#01 Biodiversity
Kristina Jahn

Biodiversity as Opportunity: New Economic and Political Approaches

The loss of biological diversity on a global scale has assumed dramatic proportions: 60 % of the world’s ecosystems have been damaged, 20 % of mammal species alone are threatened with extinction and genetic diversity within species has also been in decline for years. Along with the diversity of habitats, species and genes, the adaptability and efficiency of our ecosystems are dwindling with regard to their ability to provide basic natural resources such as clean drinking water, food, fuel and medicine, for example.

The consequences associated with this trend are considerable for many economies and economic sectors, particularly in developing countries.

Commissioned by the United Nations Environment Programme (UNEP) and the World Economic Forum (WEF), PricewaterhouseCoopers (PwC) investigated the effects of species loss on economies and various economic sectors, documented in two studies, "Business and Biodiversity Risk" and "Biodiversity offsets and the mitigation hierarchy: A review of current application in the banking sector", and the research project, "The Economics of Ecosystems and Biodiversity (TEEB)". (for external links, see page 3)

New opportunities and risks for companies

The analyses show that the risk exposure for companies is extensive, ranging from high procurement costs through limitations imposed by statutory regulations right up to the loss of customers. Pressure from the financial markets is also increasing. On behalf of investors with an investment volume totalling approximately 4 billion US dollars, the "Forest Disclosure Project", in imitation of the successful "Carbon Disclosure Project", ascertains the influence of companies on forest ecosystems.

At the same time, there are considerable business opportunities for companies that anticipate the trend (see, for example, the PwC study, "Sustainable Investments – The Business Case for Biodiversity", commissioned by the WWF). The markets for ecological products and services are booming and the political pointers indicate that they will continue to show an upward trend. For example, the German Federal Government wants complete transparency with regard to whether products and services damage or nurture the environment. In future, the public sector procurement and construction industries will intensify their focus on biodiversity standards. The market for sustainable investments has also shown a strong upward trend in recent years and since 2002 has increased in the German speaking countries from just under three billion to around 30 billion Euros (see Sustainable Business Institute).

The study, "The Economics of Ecosystems and Biodiversity (TEEB)", forecasts that the global turnover on sales of ecologically produced food is likely to rise to 210 billion US dollars by 2020 – up from 40 billion US dollars in 2008. Trade volumes in certified wood from sustainable forests are likely to grow from five billion to 15 billion US dollars by 2020. Experts also forecast strong growth in emissions trading. In 2020, reforestation could generate the equivalent of over ten billion US dollars in carbon certificates.

Biodiversity management in businesses

Although biodiversity is already included in company reports (of the top 100 companies in the world, just under half include it as a subject in their sustainability report and around a fifth in their annual report), so far just a few pioneering companies carry out systematic biodiversity management.

However, in an intensely competitive environment, economically sustainable business models can neither ignore the risks nor the opportunities presented by biodiversity.

To position themselves properly in the competitive environment with regard to biodiversity, companies should first research the regulatory environment, such as the Convention on Biological Diversity or the Fauna Flora Habitat Guideline and analyse stakeholder expectations. This includes, for example, changes in customer preferences in connection with product labelling, such as the seals of the Marine Stewardship Council (MSC) or the Forest Stewardship Council (FSC). Companies can then check the effects of their own business models on biodiversity. This includes, for example, habitat changes, the introduction of foreign species, emissions and immissions, the over-exploitation of ecosystems, and, not least, climate change. As part of a gap analysis, companies need to check whether and to what extent these effects are already recorded by existing environmental or risk management systems and examine how these can also be used for biodiversity.

On this basis, effective measures can be formulated and specific methodologies and instruments developed to implement biodiversity management procedures within the company. The implementation is carried out by operational divisions such as purchasing, production or marketing, which also carry out measures in specific spheres of activity such as supply chain management or the layout of business premises.

New challenges also require new political approaches

If the performance of ecosystems and the diversity and adaptability of flora and fauna is to be maintained, the response of companies must be accompanied by that of the political decision-makers, especially in developing countries.

The problem is that hitherto market prices have barely reflected, or not reflected at all, the scarcity of natural resources, such as intact ecosystems, biodiversity and/or clean drinking water. The consequence is the continuing exploitation of ecosystems through over-use and the possibility of externalising costs or creating a free rider problem.

Correspondingly, the political decision-makers are faced with the challenge of developing new solution instruments. In this context, market-oriented instruments, such as eco-taxes, for example, or trading in emissions allowances, are good starting points. The economic incentives for companies and budgets to which these instruments give rise, lead to these companies taking further environmental protection measures in the interest of their own cost savings.

The thinking behind this approach is that if environmental resources, due to their scarcity, can be successfully turned into economic goods by integrating them into the marketplace, i.e. by pricing, the hitherto misguided incentives of misuse and exploitation are converted into a focus on protecting and conserving natural resources. In other words, market players only become aware of the scarcity and value of natural resources, such as species diversity, when these qualities are reflected in market prices and therefore become the subject of everyday economic decisions.

Following the inclusion or voluntary participation of certain economic sectors in carbon trading as part of the Kyoto Protocol several years ago (e.g. energy-intensive industrial sectors or the air traffic industry), new types of market-oriented instruments have since emerged for other environmental issues. Along with the trade in carbon emissions, markets emerged in biodiversity offsets, in which the originators of environmental damage could partially offset the negative effects they caused to ecosystems by investing in conservation areas and initiatives. It goes without saying that negative effects should be avoided or reduced in the first instance before any residual effects are addressed through offset measures.

Whereas environmental policy increasingly makes use of economic instruments, a trend towards the promotion of environment oriented markets can be observed in the field of economic policy. Environmental technologies such as electromobility, are some of the most important future markets of the 21st century. With these technologies, environmental pressures are avoided or reduced from the outset and any damage that has already occurred is remedied. At the same time, their deployment supports companies in managing scarce and increasingly expensive commodities efficiently and in becoming more competitive. This enables companies to develop their potential to bring down costs, both now and in the future.

Current analyses from PwC, commissioned by the German Federal Environment Ministry, such as the two studies, "Ecological management: Future perspectives in rural areas" and "Electromobility – Challenges for industry and the public sector", show that ecological economic sectors which demonstrate strong growth can create new future perspectives for economic development through innovative business models.

A fusion of political and business initiatives will enable biodiversity and the associated new management and control systems to be recognised and utilised as promising opportunities for everyone involved.

PwC Studies:

Business and Biodiversity Risk (invalid link)

Biodiversity offsets and the mitigation hierarchy: A review of current application in the banking sector (PDF)

The Economics of Ecosystems and Biodiversity (TEEB)

Sustainable Investments – The Business Case for Biodiversity (invalid link)

Ecological management: Future perspectives in rural areas (invalid link)

Electromobility – Challenges for industry and the public sector (invalid link)