Biodiversity & Natural Capital ' The Next Value Creator

• Published date: 26 January 2023
• Subject Matter: Environment, Environmental Law, Climate Change
• Law Firm: MJ Hudson
• Author: Mr Tom Timmerman, Sydney Straver and Basil van Wijk

Biodiversity refers to the abundance and variation among all life on earth at the genetic, species and ecosystem levels. We humans are directly dependent on rich biodiversity and the resources provided by the natural environment. These resources, known as natural capital, provide us with essentials, such as freshwater and land, as well as services, including crop pollination and carbon absorption.

Our previous article summarised the importance of biodiversity to the economy and its impact on asset managers and owners. However, the unprecedented decline in global biological diversity¹ and natural capital do not solely pose risks to companies. Strategic, smart, and sustainable management of impacts and dependencies on biodiversity and natural capital offer an opportunity for long-term value creation. Despite these opportunities, action remains predominantly driven by regulation. This article looks at three simple ways to view natural capital through the lens of value creation.

Reconciling economic and strategic value with natural capital

The examples, below, look at value creation through supply chain resilience, land valuation, and strategic positioning.

Strategic,smart,andsustainablemanagementofimpactsanddependenciesonbiodiversityandnaturalcapitalofferanopportunityforlong-termvaluecreation.

Supply chain resilience

Material biodiversity impacts typically originate from the upstream activities of suppliers (for example: wood procurement for office furniture; mining materials for electronics; and livestock feed for food production). In today's world, these activities are often not managed sustainably, and natural capital is sacrificed at the altar of production optimisation. Sustainable management of upstream activities, however, provides significant opportunities for value creation. For example, collaborating with suppliers, such as forest managers, miners, and livestock farmers, can lead the way to resilient and future-proof positioning on biodiversity and natural capital management.

The case of electric vehicles (EVs) further substantiates the value creation opportunities that arise from sustainably managing biodiversity and natural capital in the supply chain. Although EVs are part of the solution to fight climate change, the impacts on biodiversity upstream are quite severe, predominantly driven by battery production and mining. Most batteries are produced and mined using a traditional 'linear' business model approach with a focus on price/quality...