Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.
Into the mainstream
Thankfully the climate emergency and biodiversity crisis have finally entered the collective consciousness. We acknowledge their existence and their fundamental importance. They are the reasons we do what we do as environmental professionals, but we rarely equate them, in either practical terms or in the common ‘sustainability consultancy parlance’, forgetting the crucial point that these two existential risks are not mutually exclusive.
Of course, we are not addressing the climate emergency exclusively through biodiversity-related interventions, meaning that industry’s response includes many non-nature-based solutions. However, in accepting the unquestionable facts that functioning ecosystems underpin natural capital stocks and inherent climate resilience, we, therefore, accept that nature-based solutions are a key priority in meeting climate targets for both adaptation and mitigation.
Nature-based solutions are actions which embrace biodiversity to address societal issues, providing mutual benefits for nature and people. These may include the provision of urban green infrastructure like living roofs, or the planting of new woodland, all in a strategic manner to address identifiable need. Core to the concept of nature-based solutions is the role of biodiversity in maintaining systems upon which humans rely. This includes underpinning natural capital and accordingly influencing our ability to combat and adapt to climate change.
The notion of valuing assets (be that land or buildings) in terms of their financial performance alone is surely therefore outdated. This statement is nothing new for those familiar with Natural Capital Accounting or Environmental, Social and Governance (ESG) reporting. In recent years, this been further mainstreamed with initiatives such as GRESB or, importantly, the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) allowing companies to assess and report on their sustainability or climate risk performance. The TCFD principles set out risks in two broad categories, Transition Risk and Physical Risk. Included within these categories are aspects including the risk of transitioning to net zero, the exposure to physical climate risk and the risks from potential litigation related to climate. However, it remains an unfamiliar concept in terms of our consideration of biodiversity as commercial ecologists, notwithstanding our new-found familiarity with delivering Biodiversity net Gain (BNG) through planning.
We do not condone the monetization of nature, nor do we take an absolute view that natural capital should simply replace or be inserted alongside financial capital in the existing ‘business-as-usual’ valuation framework.
Where does biodiversity fit in?
Many ESG/climate risk reporting initiatives have one thing in common. They work on the basis that investment risk is perceived to be reduced when a scheme or asset evidences its sustainability credentials/resilience to climate change. This is accordingly perceived as reducing the likelihood of investing in stranded assets or contributing toward climate change, thus damaging wider asset value.
Similarly, natural capital accounting can value an asset in terms of its natural capital stock, from which the flow of tangible societal benefits can be measured in terms of ecosystems service valuation, capturing externalities like carbon sequestration, urban heat island effect or flood risk reduction benefit. Similarly, with this approach then, one is able to draw the assumption that, in general, healthy stocks of natural capital (which heavily rely on biodiversity) will result in improved ecosystem service delivery, which will result in embedded resilience. Again, this can then be perceived as reducing the likelihood of investing in stranded assets or contributing toward climate change, thus damaging wider asset value.
These statements are nothing new. They are, however, crucial as they can accordingly be used as a device to encourage consideration of climate risk and biodiversity value outside of the classic planning framework, directly linking the two concepts to financial decision making, asset valuation and risk assessment.
This, therefore, presents a compelling argument for new development and asset management decisions to fully account for an integrated climate-nature risk approach; something stressed by the World Economic Forum’s recent Nature Risk Rising document. This argument of course ignores the very important message that we have a moral duty to be addressing this risk irrespective of whether there is specific legislation or policy requiring us to, but it can be very useful when the moral message gets lost amongst the pound signs.
Such an argument opens the door for ecologists and other environmental professionals to drive change outside of the existing policy and legislative framework to which we are largely bound in our day-to-day. Why just deliver Biodiversity Net Gain (BNG) on new development, and why to the mandated minimum extent, when there are other reasons to invest in nature?
There is a genuine opportunity for ecologists to leverage change by taking advantage of the corporate climate-reporting landscape. BNG and emerging Environmental Net Gain (ENG) metrics can be used to establish gains. This can evidence mutual benefits for climate and biodiversity, fitting into the extant model for companies to derive ESG/climate risk reporting gains.
The logic: conserve biodiversity –> contribute towards climate resilience –> reflect extant drivers for ESG/climate reporting –> mutually benefit.
Developers, asset managers and others could benefit from the associated gains provided by reduced lending rates, insurance costs, and other potential financial incentives in addition to benefiting in more tangible ways from improved ecosystem service delivery, securing the functioning of their assets where climate change or biodiversity loss creates a material impact. Ecologists could benefit because we can deliver meaningful gains for nature, our modus operandi. It’s a win-win.
Why and how?
Actions that are helping to lay the groundwork for thinking in these terms include the Climate Disclosure Standards Board’s recent consultation for reporting on nature-related financial information, alongside industry guidance for banks including PwC and the Natural Capital Finance Alliance’s Integrated Natural Capital In Risk Assessments guide.
Mechanisms to catalyze this approach are various. Of course, it can be triggered through top-down change, with the financiers and insurers themselves encouraging such action. Alternatively, it can be driven through classic ESG channels via self-imposed corporate responsibility targets, which can be upsold to deliver benefits for a company through insurance/finance routes. And finally, it can come through the establishment of actualized savings associated with an asset through improved ecosystem service delivery as a consequence of a nature-based solution.
Greengage is already working with a range of clients including major private companies and FTSE 100 businesses to deliver biodiversity gain, driven by ecosystem service delivery- and investment-related factors, entirely separate from any legislative or policy drivers. This should, however, be the norm. It’s not a leap to equate our input as ecologists to improved environmental performance and climate resilience, meaning that it shouldn’t be a leap to change the way we influence biodiversity gain.
Embedding ecology into our assets has always been of utmost importance to us as a business. That’s why we worked closely with Greengage to develop a Biodiversity Brief for Developments built around 5 principles, complementing our commitments on our existing portfolio. This Brief solidifies our approach to nature-based urban solutions to ensure that we deliver high-quality places where people and nature mutually benefit. As we are faced with bigger and more frequent challenges from climate change, these solutions not only mitigate their impact but build in resilience to ensure our long-term relevance. – Nils Rage, Sustainable Design and Innovation Manager, Landsec
A new normal
Even with these caveats in mind, however, it’s impossible to ignore the potential benefit when one acknowledges the principles. They chime with contemporary ecological trends, as this is the intrinsic basis of Biodiversity Net Gain: we accept the argument for ‘need’ on the case of the extensive evidence; the arbitrary biodiversity unit is taken as a proxy measure of value; we take the predicted/measured increase as a signal of success. This process is entirely transferable to the argument being presented, for example, the Defra metric and the emerging Natural England Eco-Metric, representing useful models to assess predicted nature-climate co-benefits.
We needn’t financially value nature when capitalizing on the suggested approach, but one can assume that financial benefit would be roughly proportionate to the scale and extent of investment in a nature-based solution, and hence commensurate to climate risk reduction.
The question in the future about whether a development is viable, or how land or building portfolios are managed, may therefore not just take account of classic financial decisions, but also the embedded nature-related climate risk, equating biodiversity value to good business decision making. This paradigm shift would acknowledge nature’s inherent importance for humanity, and representatively reflect the value of ecological expertise beyond its perceived use for simply securing planning consent.
This article was written by Morgan Taylor, Director and Head of Ecology at Greengage Environmental.