ERM - Building nature into business decision making.

Nature is a highly valuable economic asset that is disappearing fast. 44 trillion dollars of economic value generation – more than half of the world’s total GDP – is dependent on nature and its services. Some say more. Nature depletion at its current rate could cost up to 225 billion dollars in global GDP loss by 2030. In economic terms, nature and water are 'common goods' that have been consistently undervalued, so the market signals that might be expected to underpin efficient use are not there. And now we're all starting to lose out. 

Companies like the global pharma company that is reliant on novel reactants from the natural world for new drugs, the tech hyper-scaler that has to secure adequate water supplies for its data centers - without competing with local communities for resources and the energy major that needs to find credible natural climate solutions to offset the emissions it can't mitigate – these are all examples of clients that are working with us to understand how to factor nature into their corporate strategies and take rapid action towards a nature positive future.  

Climate change is a major driving force of the nature crisis. Water scarcity and excess through extreme weather events are some of its most visible and visceral impacts. But compared with the relative simplicity of carbon - one element, a handful of molecules, and global fungibility - nature and water are hyper local and complex. And arguably even more urgent issues to tackle.  

Given companies’ reliance on nature and water throughout their value chain, it’s important that they find a clear line of sight over their nature-related risks and opportunities. Businesses need to develop practical, data-informed actions that satisfy the increasing demands for robust management of nature. 

A raft of new disclosure requirements - including the Taskforce on Nature-related Financial Disclosures, and the EU's Corporate Sustainability Reporting Directive and deforestation-free regulations - are upping the stakes on real corporate transparency for financial regulators, investors and customers alike. 

So what does best in class look like? At ERM we are working with leading companies on four critical challenges.  

Firstly, setting a clear strategic direction. How do they set clear commitments and integrate nature into an actionable strategy?  

Second, understanding a consistent, quantitative baseline and monitoring performance against it. Do they have the right processes, systems and data capture in place to manage material risks and to monitor nature-related performance?  

Thirdly, driving strong governance. Is there senior buy-in and strong multi-level governance around the company’s integrated nature programs, including incentives in place to drive a culture of sustainability, transparency and collaborative partnerships with local communities and other stakeholders?  

And fourth, being prepared for business model transformation to achieve long-term resiliency. Is there a readiness to adapt the business to nature-related value chain risks, regulatory shifts and market trends, ensuring it is positioned for sustainable growth and access to capital and customers over the long term?  

Every company that is reliant on nature and water in some way can start taking practical steps now to integrate nature risk and opportunity into their decision making.  

This means mapping their value chain to evaluate where they are dependent on ecosystem services, like clean water, biogenic raw materials and pollinators for agricultural commodities, and identifying where the risk hotspots are.  

Then they can develop a nature strategy that identifies risks and opportunities, aligns with emerging disclosure requirements, sets appropriate targets in line with the science-based targets for nature. 

They can also partner with key stakeholders to implement their nature strategy across the value chain. Depending on the industry, this might include supply chain innovation and due diligence, reimagining asset lifecycles - for example by taking a different view on how you deal with brownfield legacy land - or de-risking whole portfolios and identifying new, nature-positive investment opportunities.  

More information on Building nature into business decision making can be found at erm.com