovery of penicillin to the creation of sonar technology (by emulating the echolocation of dolphins). Today, nature continues to inspire innovation in fields such as biomimetic robotics and the development of new drugs. But nature can be more than a passive resource to draw upon for our innovation efforts: We can actively work with nature as an innovation partner by leveraging the new potential of synthetic biology and artificial intelligence.

Embrace the magic of local.

Safeguarding the health of ecosystems requires that companies not only adjust their own processes, but also actively collaborate externally to ensure the responsible stewardship of natural assets. Essentially, our encroachment on the boundaries of local ecosystems forces local businesses to coordinate and cooperate more closely on responsibly using, preserving, and replenishing the ecosystems they collectively depend on. This is a modern version of the age-old problem of “managing the commons.”

The purpose of collaboration is to strive for a balanced portfolio of economic activity within the natural ecosystem, where different businesses are complementary and circular instead of compounding and exhaustive. Local business alliances can also pool resources and capabilities to achieve effective monitoring and mitigation. An example of a successful local alliance is found in California, where agriculture companies are joining forces to improve the sustainability of irrigation systems to address water shortages.

Pioneering companies can orchestrate local alliances on favorable terms and position themselves strategically. In Japan, the private sector is building local alliances to strengthen and commercialize satoyamas, rural landscapes supported by traditional knowledge, that conserve and enhance local biodiversity.^[11] Kirin Holdings Company, for example, is working with communities to embed its vineyards within local natural and socio-economic systems, to protect the natural ecosystem and drive opportunities for deeper collaboration.

Orchestrating strong local alliances requires that a company gives its regional units sufficient agency to make decisions that work well under the local circumstances. This bottom-up approach can take the form of empowering managers of plants to collaborate with local partners and design their own roadmap towards effective monitoring and mitigation.^[12] Solvay, a multinational chemical company, uses such an approach. Its headquarters subsequently synthesize local plans into a coherent roadmap, which allows the company to orchestrate knowledge-sharing among plants with similar challenges. Such a polycentric approach—with shared agency in decision-making across organizational layers—allows Solvay to connect global action with a deep understanding of the dynamics present in the communities most proximate to the local ecosystem, allowing for a more concerted, and ultimately more effective, approach to protecting biodiversity.

Put nature at the core of the customer experience.

Nature-based market opportunities don’t just exist behind the scenes; there is also a growing demand for nature as part of the customer experience. The breakdown of biodiversity is paired with the extinction of experience: the increasing degree to which citizens are removed and isolated from our natural surroundings, separated by layers of physical, social, and institutional barriers. The scarcity of the natural experience—and the growing awareness of the harmful side-effects for the human psyche—creates a business opportunity to incorporate elements of nature into products and services and their associated brand propositions.

Several nature-based enterprises are already growing fast; agritourism, for example, has rapidly grown into an USD 8 bn dollar market and is projected to sustain double-digit growth rates for the next decade.^[13] Urban regeneration companies, which provide green infrastructure and building solutions to urban landscapes, are growing at a similar pace. Reintroducing nature in our everyday products and services is also necessary to create awareness about the presence and importance of our biosphere. As economist and biodiversity expert Sir Partha Dasgupta states, “if we care about our common future and the common future of our descendants, we should all in part be naturalists.” Companies can both support this transition of our collective consciousness, as well as use it as an opportunity to develop a differentiated offering.

With mounting pressure from regulators and scrutiny from consumers and investors, biodiversity loss is set to be the next arena in the battle for more sustainable business. Waiting for regulations to roll in and then merely striving for compliance is a recipe for being disrupted. Moreover, it means losing valuable time in the race to protect our planet. Instead, decision-makers need to move early to protect their business against risks from biodiversity loss, while also starting to imagine new business models for thriving amid new constraints.

Source: Martin Reeves and Jamaal Nimer, BCG Henderson Institute; Simon Levin, James S. McDonnell Distinguished University; Adam Job and Robert van der Veeken, Strategy Lab