Large businesses ‘could generate $700bn in annual benefits by ending exploitation of nature’

Published this week to coincide with the start of meetings for the UN’s 15^th biodiversity COP in Montreal, Canada, McKinsey’s ‘Nature in the Balance’ report sets out how corporate activity to date has contributed to the over-exploitation of natural resources and assesses potential levers for change.

The report begins by reiterating that Earth system scientists are in broad agreement that human activity has already pushed the planet beyond the “safe operating space” for several planetary boundaries, including biochemical flows, freshwater use, water pollution and biodiversity loss. It also states that human activity is driving the consumption of natural resources at a rate almost twice as high as would be considered sustainable.

Terrestrial biodiversity loss is picked out as a particular cause for concern, with rates of loss 2.7 times as great as the aligning with the planetary boundary would entail.

“Yet fatalism would be misplaced”, the report continues, arguing that large businesses have a role to play in changing these trends – just as they have in creating the problem in the first instance. It sets out how most investments in natural resource conservation and restoration come with strong returns on investment (ROI) and that, in even more cases, action is cheaper than the risks of inaction. It argues that corporate action alone could, in theory, fully return the world within planetary boundaries for freshwater consumption, nutrient pollution and forest coverage lost.

Agriculture is named as the largest contributor to exceeding planetary boundaries, meaning that there are ample opportunities for investment across the agricultural supply chain. Investment opportunities include reducing food waste, given that at least one-third of food produced globally each year is wasted; implementing precision agriculture approaches to reduce water use and nutrient runoff; scaling up anaerobic digestion for manure and planting more water-efficient seeds.

The report also covers agroforestry – planting trees in cropland and pastureland – and regenerative agriculture practices as major opportunities for biodiversity restoration. Collectively, agroforestry and regenerative agriculture could mitigate almost one-fifth of the projected 2050 gap for the biodiversity planetary boundary, the report concludes, while generating more than $65bn in value annually.

Achieving these benefits will require action across the food value chain, from farmers, to suppliers, to retailers, to restaurants. There will also need to be concerted engagement from policymakers and investors. Policymakers, the report states, will need to mandate and standardize corporate reporting requirements and co-invest in infrastructures such as data, skills and emerging technologies. Incentives will also need to be assessed and changed where necessary, to subsidise a nature-positive future rather than the continued degradation of nature.

Economy-wide action

For sectors other than agriculture, McKinsey’s report identifies four actions that have a “significant potential” to abate the unsustainable consumption of natural resources.

These are tackling plastic pollution across the value chain; procuring additional renewable energy; implementing sustainable forestry management measures and reclaiming mines that are either disused or soon to cease operating.

Regarding renewable energy, the report states that switching to wind and solar power could reduce freshwater consumption compared with fossil fuels, nuclear and hydropower.

On plastic pollution, the report identifies plastic reduction as an opportunity for $35bn in value added each year, due to reduced plastics lost to nature and reduced costs in fields such as public health. Retail and services alone could address 53% of the excess plastic pollution, the report notes.

UN member states notably met last week in Uruguay in a bid to flesh out the first global treaty designed to stem plastic pollution. Broad terms of the treaty, including the fact that it should cover production as well as waste management, were agreed earlier this year. The final treaty is due out in 2024.

McKinsey also emphasises, through the report, the importance of corporates measuring and disclosing their impacts and dependencies on nature as a first step to developing a science-based and impactful nature strategy. At UN biodiversity COP15, there is a proposal for the treaty to mandate nature-related disclosures from large businesses by the end of the decade. This proposal has received the support of more than 330 corporates through Business for Nature.

The report from McKinsey comes shortly after CBI Economics published the results of a survey of 345 British businesses, which found that while 62% had plans to address their biodiversity impact, only 15% were already implementing these plans.

A similar trend has been uncovered on a global scale, recently, by CDP. Data reported through CDP this year confirms that just 31% of companies have made a public commitment or endorsed biodiversity-related initiatives, with another 25% planning to do so within the next two years. Delivery of these commitments was found to be weak in some sectors known to have major negative impacts on nature, including manufacturing and apparel.

GRI Biodiversity Standard 

in other biodiversity-related news, the Global Reporting Initiative (GRI) has this week launched a consultation on the revised draft of its Biodiversity Standard. The Standard was first introduced in 2016 and GRI is proposing updates that would require more detailed reporting on impacts in company supply chains, as well as their own operations.

More detailed reporting requirements are also proposed in terms of disclosing location-specific data. Linked to this is a proposal for new guidance to help businesses identify which actions would be most impactful and requirements for them to prioritise action here.

The exposure draft is open for public comment until 28 February 2023. The Standard is expected to be finalised in the latter half of 2023.

“The revision process has seen an unprecedented level of collaboration with leading experts, so that the final Standard can provide the internationally accepted best practice for transparency on biodiversity impacts,” said the chair of the Global Sustainability Standards Board Judy Kuszewski. “I encourage all stakeholders and interested parties to participate in this consultation, because we need a standard that will be the global focal point for accountability on biodiversity impacts. Improved reporting – across sectors, regions and supply chains – is crucial for addressing information gaps and informing global solutions.”