Risks and Opportunities

Integrating active management of biodiversity into core business strategies can be a tremendous profit-enhancing opportunity for firms. Conversely, a lack of consideration can be incredibly costly.

The opportunities & risks outlined below provide a high-level overview of costs and benefits of biodiversity.


OPPORTUNITIES
As sustainability is increasingly playing an even greater role in business models across the globe, the benefits of managing biodiversity impacts & dependencies are becoming even greater.

Customer Loyalty

Consumers demand that firms integrate sustainable practices and values into their core operations. Should firms capitalize on this new movement and integrate biodiversity into their brand, it will translate to a significant first-mover advantage.

In 2019, Business Insider found that 47% of internet users worldwide stated that they would switch to a different product or service if a company violated their values, including environmental protection.


Cost Control

A well-managed and streamlined supply chain will often improve operational efficiency and generate cost savings. Knowledge about the origin and processing of purchased resources and products improves cost control and at the same time minimizes negative environmental impact.

According to the World Economic Forum, investing in sustainable supply chains has been found to decrease operational costs of up to 16% and increase revenue by up to 20%.


Streamlined Stakeholder Relationships

In order to be operationally efficient, firms must effectively cooperate and be transparent with local communities, governments, and NGOs.

If a firm’s practices are perceived to have a sustainable and positive impact on the community, interactions with local and political leadership will be significantly streamlined.

Furthermore, firms with a proven track record of positive stewardship of natural resources on a local level will find governmental regulators to be more inclined to grant operating licenses.


Greater Talent Acquisition & Job Satisfaction

Employees are far more likely to want to work for and stay in companies with strong commitments to environment & sustainability.

Consequently, in a dynamic and fast-paced labor force, retention is paramount:

PWC reports that millennials will comprise 50% of the global workforce in 2030.

In 2019, Reuters found that 65% of millennials said that they were more likely to choose to work at a company with a strong environmental agenda.

Corporate cultural practices and human resources initiatives aimed at sustainability and biodiversity can aid in attracting & retaining top talent, and contribute to greater job satisfaction for employees.


RISKS

There are many risks associated with a firm's lack of biodiversity conservation and management.


Resource Dependency

Firms rely on flourishing flora and fauna as a lifeline for their business.

If a natural resource, upon which the company relies for production or operations is under severe stress or collapses entirely, the company’s long-term viability may be threatened.

According to the World Economic Forum:

50% of global gross-domestic product are dependent on services provided by nature.


Brand Reputation

Under intensifying market forces towards sustainability and biodiversity, firms must actively work to align company goals to biodiversity conservation or face consumer backlash.

In a 2010 study of 2000 firms by McKinsey consulting group, 72% of respondents “stated that sustainability is “extremely” or “very important” for managing corporate reputation and brands.

As such, companies engaging in business as usual models, disregarding the interlinkages between sustainability and biodiversity will face significant loss of market share as a result of increased conflict with consumers and external stakeholders.


Financial Implications

For the financial services industry, the opportunity cost of business as usual has grown even greater for both investors and insurers.

With unbridled growth in demand for environmental, societal, and corporate Governance investments (ESG), the value of sustainable and ethical investment funds has quadrupled over the course of the last decade.

Investors are increasingly using companies’ nonfinancial disclosures, including environmental risk to inform investment decisions.

Beginning In 2021, 48.6% of IBEX 35 listings now consider biodiversity as material concern for their investors.


Insurance Claims

Related to the points above, insurance companies are well aware of the risks associated with environmental degradation. Failure in managing these risks would mean higher insurance premiums for firms and larger claim disbursements.

With climate change and a related increase in natural disasters, insurance and financial service providers find themselves with greater financial liability:

Global losses due to climate change amounted to $83 billion in financial liability.

In 2020, a year of record natural disasters, the world's largest reinsurer, Swiss Reinsurance Company Ltd determined it was one of the costliest years for the industry in over 40 years.


Governmental Regulation

As governments increasingly recognize the importance of biological diversity, more legislation is expected to be in place for its conservation. In almost all cases, a company’s ability to anticipate and respond to regulation in a timely manner will determine the level of risk and cost a company will bear.