The meaning of nature and biodiversity for banks
Explore the difference between nature and biodiversity for banks, the importance of nature and biodiversity, the significance of nature and biodiversity for banking and finance professionals, and how banks and other financial institutions can contribute to nature protection and biodiversity conservation.
Nature and biodiversity are terms that are often used interchangeably but they have distinct meanings and implications. Understanding the difference between nature and biodiversity is important for appreciating the complexity and diversity of our planet, as well as for developing effective strategies to protect and preserve the natural world.
According to the Convention on Biological Diversity, biodiversity refers to “the variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems.” About 8 million kinds of organisms, including animals, plants, fungi, and bacteria, as well as the habitats that support them, such as oceans, forests, mountainous regions, and coral reefs form the concept of ‘biological diversity’ or ‘biodiversity’. Each species contributes significantly to the health of ecosystems and the preservation of the natural order, making biodiversity an important aspect of our daily existence.
Nature, on the other hand, encompasses all systems that are currently in existence. It is defined by the Taskforce on Nature-related Financial Disclosures (TNFD) as: “The natural world, with an emphasis on the diversity of living organisms (including people) and their interactions among themselves and with their environment.” It refers to all the existing systems created at the same time as the Earth, all the features, forces and processes, such as the weather, the sea and mountains. In other words, nature is all life on Earth (i.e., biodiversity), together with the geology, water, climate and all other inanimate components that comprise our planet.
Nature and biodiversity offer numerous advantages to humans, including improving our physical, emotional, and mental well-being and freely providing the necessities for our survival—through ecosystem services—from the air we breathe, the water we drink, and the food we eat:
Biodiversity safeguards us: Biological diversity provides ecosystem services that enable life to exist in our natural environment. The term "ecosystem services" is comparatively new, having been coined to assess the worth of nature and draw attention to environmental degradation. The natural mechanisms and functioning of ecosystems, known as regulating services, provide us with protection. Climate control, flood regulation, and other natural hazard regulation are examples, as are pollination and water purification. Natural water purification services in Europe are considered to be worth €33 billion per year. Insect pollination benefits plant growth and development, the cleaning and filtering of air and water by plants, the decomposition of waste by bacteria, carbon storage and temperature control by the ecosystem, and so on.
Biodiversity provides food and water: Biodiversity for Food and Agriculture (BFA) is the subset of biodiversity that contributes, in some way, to agriculture and food. Biodiversity supports lives and livelihoods by supplying nutritious food and water. These are classified as provisioning services distinguished by humans' ability to acquire products from ecosystems such as wood, oil, genetic resources, and medicines. According to the Food and Agricultural Organisation of the United Nations (FAO), there are approximately a quarter million plant varieties accessible for agriculture, but the world's food supply is dependent on approximately 150 plant species. About 12 of those 150 species provide three-quarters of the world's food, which is critical for feeding the people.
Biodiversity aids in the battle against disease: The increase in human health has been shown to be directly linked to biological diversity. It functions as a reservoir for medicinal resources used in popular and traditional medicine as well as for the development of pharmaceuticals, in addition to providing food and protection. A variety of plants and mushrooms, for example, provide treatments for a wide range of health issues. Overall, biodiversity supports global health and nutrition.
Biodiversity supports business and the economy: Our growing understanding of nature's true worth can be limited when we consider ecosystem degradation; however, it is well known that biodiversity underpins economic prosperity. Approximately US$44 trillion in economic value generation—more than half of global GDP—is moderately or highly reliant on nature and its services, primarily in sectors such as construction, agriculture, and food and beverages.
Biological diversity loss has received much less attention to date, albeit it has the potential to have an economic and financial effect comparable to that of climate change. According to the Living Planet Report 2022, continuing unsustainable activity has directly contributed to an average of 69% decline in the relative abundance of the world's monitored wildlife populations between 1970 and 2018. In addition, according to the 2022 Summary for Policymakers of the IPBES Global Assessment Report on Biodiversity and Ecosystem Services, one million species of plants and animals are in peril of extinction in the coming decades.
Five main factors—land- and sea-use change, direct overharvesting of organisms, climate change, pollution, and the spread of invasive species—are presently responsible for significant biodiversity loss. These events have been precipitated by indirect forces of change, such as trade, technological development, local and global governance, population dynamics and trends, patterns of production and consumption, and societal values and behaviours. A wide range of commercial activities also add to the stresses driving biodiversity loss from our natural environment.
The protection of nature and the prevention of further biodiversity loss depend significantly on banks and other financial institutions. Due to pressures such as stricter liability laws, increased scrutiny of supply chain practices, and changing customer preferences, the roles of banks, insurers, asset managers, and investors are becoming increasingly important.
The risks that the financial sector faces because of biodiversity loss and the effect of their activities and investments on biodiversity are both subjects of increasing public awareness. Regarding the impacts of the financial system on biodiversity, banks and other financial institutions influence biodiversity via the economic activities they enable through lending, investment, and insurance; however, they typically face physical risks, i.e., threats to the ecosystem services on which economic activities rely, transitional risks, i.e., changes in government policies, technological advancements, or consumer preferences aimed at reducing the harm to ecosystems that create new environs, and reputational risks i.e., negative impacts that can be traced back to a specific company resulting in reputational damage for the institutions financing it. Such risks ultimately translate into financial risks, which worsen the macroeconomic situation and threaten the stability of the financial system.
Preventing biodiversity loss requires funding and investing in nature-based solutions (NbS). Private finance makes up a critical part of the funding and investing in nature-based solutions i.e., nature-based finance, and remains an important space for banks and other FIs to play in. Initiatives like UN Environment Programme (UNEP), Economics of Land Degradation (ELD) Initiative, and the World Economic Forum (WEF) look into how wealthy nations can enhance the protection and conservation of biodiversity, which would ultimately translate into actions that banks, as the largest financiers (e.g., the government), can take forward. The University of Cambridge Institute for Sustainability Leadership (CISL) says that banks’ positioning along the supply chain enables them to provide support that can halt deforestation by growing the supply of soft commodities that are deforestation-free or forest restorative. The report Banking Beyond Deforestation: How the banking industry can help halt and reverse deforestation gives further insight on the action plan that banks can follow to halt and reverse deforestation.
Financial institutions, like every organisation, are fundamentally linked to biodiversity. Although the level of dependency varies by industry, biodiversity loss is an acute risk for all businesses. As highlighted above, banks and other financial institutions can be severely impacted by threats to biodiversity and related ecosystem services [ultimately facing physical, transition, and reputational risks], which underpin the normal functioning of the environment within which they operate. It is important therefore for banks to include biodiversity and these risks in their financial risk management systems.
How banks and other financial institutions can contribute to nature protection and biodiversity conservation
As briefly highlighted above, banks and other financial institutions play a key role in biodiversity conservation. How finance flows through the economy can be harmful to biodiversity. The sector must be mindful and take responsibility to ensure they reduce, and ultimately prevent the harm caused by the activities they finance. Below are some of the key ways in which banks and other financial institutions can and are doing to contribute to biodiversity conservation and nature protection:
Recognise the importance of biodiversity and natural resources as a pillar of financial stability and the economy - Explicitly acknowledge the urgency of the biodiversity crisis and its interrelatedness to the climate crisis and acknowledge their responsibility to ensure that the activities they finance do not lead to further ecosystem destruction and extinction.
Actively support and formally align their business operations, policies, regulations, and financial flows to reduce impacts on, and scale up [innovative] financial solutions for biodiversity and climate (which plays a critical role in biodiversity loss). Such specific policies could emphasise the exclusion of finance for specific, very high-impact business activities and the prohibition of any direct or indirect financing related to unsustainable, extractive, industrial, environmentally, and/or socially harmful activities in high-level biodiverse areas.
Align business operations, policies, regulations with relevant targets (Targets 1-21) of the Convention on Biological Diversity (CBD) and the 2050 vision of living in harmony with nature.
Support the drive towards a nature-positive future through financing, engagement and partnership levers. The objective of a ‘nature-positive’ future is essential in addressing nature loss to achieve a net-positive improvement by 2030 (i.e., we will have more biodiversity in 2030 than we do today), with more restitution by 2050 (requiring large-scale restoration of biodiversity).
Nature refers to the entire universe and everything it encompasses including biodiversity; however, the latter refers to the plants, animals, fungi, bacteria, and other organisms including the ecosystem services resulting from their interactions.
Nature and biodiversity offer several benefits to humans. Through essential ecosystem services – regulating, provisioning and cultural – the intricate web of life is sustained. By implication, financial institutions, like every organisation, depend on nature and biodiversity for their operations. Financial systems impact biodiversity loss through the activities they finance and invest in. There are opportunities for banks and financial institutions to support and drive significant biodiversity recuperation by aligning their policies, regulations, and business operations with a nature-positive future.
It is important for financial systems to recognise and acknowledge the importance of biodiversity and natural resources as a pillar of financial stability and the economy; align their business operations, policies, regulations, and financial flows to reduce impacts on, as well as scale up financial solutions for biodiversity and climate (which plays a critical role in biodiversity loss); align business operations, policies, and regulations with relevant targets of the Convention on Biological Diversity (CBD); and support the drive towards a nature-friendly future through financing, engagement and partnership levers. There has never been a more important time for banks to take action on these matters, and enable the financial system to reinforce its position as critical intermediaries in the economy in the move towards a green and protected economy.
In order to create meaningful change across the sector, all banking individuals must upskill their understanding and knowledge of responsible and sustainable practices as outlined in the UN Principles for Responsible Banking and the UN Sustainable Development Goals (SDGs). The Principles for Responsible Banking Academy, launched in 2022, is a unique, online learning programme available to banks worldwide, and provides support for banks to align their strategies with these crucial frameworks, and teach employees from backroom to board level how to apply this lens to their day-to-day decision-making. To discover more about how the Academy can help you or your organisation, please visit www.prbacademy.com.