Why it pays to consider biodiversity

Why it pays to consider biodiversity

Why it pays to consider biodiversity 8334 3334 Greengage Environmental

‘Just as diversity within a portfolio of financial assets reduces risk and uncertainty, so biodiversity increases Nature’s resilience to shocks.’

Let us start with some immutable facts. Nature underpins our economies, livelihoods, health and happiness. Societal demands upon nature, however, far exceed its ability to sustain our current levels of consumption.

These core tenets form the basis of the recent landmark publication, the Economics of Biodiversity: Dasgupta Review. Commissioned by HM Treasury, this report addresses our broken system of economics head on, through the lens of natural capital.

Natural Capital and Ecosystem Services
Natural capital, simply put, is the stock of natural resources in a given space. It encompasses all biotic and abiotic features, such as soils, air, water and all species of plant, animal, fungi and microscopic life. It is the basis from which we derive all other forms of capital, be it manufactured, financial, human or social capital. Without natural capital, none of these exist.
This, therefore, leads to the concept of ecosystem services, which describe the processes which flow from the stock of natural capital upon which we are dependent. These include provisioning services such as the food we consume, regulating services such as carbon sequestration, cultural services such as spiritual/religious experience and supporting services such as nutrient cycling and soil formation.

The near universal, institutional undervaluing of nature is at the heart of the problem, and with the generational challenges of the biodiversity and climate emergencies, fundamental changes in how we think, act and measure economic success are required.

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Biodiversity, Climate Change and Climate Resilience

Climate change accelerates biodiversity loss. Changes in the geographical distribution of species are required to allow them to move with the changing climate. However, many species are static, and when a species’ range hits a barrier such as an ocean or mountain range, there is nowhere for it to go.

Conversely, protecting and restoring biodiversity can help avoid and mitigate the effects of climate change. Many of our best carbon sinks are naturally occurring habitats such as tropical rainforests, peatlands and salt marshes.

Additionally, highly diverse ecosystems are the most resilient to anthropogenic pressures, including climate change. In turn, these resilient and diverse ecosystems provide ecosystem services which improve human resilience to climate change, such as natural flood defences or erosion control.

Biodiversity, literally the measure of biological diversity (i.e., the number of species of plants, animals and fungi), underpins many of the essential goods and services we derive from the natural world, and is a key enabling characteristic of functional ecosystems (the spaces in which this biodiversity interacts with the chemical and physical environment).

Just as diversity within a portfolio of financial assets reduces risk and uncertainty, so biodiversity increases nature’s resilience to shocks. By depleting our biodiversity and degrading our ecosystems we therefore chip away at our stock of natural capital, and by preventing recovery, we undermine the building blocks of our global economy.

Such degradation is not however sufficiently captured in typical business models or asset valuation. Something which clearly needs to change.

Figure 1. Links from Biodiversity to the Economy (Dasgupta, 2021, p.17)

Links from Biodiversity to the Economy

The significance of this report being commissioned by the Treasury, in the very same year in which we are to host the UN Conference of the Parties on Climate Change (COP 26) and China hosts the Conference of the Parties on Biodiversity (COP 15) should not be overlooked. While the review does not present anything we, as environmental professionals, were not already aware of, it is the mainstreaming of this understanding that is significant; an ecosystem-led approach presented by an economist in the language of economics.

Partha Dasgupta proposes three key transitions to tackle the issue, using economic systems to help us reverse course:

  1. Ensure demands on nature do not exceed nature’s ability to supply the raw goods and services through reducing consumption, improving efficiencies, and increasing nature’s supply relevant to its current level;
  2. Change measures of economic success. At a national/international level, replace GDP with Inclusive Wealth, a measure which takes into account stocks of goods, rather than the flow of money; and
  3. Transform institutions and systems (particularly finance and education) to enable changes to sustain future generations. Through improving our relationships with nature, we increase people’s investment in protecting it.

These are broad, interconnected transitions and addressing each point will mean vastly different things for different people, industries, and governments, although we all have a role to play.

The construction industry and fund managers and investors particularly can contribute however, and importantly, benefit, from these transitions.

Changing Measures of Economic Success

Whilst much of the Dasgupta Review focuses on the (mis)use of GDP as a measure of economic progress at a global scale, there are ways in which industry can contribute to this transition at an individual, organisational and institutional level.

Step one is to encourage accurate Natural Capital Accounting. This is not a new concept. Indeed, natural capital valuation and ecological economics have been common ideas in conservation literature since the 90s, and anyone versed in Environmental, Social and Governance (ESG) reporting will be familiar with the idea. Biodiversity and ecosystem service losses are typically externalised when looking at development or asset management, meaning said losses are not suitably accounted for.

Natural Capital Accounting however can assess the value of an asset’s natural capital stock, as well as ecosystem service flow. By accounting for this, it is therefore possible to make more informed decisions, which evaluate potential impacts of policy or management changes upon the resilience of an asset/portfolio to climate change.

This can be summarised concisely: conserve and enhance biodiversity; retain and improve ecosystem service delivery; increase natural capital stock; and accordingly, derive tangible benefit upon asset performance through embedded climate resilience.

Furthermore, when evidencing such consideration, it is then possible to derive additional benefit from leveraging biodiversity and natural capital gains within existing financial drivers, including ESG and Task Force for Climate Related Financial Disclosure (TCFD) reporting or through helping meet net zero pathways reflecting wider climate resilience targets.

As ecologists we can look at this through the lens of the emerging biodiversity net gain (BNG) and ecosystem service valuation (or Environmental Net Gain, ENG) concepts. Importantly, both approaches allow us to quantify changes (usually through proxy measures) in the ecological performance of an asset. It is these predicted or actual changes that can be measured and leveraged for the mutual benefit of asset managers and nature.

This BNG/ENG template for identifying, optimising, measuring and reporting direct and indirect benefit is, therefore, applicable to any organisation with landholdings or built form assets, and in particular those that have a requirement for ESG reporting.


A Template for Moving Forward

Accounting for biodiversity is only the first step, with significant cultural changes clearly needed.

Integrating biodiversity within financial decision making however would incentivize significant institutional change. Shareholder reports should have as much of a focus on biodiversity and carbon accounting as financial performance, making natural capital a core KPI.

Mainstreaming the understanding of biodiversity’s importance needs to be coupled with the mainstreaming of investment in biodiversity and natural capital. Encouraging actions such as Defra’s recent Natural Environment Investment Readiness Fund (NEIRF) grants hint at a future which reflects this, where private investment favours projects which evidence integrated biodiversity and climate resilience.


Great Portland Estate Environmental Net Gain Strategy

Greengage supported Great Portland Estates to deliver an Environmental Net Gain strategy across key assets in its London portfolio. Baseline conditions at each property were assessed for their biodiversity value and ecosystem service output and a strategy to enhance each site to deliver measurable environmental benefits was prepared.

Through the proposed interventions, significant uplifts in biodiversity value and ecosystem service delivery were targeted, including improved habitat connectivity, water management/regulation and air quality.

Consequentially, Great Portland Estates were able to create ESG-linked KPIs, improve environmental performance and enhance the climate resilience of its London assets.

Our toolset and ability to accurately assess the value of biodiversity, natural capital and ecosystem services, both in real and financial terms, is ever increasing. The insights this provides should be placed at the forefront of considerations around development viability and portfolio management.

Whilst this all demands institutional action at a global level, we are all asset managers, and all have a responsibility to support a transition to a sustainable future, for the mutual benefit of nature and ourselves.

Dasgupta, P. (2021); The Economics of Biodiversity: The Dasgupta Review. Abridged Version. HM Treasury, London.

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