Opinion piece

Laurent Ramsey has been Managing Partner of the Pictet Group since 2016

Human health has been dependent on nature for centuries. The people of ancient Mesopotamia used hundreds of plants to treat injuries and illnesses.

Many such nature-based treatments remain in use today. By some estimates, more than a third of modern drugs are derived from flora and fauna and the pharmaceutical industry uses as many as 70,000 different species of plants.

Laurent Ramsey, Managing Partner, Pictet Group

“When nature thrives, humans are healthier, too. Unfortunately, the opposite is also true.”

Laurent Ramsey Managing Partner, Pictet Group

Thanks to biodiversity degradation caused by rapid economic development, the world is already losing one potentially critical pharmaceutical remedy every two years. For example, a species of Himalayan yew tree that is used to produce Taxol, a chemotherapy drug to treat cancer, is on the brink of extinction from overharvesting and collection for fuel.

But medical therapies represent only a fraction of what humans stand to lose from the depletion of the Earth’s biodiversity. A healthy biosphere ensures the world is sufficiently supplied with food, clean air, water and fertile soil. It also creates the conditions under which crucial processes such as pollination, flood protection and carbon capture and storage take place.

Attempts have been made to quantify the risk. One model developed by the United Nations treats the planet’s resources as “natural capital”, an asset much like any other that appears on a company’s balance sheet.

“One might think reversing biodiversity loss would be a priority for both businesses and investors, particularly in the era of responsible capitalism. But it isn’t.”

Laurent Ramsey Managing Partner, Pictet Group

Under this framework, the Earth’s supplies of clean water, fertile soil and minerals form the capital stock from which humans gain essential “ecosystem services” – provision, regulation, culture and life support. The economic value of these services is estimated to be as much as US$140 trillion a year, or 60 per cent more than total global GDP.

By rapidly drawing down this natural capital while also failing to invest in preserving its value, humans have severely degraded the world’s ecosystem services.

Given the threat, one might think reversing biodiversity loss would be a priority for both businesses and investors, particularly in the era of responsible capitalism. But it isn’t.

Global warming and carbon emissions remain the top non-financial concerns. While more companies are committing to net zero emission plans, few consider the loss of natural ecosystems a corporate responsibility.

To be fair, it is easy to see why. Unlike climate change, which has an extensive research infrastructure and well-defined physical targets, biodiversity is a messy, dynamic system that doesn’t lend itself easily to practical analysis. For example, more than 80 per cent of the world’s species and their habitats are thought to remain undiscovered.

However, given the intimate relationship between climate and the biosphere, the two crises can only be tackled together.

Nothing makes that point better than a study showing that ocean and land ecosystems remove around half of anthropogenic carbon dioxide emissions from the atmosphere every year. In other words, half our “climate debt” is removed by the biosphere every year – a vast subsidy to the world economy.

How might corporations respond to biodiversity loss? To begin with, companies should acknowledge the threat biodiversity loss presents to their bottom line.

These risks can manifest themselves in many ways. Physical risks are the most obvious and immediate. For example, deforestation could trigger floods or reduce local rainfall, raising operational and insurance costs for various industries. Food producers could face a long-term decline in production and revenue as nutrient-rich soil disappears because of intensive farming.

“Such models could form the basis for nature-related financial disclosure, such as including biodiversity footprint data in quarterly reporting, as well as business targets on issues such as species protection or habitat restoration.”

Laurent Ramsey Managing Partner, Pictet Group

Then there are liability risks. These include legal and reputational costs arising from lawsuits filed against companies causing ecological damage.

There are already some risk models businesses can use. The UN, for instance, has developed a framework of internationally comparative statistics and accounts which allow investors to compare environmental accounting and make informed decisions. The System of Environmental Economic Accounting is now used to calculate progress towards Sustainable Development Goals.

Then there are science-based models such as the Planetary Boundaries framework, which helps businesses quantify their contribution to species loss for every US$1 million of revenue they generate.

Such models could form the basis for nature-related financial disclosure, such as including biodiversity footprint data in quarterly reporting, as well as business targets on issues such as species protection or habitat restoration.

Some firms are moving faster than others. Luxury conglomerate Kering has developed environmental profit and loss accounts to measure the impact of its activity on biodiversity and the environment. It is committed to reducing its environmental footprint by 40 per cent across its supply chain by 2025.

“Policymakers will discuss a set of groundbreaking biodiversity targets for 2030 at the second half of the UN biodiversity conference, which takes place next year in Kunming.”

Laurent Ramsey Managing Partner, Pictet Group

For other companies, biodiversity disclosure is a legal obligation. In France, regulations introduced in 2019 require financial institutions to publish such information in their statements.

Corporations’ role in halting biodiversity loss should not be limited to risk mitigation and transparent reporting. Capital expenditure can be redirected to repair the damage caused to the ecosystem.

The benefits from such investment could be considerable. This is where models such as the Species Threat Abatement and Recovery metric can help. Developed by the International Union for Conservation of Nature, the metric quantifies the impact a business’ investments can have in reducing species extinction risk.

Investment in natural capital will be crucial. Currently, public and private investment to protect biodiversity amounts to an estimated US$78 billion to US$91 billion per year, about a tenth of what is deemed necessary and half of what the world spends in fossil fuel subsidies.

But the mood is changing. Policymakers will discuss a set of groundbreaking biodiversity targets for 2030 at the second half of the UN biodiversity conference, which takes place next year in Kunming.

Establishing a new net zero target on biodiversity loss that corporations should adhere to sounds like a Herculean task, but it is what we need to heal nature and achieve sustainable transformation of our economy.

©2021, South China Morning Post