WEF Biodiversity and Business Risk

8/8/2019 WEF Biodiversity and Business Risk

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Biodiversity and business risk2

World Economic Forum January 2010

This report was prepared by PricewaterhouseCoopers (PwC) or the specifc use o the World Economic Forum and is not to be used, distributed orrelied upon by any third party without PwCs prior written consent. The analysis and opinions contained in this presentation are based on publiclyavailable sources and PwC has not independently verifed this inormation and makes no representation or warranty, express or implied, that suchinormation is accurate or complete. All recipients o this report must make their own independent assessment o the report, and neither PwC nor anyo its afliates, partners, ofcers, employees, agents or advisers shall be liable or any direct, indirect or consequential loss or damage suered by anyperson as a result o relying on any statement in, or alleged omission rom, this report.

The views expressed in this publication do not necessarily reect those o the World Economic Forum, PricewaterhouseCoopers or the contributingcompanies or organizations.

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Biodiversity and business risk 1

Overview 2

Biodiversity loss at the nexus o many risks 3

Biodiversity loss and economic value 5

Current perceptions o biodiversity loss 6

A typology o biodiversity risks 8

A case study o biodiversity loss and agricultural supply chains 10

Biodiversity and business over the next decade 12

Managing biodiversity risk 14

Acronyms

Acknowledgements Reerences 16

Contents

Biodiversity underpins ecosystem services. Bees cantpollinate, nor can trees store carbon, i they have all died. Diverse systems are better at capturing carbon, storingwater and preserving fsheries. Just how diverse anecosystem has to be in order to supply the goods andservices needed by man is a matter o debate - a debatemade harder by the act that many species may have usesthat man has not yet ound.

The Economist, 2008


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Global warming may dominate headlines today.Ecosystem degradation will do so tomorrow.

Corporate Ecosystem Services Review, World Resources Instituteet al., 2008

To understand why this conclusion was reached considerthe fgures. Using the implied social cost o carbon rom theStern report ($85 per tonne CO2), the long run economic costo 2008 net greenhouse gas emissions could be in the region

o $1.7trillion*. For the same year, the economic cost obiodiversity loss and ecosystem degradation was estimatedto be between US$2 and US$4.5 trillion (3.3 7.5% o globalGDP). While these numbers are not directly comparable, theact that they are in the same order o magnitude should givepause or thought.

To date discussions on biodiversity loss have ocused onspecifcs such as coral ree degradation, deorestation ordeclining fsh stocks. All o these are o concern to particularindustries or regions. Recently, the broad systemic implicationso biodiversity loss and ecosystem degradation linking to

resource management, climate change and population growthhave been more explicitly articulated. This briefng paper willexplore both specifc and broader systemic eects and theassociated business risks.

This paper includes:

A summary o the systemic nature o biodiversity loss andecosystem degradation;

Examples o biodiversity loss, ecosystem degradation andthe associated value at risk;

Current perceptions o biodiversity loss amongst businessleaders and other decision makers;

A typology o business risks related to biodiversity loss andecosystem degradation including current examples and acase study looking at agricultural supply chains; and

A high level guide or CEOs seeking to protect theirbusinesses rom the risks identifed, pointing to a numbero initiatives and resources that can help.

Overview

Some key denitions

Biodiversity: the variability among living organismswithin species, between species, and betweenecosystems. Biodiversity underpins the properunctioning o ecosystems and ensures the delivery oecosystem services.

Ecosystem: a dynamic complex o plant, animal andmicro-organism communities and their non-livingenvironment interacting as a unctional unit. Examples

o ecosystems include deserts, coral rees, wetlands,rain orests, boreal orests, grasslands, urban parks andcultivated armlands. Ecosystems can be relativelyundisturbed by people, such as virgin rain orests, orcan be modifed by human activity, such as arms.

Ecosystem services: sometimes called environmentalservices or ecological services - are the benefts thatpeople and economies obtain rom ecosystems.Examples include resh water, timber and fsheries,genetic resources, climate regulation, protection romnatural hazards, erosion control and recreation.

Biodiversity risk: In this paper we use the termbiodiversity risk to reer to business risks related tobiodiversity in the broadest sense. This includes risksas a result o direct impacts or dependencies onbiodiversity and ecosystem services, as well asregulatory, fnancing, reputational and supply chainrisks that arise due to businesss relationships withbiodiversity and ecosystems (page 8 includes anumber o illustrative examples).

While this paper ocuses on risk, it should be rememberedthat where there are risks there are also opportunities; withnew trading mechanisms and markets, new technologiesand design approaches, and improved land-use models,a new green economy presents a myriad o new areas orbusinesses to create value. In the summer o 2010, theinternational study The Economics o Ecosystems andBiodiversity (TEEB) will release a report aimed specifcallyat the business sector to help them understand and takeadvantage o this change.

* Source: STERN REVIEW: The Economics of Climate Change and PwC analysis. $1.7 trillion is the lifetime cost of net CO2 emissions from 2008 (20.09 Giga tonnes CO2) using Sterns implied social cost of carbon($85) which amongst other things assumes a business as usual emissions scenario and a discount rate of between 2 and 3%.

Source: The Economics of Ecosystems and Biodiversity (TEEB), Cost of Policy Inaction Report, 2008. $2 - $4.5 trillion is the present value of net ecosystem service losses from land based ecosystems (e.g.forests, tundra, cultivated land) caused in 2008 and continuing for 50 years, based on discount rates ranging from 1 4%.


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Biodiversity loss at the nexus o many risks

Figure 1

Biodiversity loss at the nexus o many risks

Economics Geopolitics Environment Society Technology

Source: World Economic Forum, Global Risks 2010 report

Severity (billion US$)

10 1 5 10 2050 250 1000

Likelihood (%)

Airpollution

Infectiousdisease

Globalgovernance

gaps

Chronicdisease

Liabilityregimes

Migration

CIIbreakdown

Retrenchmentfrom

globalisation(developed)

Retrenchmentfrom

globalisation(emerging)

SlowingChineseeconomy

(


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Desertication

A process o ecosystem degradation, driven largely bypopulation growth, and the industrialisation and intensifcationo agriculture, beginning with land conversion, and ollowedby overgrazing or soil degradation, has been a key driver odesertifcation, resulting in the widespread loss o onceproductive land. Increasing water scarcity, itsel partly a resulto deorestation or removal o vegetation, is compoundingthe problem in many regions.

For example, in Guangdong province in China, deorestationand land conversion have lead to encroaching desertifcation.Exacerbated by severe drought, this not only threatens urtherbiodiversity loss but also agricultural productivity andcommunity health.

Arid and semi-arid areas are most at risk and as theyconstitute around 30%4 o land suraces, this is a pressingrisk or many regions. Some desertifcation may be inevitableas a result o climate change but slowing this trend relies onhealthy and unctioning ecosystems: continued degradationonly serves to compound the problem.

Food security

The output o agricultural systems is highly dependant onbiologically diverse soils and other key ecosystem services suchas water regulation, pollination and climatic stability.

By 2050 these agricultural systems will be required to eed aorecasted population in excess o 9 billion, 50% higher thantoday. This population increase, coupled with dietary shitstowards higher meat consumption (much o it grain-ed),suggest a need to produce at least 70% more ood5. This willplace huge pressure on scarce land resources and will severely

test the ability o ecosystems to deliver the services on whichagriculture relies.

Further compounding these trends is the increasing use o landintensive crops to create biouels. This not only contributes tobiodiversity loss through land conversion but has also beenidentifed as one o the causes o recent volatility in ood prices.

The examples above describe just a ew o the ways inwhich biodiversity loss and ecosystem degradation areinextricably linked to other major challenges acing society.The next section considers urther the environmental andeconomic case or action.


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Biodiversity loss and economic value

As illustrated in the previous section, the loss o biodiversityand degradation o ecosystems exacerbates many o the keychallenges we ace in the 21st century, rom reshwaterprovision and sustainable agricultural production or 9 billionpeople, to catastrophic climate change, regional conicts andmigration due to resource shortages.

However, because biodiversity and ecosystem services otenhave unclear ownership and pricing, they are still requentlyexcluded rom decision-making processes.

As a result, examples o biodiversity loss and ecosystemdegradation abound.

Hal o wild marine fsheries are ully exploited, with aurther quarter already overexploited. In 2006, it wasestimated that all o the worlds commercial fsheries arelikely to collapse in less than 50 years6 i we remain on thecurrent consumption path.

Severe soil degradation continues to increase globally ata rate o 5 million to 10 million hectares annually7 (0.36 0.71% o global arable land).

Warm-water coral cover has allen by more than 30% sincethe beginning o the 1980s and projections suggest thatdue to climate change and other pressures little coral willremain by 20508.

In the last 300 years, the global orest area has shrunk by40%9. Deorestation in the tropics continues at anestimated rate o 13 million hectares, an area the size oEngland, every year10.

In the last 50 years, it is estimated that 60% o the Earthsexamined ecosystem services have been degraded due tohuman impact11.

This loss o biodiversity and degradation o ecosystemshas dramatic consequences or business.

The economic cost o soil erosion in Europe is estimated at53 per hectare per year12.

Annual economic losses caused by introduced agriculturalpests in the US, UK, Australia, South Arica, India andBrazil exceed US$100 billion13.

As highlighted at the start o this paper, the total annualeconomic cost o biodiversity loss and ecosystemdegradation was estimated to be between US$2 andUS$4.5 trillion14 in 2008 (3.3 7.5% o global GDP).

Progressive approaches can be employed to manage risks,preserve biodiversity and enhance brand value.

In the 1990s, Vittel (Nestl Waters) chose to addressgroundwater contamination rom local agricultural nitratesby compensating armers and helping them to convert to

more sustainable practices. In the frst seven years Vittelspent US$32m15 on this programme. A substantial sum,but small relative to the cost o plant closure, relocation,or brand damage which beell some competing brands.

Recent declines in pollinating insect populations have beenthreatening agricultural yields. Syngenta, a company whichsupplies seeds and pesticides to armers, responded bylaunching operation pollinator which supports armers todevelop marginal land into habitats or wild pollinators, withthe aim o optimising the productivity o the remaining land.

A lot o our license not just to grow but, rankly, to continueoperating, depends on how eectively we can demonstrateoperational excellence in sensitive environments, so wehave incorporated biodiversity thinking in our activities orsome time.

Roxanne Decyk, Executive Vice President, Global GovernmentRelations, Royal Dutch Shell

On a global scale however, biodiversity loss and ecosystemdegradation continue at a dramatic rate.

The consequences will not just aect companies with direct

reliance on natural resources but will also aect the supplychains and growth objectives o most industry sectors in thedeveloped and developing world.

In light o the magnitude o the economic costs and businessrisks associated with biodiversity loss we might expect strongconcern and action on the part o public and private sectors.The next section reviews whether this is in act the case.


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Current perceptions o biodiversity loss

The annual Global Risk Perception Survey is carried out between July and early October each year. Survey respondents are members of the World Economic Forums Global Agenda Councils and its Global RiskNetwork (GRN). These groups are composed of practitioners and experts on a range of areas relating to the 36 risks covered by the Global Risks report and are drawn from business, academia, internationalorganisations and governments.

The 13th Annual Global CEO Survey 2010 o 1,200 CEOsconducted by PwC and published in January 2010 sheds lighton current perceptions o the risk to business posed bybiodiversity loss.

Growth prospects

When asked to rate levels o concern about a range o threatsto their business growth prospects, 27% o CEOs were eitherextremely or somewhat concerned about biodiversity loss.

Given the short term planning horizons still inherent in capitalmarkets, exacerbated by the pressures o the globalrecession, it is notable that biodiversity loss remains aconcern or some. Relative to other risks however, overallbusiness concern was relatively low.

This may be because the eects o biodiversity loss are not,in most cases, dramatic one-o events, but rather theyaccumulate gradually, sapping the productive capacity o theeconomy, and so are less visible to business leaders andpolitical decision-makers. It may also be caused by the act(as outlined on page 3) that biodiversity loss and ecosystem

degradation is an oten unacknowledged but nonethelesssignifcant underlying actor in other trends and risks whichare widely known.

I think that the issue o biodiversity loss is starting togain some traction with business, but this is happeningslowly, much more slowly than climate change and CO2or example

Andrea Debbane, Vice President, Communications Strategy,Communication and Public Aairs, Airbus

Hidden within the headline fgure o 27% cited above thereare stark regional variations. 53% o CEOs in Latin Americaand 45% in Arica are concerned that biodiversity loss willadversely impact their business growth prospects (Figure 2)compared to just 11% in Central and Eastern Europe.

Figure 2

Respondents who were extremely or somewhat concerned aboutbiodiversity loss as a threat to their business growth prospects.

North America

Western Europe

Asia Pacific

Latin America

CEE

Middle East

Africa

0%

45

36

11

53

34

18

14

Q: How concerned are you about the ollowing potential threats to your businessgrowth prospects?Base: All respondents (139, 442, 289, 167, 93, 28, 40) Please note small base or Middle East

Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010

Drawing on a somewhat dierent respondent profle, theWorld Economic Forums Global Risks 2010 report fnds thatthe perceived risk related to biodiversity loss, considered overthe next ten years, has increased in both likelihood and

severity in 2010 compared with 2009 (Figure 3). Set against aselection o other risks however, concern over the severity ineconomic terms remains relatively low.


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Figure 3

Biodiversity in the global risk landscape

Likelihood

Severity(in

US$)

Oil price spikes

Slowing Chinese economy (


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A typology o biodiversity risks

Sectors most likely to be aected17

PrimaryIndustries(e.g.

or

estry,oil&gas,

mining,

armingandfshing)

Utilities(e.g.electricity,gas,wate

r)

ConsumerGoods(e.g.auto

mobiles,

ood

products,

householdproducts)

ConsumerServices(e.g.r

etailers,media,

travelandleisure)

HealthCare(e.g.pharmaceuticals,

biotechnology,

healthcareproviders)

Industrials(e.g.construction,aerospace,

components)

Financials(e.g.

banking,

insurance,asset

management)

Technologyandbusiness

services(e.g.sotware,

telcoms,

consulting)

Category Risk

Physical

risk

Reduced productivityBiodiversity loss, ecosystem degradation and consequent loss o ecosystemservices can adversely impact productivity across a range o sectors.

Scarcity and increased cost o resources

For companies reliant on plant and animal commodities including genetic materials,scarcity and increasing costs pose a signifcant threat to on-going viability.

Disruption o operationsYears o ecosystem degradation has let many areas vulnerable to what were oncetermed natural disasters.

Regulatoryand legalrisk

Restricted access to land and resourcesMany business models rely on access to natural ecosystems and areas o highbiodiversity and in a number o regions this access is becoming more difcult to obtain.

LitigationCompanies are requently subject to litigation as a result o their exploitation obiological resources or their adverse impacts on ecosystems and the associatedhuman health consequences.

Reduced quotasA number o sectors are subject to quotas governing the extraction o biologicalresources. These quotas restrict business growth and when tightened they can havea dramatic eect on company prospects in the short term.

Pricing and compensation regimesGovernments around the world are introducing new compensation regimes andmarket based instruments to help address threats to ecosystems and biodiversityby putting a price on the environmental damage caused by companies. Suchmechanisms will signifcantly increase costs or sectors and operators aected.

Marketrisk

Changing consumer preerencesAs consumers become increasingly aware o the environmental credentials ocompanies and their products there is evidence that buying habits are alreadychanging. I this trend continues, sustainably extracted natural materials willeventually be a core requirement or market access in the sectors aected.

Purchaser requirementsA number o major purchasers are introducing or enhancing sustainable procurementguidelines which present signifcant risks or suppliers that will struggle to comply.

Other risks

Reputational riskAssociation with adverse impacts on biodiversity and ecosystems can result insevere damage to a companys brand and restrict its social license to operate.

Financing riskRisks outlined above may have an adverse impact on a companys cash ows reducingits credit quality and consequently increasing the cost o accessing new fnance. Major

lenders are also tightening environmental requirements or access to corporate loans,particularly signatories to the Equator Principles, and insurers are increasingly sensitiveto risks associated with biodiversity loss and ecosystem degradation. Supply chain riskRisks outlined above can have dramatic adverse consequences or downstreamoperators threatening security o supply chains or leading to increased costs.

Many in business are aware o the global problem obiodiversity loss and ecosystem degradation but this is otennot perceived as an issue or business. However, as the tablebelow illustrates, a wide range o risks related to decliningbiodiversity and loss o ecosystem services are already

impacting on business. Primary industries such asextractives, orestry, arming and fshing are aected mostbroadly but no sector escapes untouched by some orm obiodiversity risk.


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Example

Deorestation in the Agno River basin in the Philippines has led to such extensive river and reservoir siltation that the 100-megawatt Binga hydroelectric acility can onlyoperate intermittently17.

Measures to control deorestation and conversion to soy and palm oil production may signifcantly increase the prices o these commodities which orm key inputs or many

producers o ood and household goods.

Studies have shown that the total economic impact o Hurricane Katrina (approximately US$150 billion), was signifcantly higher than would have been the case i costalwetlands in the region had been preserved18.

The share price o Associated British Ports dropped by 12% ollowing the reused planning permission or their port at Dibden Bay, UK, due to its proximity to protectedareas. The company was orced to write o 44.9 million in sunk costs 19. The Transnet project in Russia incurred severe delays due to its proximity to the pristine BaikalLake and potential impacts on the critically endangered Amur Leopard, and cost Transnet a reported USD 1 billion to shit the pipelines route 20.

In 2003, indigenous Ecuadorians fled a suit against ChevronTexaco in an Ecuadorian court, charging the company with dumping toxic oil wastewater into 350 open pits as well asinto Amazon basin wetlands and rivers that the tribes rely upon or drinking, bathing, and fshing 21.The company is currently involved in a $27 billion court battle relating to alleged toxic contamination o local rainorests and rivers 22.

Commercial fshing operations in the European Union have been impacted over the past decade by the tightening o fshing quotas on cod, hake, plaice, and other speciesin an eort to curb the depletion o wild fsh stocks. Operators who exceed quotas can ace substantial fnes and suspension o licences.

Driven by the Endangered Species Act, landowners in the US are obliged to mitigate their impact on endangered species, and must purchase credits to oset unavoidableimpacts rom a Biodiversity Banking scheme. Similarly in Australia, where companies clear vegetation, they are required to purchase osets o similar habitat elsewherewhich can be sourced through the Bushbroker System. Average credit prices range rom AUD $42,000 to $157,000 per hectare 23.

The gradual prolieration o ecologically certifed materials such as Marine Stewardship Council (MSC), Forest Stewardship Council (FSC) and Rainorest Alliance areindicative o the changing consumer demand or biodiversity-riendly products. Consumer sales o these certifed products are growing rapidly; sales o MSC-labelledproducts worldwide grew by 67% rom April 2008 to March 200924.

Walmart will now only purchase armed shrimp certifed to Global Aquaculture Alliance standards and has recently pledged to source only wild-caught resh and rozen fshor North American stores rom fsheries certifed by the Marine Stewardship Council.

The orestry company MacMillan Bloedel suered reputational damage when Greenpeace and others protested against the frm or clear-cutting orests. In response, ScottPaper and Kimberly-Clark in the United Kingdom stopped sourcing rom MacMillan Bloedel, causing the company to lose fve percent o its revenue almost overnight25.

In 2008, the Norwegian Pension Fund withdrew its 500 million stake in the mining giant Rio Tinto and excluded the company rom its unds. The decision to withdraw was

based on the activities o Rio Tintos mining operations in Indonesia

26

.

We source extensively rom the State o Caliornia. One o theitems we source is almonds. The price o those almonds isdetermined by a number o actors, including availability, andit is our opinion that one circumstance that is contributing to

a reduced level o availability is colony collapse disorder.Steve Yucknut, Vice President, Sustainability, Krat

When we were developing the A380 assembly line, ourobligations under the Natura 2000 environmental regulationsin France resulted in a six month delay or one o the buildingswhile preservation o local biodiversity was addressed.



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A case study o biodiversity loss and agricultural supply chains

Agricultural production is reliant on biodiversity andecosystem services. Dependencies include waterretaining eatures o the landscape, soil nutrient cycling bymicro-organisms, local and global climatic stability, geneticvariability in crops and pollination and pest control servicesprovided by insects and other animals. However, modernagriculture also requires highly modifed ecosystem statesand the on-going relationships between biodiversity,ecosystems and agricultural production are complex and

subject to instability. The fgure below illustrates a ew o thereal costs borne as a result o these instabilities.

Biodiversity is the oundation o our business. Agriculturedepends on biodiversity as the adaptation o agriculture to newenvironmental conditions depends on the inherent diversity withinplants. Essentially, biodiversity is the oundation o agriculture.

Juan Gonzalez-Valero, Head o Corporate Responsibility, Syngenta

These costs aect the entire value chain:

Producers through reduced crop income;

Processing companies with supply interruptions andincreased input prices;

Retailers who increasingly need to invest in assessingsupplier and product related biodiversity risks, and devoteresources to responding to NGO campaigns on specifcproduct ranges.

Climatic stabilityDecline in staple crop yields inSE Asia and Arica that wouldresult rom a 4C rise in globaltemperatures

25 - 40%

Figure 5

Examples o the economic cost o loss o biodiversity and ecosystem services or agricultural supply chains.

Decline in Australianagricultural incomecaused by the2002/2003 drought

Genetic variabilityCommercial interest in genetic banking

is indicative o its value to producers.Continued loss o biodiversity willnecessitate increased expenditure onseed banking or genetic variability will belost. Crop samples currently maintainedby 1,500 gene banks around the world

46%Pest & disease controlAnnual losses caused by mismanaged oraccidental species introductions as agriculturalpests in the US, UK, Australia, South Arica,India and Brazil

billion$100

million6

Water retention & ood controlCost o ooding linked to deorestationwhich destroyed c.25 million hectares ocrops in Bangladesh, China, India andVietnam in 1998

billion$23

PollinationProportion o themost productivecrops, includingmost ruits andoilseeds, which areanimal-pollinated

70%Soil quality & retentionAmount o cropland abandoned dueto soil erosion in the past 40 years

27 28

30

31

billionhectares1.5 32 34

Economic cost o soilerosion in Europe

53per hectareper year

33

29


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The loss o biodiversity impacts our raw material supplychain. Were highly dependent upon the earth and its abilityto produce the natural resources we use to make ood.

Steve Yucknut, Vice President, Sustainability, Krat

Further, the pressure or new agricultural land accounts or 60to 80% o global orest conversion activity.35 New climatechange related measures aim to dramatically reducedeorestation related emissions by 2050. I successul, along

with other pressures on land, this will signifcantly reduce newagriculture-related conversion.

This analysis ocusing just on agricultural production systemsdemonstrates trends in risk which are relevant to a number oother value chains:

1. Costs relating to biodiversity loss and ecosystemdegradation can be numerous and varied;

2. Some o the risks are oreseeable and can potentially bemonitored, and even hedged through insurance and otherfnancial instruments;

3. Certain risks and costs will be unpredictable thecomplexities o interactions between ecosystems andeconomic activity present invisible threats;

4. Costs are likely to increase the impacts o ecosystemdegradation, compensation expectations, legislation, andpressure group activities are all increasing; and

5. Continued and severe ecosystem degradation can leadto a collapse o commercially valuable stocks (e.g. o certainfsh, tree species and ood crops) or a ailure in specifcecosystem services (e.g. commercially valuable pollinationservices due to Colony Collapse Disorder or disruptedrainall patterns).

Opportunities

Where there are risks there are also opportunities. A range oinitiatives are underway to encourage sustainable agriculture,and the need to meet uture demand whilst protectingbiodiversity presents many opportunities along the value chain.

Public agencies and others are providing increased undingor biodiversity conservation in cultivated landscapes,

recognising the need to work beyond protected areas.

Agricultural practices such as integrated crop managementand conservation agriculture provide opportunities orarmers and agri-businesses to increase production moresustainably.

Suppliers to the agricultural sector can beneft rom saleso products which help producers to conserve biodiversitywhilst increasing production.

Multiple initiatives are being sponsored by the ood andagriculture industries to promote sustainable agriculture

including roundtables on sustainable palm oil, soy, coee,sugar and cocoa.

We believe that our products work well with natural systemsby reducing the amount o pesticides needed to grow crops,by allowing greater use o conservation tillage which buildstopsoil and provides cover or oraging birds and smallmammals, and by allowing greater yields on currently usedarmland, relieving pressure on orests and marginal lands.

Natalie Dinicola, Director, Sustainable Agriculture DevelopmentPartnerships, Monsanto

Processors and retailers can take advantage o rapidgrowth in demand or certifed sustainable agriculturalproducts to enhance brand value and dierentiate theirproducts with consumers. In so doing, they providefnancial incentives to help producers protect ecosystemsand biodiversity.

I these and other practices sympathetic with biodiversityand ecosystems can be scaled up there is still hope thatincreasing demand or agricultural output can be met withoutcausing irrevocable damage to the uture productive capacityo ecosystems.

Thinking more broadly than agriculture, a range ocomparable opportunities exist in other sectors, orbusinesses that are attuned to the biodiversity agenda.


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Biodiversity and business over the next decade

Will biodiversity risk become material or mainstreambusinesses, or alternatively, will biodiversity relatedopportunities capture the imagination and attention obusiness leaders?

The 10th Conerence o the Parties to the Convention onBiological Diversity (CoP 10) in Nagoya, the publishing oa major international study on The Economics o Ecosystemsand Biodiversity (TEEB), and the United Nations InternationalYear o Biodiversity all converge in 2010. As a result, at

least in this year, companies are likely to hear and use theword biodiversity more requently. It remains to be seenwhether, in the ace o so many other immediate challenges,momentum will continue to build or serious and sustainedprivate sector engagement in the biodiversity agendapost-2010.

With the population at 6.7 billion today, growing to 9 billionby 2048, and continued and accelerating biodiversity loss,its hard to imagine that pressures on space arent going tolead to more impacts on business.


The Economics o Ecosystems and Biodiversity (TEEB) a game changer?

The economic analysis on the cost o biodiversity loss andecosystem degradation already coming out o the TEEBinitiative is providing leaders in both business andgovernment with much needed inormation on which tobase key decisions, at corporate and national level.

For example, the analysis exposes the skewed logicbehind decisions to allow conversion o mangroves to

commercial shrimp arming, by setting the short term andnarrow private sector returns on which conversiondecisions were based, against the ar greater societalbenefts o mangrove protection (including stormprotection, fsh nursery, timber and other orest products).In this analysis, net private sector returns ater mangroveconversion were estimated at US$1,220 per hectare peryear, less than one tenth o the societal benefts providedby intact mangroves which were valued at US$12,392 perha per year.36/37

What does this mean or business? Several scenarios areplausible, and indeed already observable in specifc casesand countries:

1. Signifcant growth in compensation regimes andregulatory controls on businesses and projects with highimpacts on biodiversity and ecosystems;

2. Consumer preference trends and choiceediting byretailers undermines markets or high biodiversity impactproducts and services;

3. Habitat banking, biodiversity offsets, and otherecosystem markets ourish;

4. Signifcant tax and subsidy reform occurs to better reectbiodiversity values; and

5. Control o biocarbon-related GHG emissions resultsin global nancing mechanisms (Reducing Emissionsrom Deorestation and Degradation (REDD) or similar) topromote pro biocarbon, pro biodiversity co-beneft activities.

International Finance Corporation review o PerormanceStandard Six increased nancing risk?

The International Finance Corporation is currently reviewingits Perormance Standards, including Perormance StandardSix (PS6) on Biodiversity Conservation and NaturalResources Management. The process will clariy defnitionssuch as what is meant by a critical natural habitat in orderto improve consistency o application o the standards.

PS6 underpins the Equator Principles which govern projectfnance provided by signatory banks, so the IFC is developinga guidance note and new tools or identiying critical habitats

and related client requirements more eectively.

This may present new challenges or developers seeking toraise fnance or projects in sensitive areas.


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Will biodiversity become a material risk ormy operations?

How real and close to home biodiversity risk is to specifccompanies and value chains will vary substantially in themedium term. In the absence o a coordinated globalapproach to governance in this area, local policy makers andcapital markets may ultimately determine what is protectedand what is lost, which sectors have to change behavioursand which continue largely with business as usual.

Just two years ago, REDD and TEEB were entirely academicconcepts. In late 2009, they eatured in mainstream press aspart o the Copenhagen summit agenda and wereacknowledged as crucial ocus areas in tackling climatechange and biodiversity loss and promoting social welare.

Given the complexity o the oten undamental risks whichbiodiversity loss presents, more work is undoubtedly neededto ully understand the risks to business and impacts onvalue. Nonetheless, much research has already been doneand more is under way. Deeper analysis and growingawareness o the implications o biodiversity loss are likely to

drive it to the ore o the economic and environmental agendaover the coming years, in much the same way that climatechange has moved to centre stage over the past decade.

Perhaps the most unpredictable aspect we ace inthe debate on biodiversity is the pace o change.

We have worked with a variety o dierent partners,including IUCN and others, trying to promote this idea oa system or motivating companies to avoid biodiversitydamage. For us, I think this would be very positive, andwe would look to be a leader in this area.


Biodiversity risks are captured within our risk assessmentprocedures. These include direct or indirect risks andbenefts o our products on biodiversity.

Juan Gonzalez-Valero, Head o Corporate Responsibility, Syngenta


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Managing biodiversity risk

Activity Guidance

1Assess yourcurrent processesand capacity

Determine i there is sufcient technical expertise within your organisation to understand relevantbiodiversity risks or whether external support is required.

Review the processes currently in place to manage biodiversity risks and identiy the teams orindividuals responsible.

Review how your competitors and other leading companies are responding to biodiversity risk.

2Evaluate potentialbiodiversity riskor your business

With the help o external organisations and tools as appropriate, identiy your businesss direct impactsand dependencies on biodiversity and ecosystem services and potential material risks.

Reerencing the typology on page 8 assess your exposure to other biodiversity related risks, or example:

Regulatory: Might your business be aected by regulatory responses to biodiversity loss?

e.g. extraction quotas, ecosystem pricing regimes, permitting requirements. Physical: Will ecosystem degradation expose your operations to increased disruption?

e.g. ooding, desertifcation.

Company brand: What negative impacts on biodiversity are hidden in the closet in your operationsor supply chains? E.g. unsustainable sourcing, impacts on endangered species, pollutants.

Supply chain: Could biodiversity risks threaten the operations o your key suppliers?

3

Develop andimplementa strategy toprepare andprotect the

business

Consider establishing a working group or similar to manage the strategic response.

Create a ramework to track and manage the risk which is commensurate with the potential scaleo the risk, appropriately governed, integrated with internal management systems and importantlyencompasses supply chains and potential downstream impacts.

Engage with industry initiatives which can help to manage risk and provide reputational advantage.

4Communicateyour positionto stakeholdersand positivelyinuence policy

Communicate your perormance, initiatives and successes to your stakeholders.

Use your progressive position and alignment with industry initiatives to reach out to other organisationsand develop strategic alliances.

Engage early in policy consultations to help shape pending national and international ecosystem relatedregulations and ensure that you are well placed to deal with the implications.

Consider leveraging media interest in biodiversity to strengthen your position.

Whether biodiversity risk is addressed as an issue in its ownright, or tackled as part o a wider enterprise risk managementprogramme38, will depend on the nature o the business inquestion. Notwithstanding this, there are a series o practicalsteps which businesses can take to evaluate and managetheir exposure.

By acting early to manage risk, companies can also beneftrom a leadership position in addressing biodiversity lossand can use their refned understanding to exploit newbusiness opportunities which are sympathetic to biodiversityand ecosystems.


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Relevant initiatives and resources

Detailed background inormation on biodiversity and ecosystems;The Millennium Ecosystem Assessment (MA) was a major global study providing a state-o-the-art scientifc appraisal o thecondition and trends in the worlds ecosystems, the services they provide and the options to restore, conserve or enhance the sustainable useo ecosystems.

The Economics of Ecosystems and Biodiversity (TEEB) is a major international study to draw attention to the global economic benefts obiodiversity, to highlight the growing costs o biodiversity loss and ecosystem degradation, and to draw together expertise rom the felds oscience, economics and policy to enable practical actions moving orward.

Tools or evaluating biodiversity risks;

Ecosystem Services Review (ESR) includes a sequence o questions that helps managers develop strategies to manage risks andopportunities arising rom a companys dependence on ecosystems.

Natural Value Initiative (NVI) includes the Ecosystem Services Benchmark, a methodology or assessing biodiversity and ecosystemservices-related risks and opportunities in the ood, beverage and tobacco sectors.

Integrated Biodiversity Assessment Tool (IBAT) is a screening tool which draws inormation rom the World Database ofProtected Areas (WDPA) and other sources to help companies incorporate biodiversity into their risk analysis, decision-making andplanning processes.

Business and Biodiversity Offsets Program (BBOP) toolkit assesses whether biodiversity osets are appropriate and provides guidanceon oset design.

Initiatives and resources to support implementation, decision making and communication;

Ecosystem Valuation Initiative (EVI) builds on the ESR, enabling companies to value their impacts and dependencies on ecosystem servicesto eed into better business decision making.

Multi-scale Integrated Models of Ecosystem Services (MIMES) is an integrated suite o models that assess the true value o ecosystemservices and how their unction and value may change under various management scenarios.

Integrated Valuation of Ecosystem Services and Tradeoffs (InVEST) is a decision-making aid to assess how distinct scenarios may lead todierent ecosystem services in particular geographic areas.

Business and biodiversity initiative aims to increase the engagement o the private sector in achieving the objectives o the Convention onBiological Diversity (CBD).

In summer 2010 TEEB will release a report aimed specifcally at business which will provide practical guidance on the issues and theopportunities created by the inclusion in mainstream business practices o ecosystem- and biodiversity-related considerations.

Companies should consider engagement with sector or issue specifc initiatives and organisations such as the Round Table onSustainable Palm Oil (RSPO), the Forest Stewardship Council (FSC) and the Marine Stewardship Council (MSC). The International Socialand Environmental Accreditation and Labelling Alliance (ISEAL) provides a useul gateway to a number o relevant environmentalstandards systems.

Leaders in the feld have also benefted rom collaboration and strategic alliances with major conservation NGOs.

Biodiversity is an important topic that we ocus on acrossthe company at Monsanto. Rather than look at it rom onepoint o view through one team, our company elects to havenumerous teams look at specifc aspects o biodiversity tobring broader ocus and a variety o points o view.



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Acronyms

CBD Convention on Biological Diversity

CCD Colony Collapse Disorder

CoP 10 The 10th Conerence o the Parties (to the CBD) to be held in Nagoya, Japan in October 2010

FSC Forest Stewardship Council

GHG Greenhouse Gas

NGO Non-Governmental Organisation

REDD Reduced Emissions through Deorestation and Degradation

RSPO Round Table on Sustainable Palm Oil

TEEB The Economics o Ecosystems and Biodiversity

Acknowledgements

AuthorsWilliam Evison, Senior Associate, Sustainability and ClimateChange, PricewaterhouseCoopers LLP UK

Christopher Knight, Assistant Director, Sustainability and Climate

Change, PricewaterhouseCoopers LLP UK

This paper has been prepared with the support o

PricewaterhouseCoopers Global Thought Leadership Group(www.pwc.com/researchandinsights).

With input rom:Sheana Tambourgi, Director, Head o the Global Risk Network,World Economic Forum

Jason Shellaby, Research Analyst, Global Agenda Councils,World Economic Forum

PricewaterhouseCoopers and the World Economic Forum would

also like to thank the ollowing people who kindly took part in

interviews which helped to inorm this paper:


Juan Gonzalez-Valero, Head o Corporate Responsibility,

Syngenta




Reerences

1. World Economic Forum, Global Risks Report 2010.www.weforum.org/en/initiatives/globalrisk/Reports/index.html

2. FAO, State of the Worlds Forest, Rome (2003).

3. Dahdouhguebas et al. (2005). How effective were mangroves as a defence against the recent tsunami?

4. Huang, J. (2008). An Overview of the Semi-arid Climate and Environment Research Observatory over the

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5. Food and Agricultural Organisation, How to feed the world in 2050, October 2009.

6. Worm, B. et al. (2006). Impacts of Biodiversity Loss on Ocean Ecosystem Services.

7. The International Soil Reference and Information Centre (ISRIC).

8. IPCC, 2007: Climate Change 2007: Impacts, Adaptation, and Vulnerability.

9. Food and Agriculture Organization of the United Nations (2001).

10. Eliash, J., (2008) Eliash Review; Climate Change; Financing Global Forests. UK.

11. Millenium Ecosystem Assessment (2005).

12. Garca-Torres, L. et al., (2001). Conservation agriculture in Europe: Current status and perspectives.

13. Convention on Biological Diversity, business.2010, magazine on business & biodiversity. June 2009.

Volume 4 - Issue 1.

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15. Danie le Perrot-Maitre, (2006). The Vittel payments for ecosystem services: a perfect PES case?

16. Sec tors adapted from FTSE / DJ International Classication Benchmark.

17. Corporate Ecosystem Services Review, World Resources Institute et al. 2008.

18. UNEP FI, Bloom or Bust, 2008.

19. UNEP FI, Bloom or Bust, 2008.

20. The Economist, Where the wild things are, October, 2008.


22. The Sunday Times Magazine, The Amazons Dirty War, November 2009.

23. Victoria Department of Sustainability and Environment, 2006.

24. Marine Stewardship Council, Annual Report 2008/2009.


26. The Times, Norwegian wealth fund sells stake in Rio Tinto, September 2010.

27. www.actoncopenhagen.decc.gov.uk/en/ambition/evidence/4-degrees-map/

28. www.treasury.gov.au/documents/817/HTML/docshell.asp?URL=03_article_2.asp

29. Convention on Biological Diversity, business.2010, magazine on business & biodiversity. June 2009.

Volume 4 - Issue 1 . www.pwc.com/gx/en/research-publications/exploring-emerging-risks.jhtml

30. Uni ted Nations Economic and Social Commission for Asia and the Pacic (ESCAP).

31. www.fao.org/DOCREP/005/Y4586E/y4586e11.htm

32. www.grida.no/news/press/2185.aspx

33. Garca-Torres, L. et al., (2001). Conservation agriculture in Europe: Current status and perspecti ves.

34. The Global Crop Diversity Trust website 2008: www.croptrust.org/main/trust.php?itemid=84

35. www.grida.no/news/press/2185.aspx

36. TEEB The Economics of Ecosystems and Biodiversity for National and International Policy Makers

- Summary: Responding to the Value of Nature 2009.

37. Barbier, E. B. (2007). Valuing Ecosystem Services as Productive Inputs. Economic Policy 22 (49):

177-229.

38. PricewaterhouseCoopers, Exploring Emerging Risks, Extending Enterprise Risk Management (ERM) to

address emerging risks, 2009.


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organization committed to improving the state o the world.

The Forum provides a collaborative ramework or the worlds

leaders to address global issues, engaging particularly its

corporate members in global citizenship. Incorporated as a

oundation, and based in Geneva, Switzerland, the World

Economic Forum is impartial and not-or-proft; it is tied to no

political, partisan or national interests. The Forum has NGOconsultative status with the Economic and Social Council o

the United Nations. (www.weorum.org)

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