Billions in biodiversity loss calls for radical action

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The way we currently produce and consume is ‘economically short-sighted’ and destroys value in the long term. This was the message presented in late October by more than three hundred international companies in an urgent letter in which they called on global government leaders to make disclosures on biodiversity loss mandatory, ahead of the ‘COP 15’ conference in Montreal (7-19 December 2022). Meanwhile, more than a thousand major companies are urging governments to take action to fully reverse the structural decline in biodiversity by 2030.

Limiting biodiversity loss serves these companies’ own interests. More than half of the global economy relies to some extent on Mother Nature’s ‘ecosystem services’, such as growing food, storing carbon, protecting against disease, producing oxygen, filtering air and water, and providing ingredients for medicines. These services are increasingly impacted by biodiversity loss. According to scientists, one million species of plants, animals and microorganisms are at risk of extinction and wildlife populations have shrunk by an average of 69 percent in about five decades.

Research across value chains performed by ABN AMRO and the Impact Institute shows that Dutch society unmistakably plays a part in the biodiversity crisis. In a study that included the harm caused by 65 industries through trade with 140 countries and the use of 42 types of crops, it was found that Dutch society is responsible for nearly 40 billion euros worth of damage to ecosystem services. When calculating the damage in euros, the diversity of local ecosystems was taken into account: for example, land use or air pollution in a tropical rainforest is more harmful than in a desert.

The calculated damage is equivalent to about 5 percent of GDP in 2020, or just under 2300 euros per capita.

Most of the damage is hidden. For example, 70 percent of the total damage is caused by business partners abroad. After all, imports of cocoa may be associated with land use in Ivory Coast or Ghana, imported rice with methane emissions from cultivation in India or Pakistan, imported soy with land use in Brazil, and imported beef with water pollution in Argentina.

Of the nearly 40 billion euros, just under 5 billion euros is attributable to companies operating in the agricultural sector, and sectors in the food industry account for over 4 billion euros. The combined share of these sectors in the Netherlands in terms of the harm caused to biodiversity is about 23 percent. Cattle farms are responsible for the highest damage per euro.

That damage also occurs in other, less obvious sectors and can be much more subtle. This includes the IT activities of banks or business service providers. After all, those activities lead to high energy consumption in data centres and the use of scarce metals in hardware, and thereby cause emissions earlier or later in the value chain.

The biodiversity crisis therefore manifests itself across a broad front in business, as further explained under the first recommendation. And so, in addition to the agricultural sector or the food industry, business services and financial services also hold the key to solving that crisis. The biodiversity loss per euro may be lower in those sectors, but because of their high level of representation in the Dutch economy, they still account for a significant portion of this damage.

There are all sorts of differences within sectors. For example, within the industrial sector (5.3 billion in total damage), the chemical industry (1.3 billion) is the subsector that causes the highest biodiversity loss.

Companies can reduce damage in their own operations and through discussions with suppliers, when it is clear how that damage occurs. The quantifiable damage is caused domestically and internationally by unsustainable land use, greenhouse gas emissions, and air and water pollution. Dutch production and consumption have a clear impact on these four factors. This affects the diversity of species, ecosystems, interactions - such as crop pollination by insects - and genetic variation, thus weakening ecosystem services across a broad spectrum.

The fact that companies feel a need to turn to world leaders reflects the dilemma that the business community faces. Companies that take action on their own to combat biodiversity loss could potentially lose their competitive position on the market in the short term. For example, this might be the case if a livestock farmer were to decide to discontinue the use of artificial fertiliser and provide more space for the animals, leading to a significant decline in production, and then lose sales as a consequence because the supermarket shoppers at the end of the value chain consistently choose cheaper, less sustainably produced meat offered by competitors.

When large companies’ efforts to reduce biodiversity loss result in short-term downward pressure on profits, those activities might incur the disfavour of shareholders or other stakeholders. For this reason, European and American sectoral interest groups often oppose biodiversity policies, according to recent research.

“Because of these conflicting interests, the biodiversity crisis has not received the attention it deserves,” says ecologist Patrick Jansen of Wageningen University & Research (WUR). “A breakthrough is needed, and this will only happen if companies are offered guarantees. Like the financial sector, the government plays an important role here.”

Indeed, bold legislation can set clear and fair rules for all players and remove the major hurdles that businesses see. Several initiatives for this have already been launched in recent years, including a number at European level. For example, the European Union (EU) this year proposed that by 2030 at least 20 percent of land and marine territories should have recovery measures in place, and therefore encourages additional policymaking that targets air, water and soil pollution.

In addition, the European Central Bank requires commercial banks to identify which sectors of the economy are most sensitive to the degradation of ecosystem services, and demands that they also analyse the sensitivity of their own operations to upcoming legislation, reputational damage or a swing in market demand towards more sustainable products and services. Insufficient attention for the health of the natural environment may cause an exodus of clients and suppliers, and weaker creditworthiness as a result.

Regulations along these lines will ensure that companies’ long-term interests run more in parallel with their short-term interests, which is not always the case at present.

Both businesses and governments need to tackle this urgently. According to scientists, the ‘tipping’ points are more clearly in sight for several global ecosystems, such as the melting ice caps of Greenland and Antarctica, the tropical coral reefs that serve as homes for much of the planet’s undersea life, and the Amazon rainforest.

Beyond those tipping points, it becomes very difficult to turn the tide, with all the resulting consequences: more floods, threats to food security, less access to drinking water and, in the long run, the risk of a planet that is incapable of sustaining life. However, success is far from guaranteed in this regard. After all, the UN’s Convention on Biological Diversity (CBD) set 20 global biodiversity targets back in 2010, not one of which has been fully met. The ‘transformative change’ that scientists say is crucial has not yet taken place.

A breakthrough is needed. Based on the value chain research carried out with the Impact Institute and the existing insights regarding biodiversity, we wish to make several recommendations that can potentially bring about system change of this nature. While these recommendations specifically relate to businesses and governments, it is clear that other parties - such as providers of capital and consumers - also have a crucial role in achieving a successful outcome.

In the attached publication, we will flesh out the recommendations listed below. The first three recommendations are specifically for businesses, while the next three are primarily aimed at government.

1. Identify (hidden) biodiversity loss.
2. Make biodiversity an integral part of operational management.
3. Seek small wins that have a big impact.
4. Raise knowledge and awareness of biodiversity.
5. Calculate based on the ‘true’ price.
6. Take GDP growth off its pedestal and shift the focus to broad welfare.

One message is central to this, as global companies point out in their urgent letter: “Transform the economic rules that we have to play by and require companies to take immediate action.”

All recommendations are fleshed out in the attached report, which also provides an explanation of the methodology used.  

Read full report 'Billions in biodiversity loss calls for radical action'.

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