Sea fan and soft coral at Richelieu Rock in Thailand

We are facing a biodiversity crisis – but businesses can, and should, help solve it

Our planet is facing “the double, interlinked emergencies of human-induced climate change and the loss of biodiversity”, according to the World Wide Fund for Nature. Climate change is high on the corporate agenda, but biodiversity has historically received less attention from business. This is not a viable state of affairs: the financing gap for biodiversity conservation is estimated to be around $600–800 billion, which means private sector investment is crucial in tackling the biodiversity crisis.

Our new research looks into what drives some companies to voluntarily adopt biodiversity actions, and how and to what extent these actions can be scaled up. The full paper includes five case studies of different types of biodiversity action, covering the energy, water, cities, agriculture and insurance sectors.

Here, we summarise our findings in the energy and water sectors, and some of our recommendations for policymakers and businesses.

Biodiversity in the energy sector

Low-carbon energy projects like wind, solar and nuclear all have potential side effects that could exacerbate the biodiversity crisis. Acknowledging this, energy companies often have biodiversity policies, usually as part of a broader ESG strategy. However, these policies tend to lack data to show that they provide a net benefit to biodiversity, and there are strong indications that companies adopt them mainly to maintain licences, improve publicity or reduce reputational risk.

As for specific biodiversity investments in the energy sector, these tend to be a result of the regulatory process; they focus on mitigating adverse biodiversity impacts that are identified as part of an environmental assessment. They also tend to directly benefit energy projects, with biodiversity acting as a secondary benefit.

Climate change is high on the corporate agenda, but biodiversity has historically received less attention from business

For example, in Pakistan, Zephyr Power maintains mangrove forests to reduce coastal erosion. The objective is to protect wind farm infrastructure, but the forests also serve as nurseries for various aquatic species.

Nevertheless, our findings suggest there are clear financial benefits to energy companies working with nature, especially as investments tend to be low compared to overall project costs. Notably, though, we found there were no cases of companies pursuing biodiversity actions at scale as a primary objective, aside from when it was directed by regulation. 

Rather, it appears biodiversity is pursued only when it delivers co-benefits or win-win outcomes alongside other objectives. That means regulation is an important driver and strong environmental impact assessment requirements may help to create the conditions for a net-positive impact. 

Biodiversity in the water industry

Aquatic bodies support a substantial part of our planet’s biological diversity, but are under significant pressure from stresses including pollution and unsustainable use. Water companies tend to comply with regulation to control these impacts through the use of water treatment plants.

However, nature-based approaches – primarily planting and maintaining forests – are gaining popularity, thanks to their cost-effectiveness and co-benefits such as improved air quality, climate change mitigation, and protection of water supplies and infrastructure.

Accessing capital markets through green bonds offers a way to finance the acquisition of forested land. Green bonds allow funds to be raised quickly, provide a diversified investor base, and offer pro-environmental signalling that can lead to a green premium from investors.

Biodiversity is pursued only when it delivers co-benefits or win-win outcomes alongside other objectives

In the US, Central Arkansas Water used this approach, issuing a $31.8 million green bond in 2020. The proceeds went towards acquiring around 4,500 acres of forested land, with the remainder used to upgrade the existing water treatment infrastructure. 

The investment is expected to increase both the quality and quantity of available water, securing supply and lowering treatment costs, with biodiversity improvements emerging as a secondary benefit. This shows that biodiversity enhancements can be an important co-benefit of cost-effective green infrastructure approaches.

Recommendations for policymakers and business

Overall, our case studies indicate that most corporations will not act on their own to preserve or improve biodiversity at the scale required to address the biodiversity crisis. This means policymakers need to put in place more stringent regulation and incentives to drive corporate action.

Critically, though, our case studies do show that companies are more likely to take relevant, impactful action when biodiversity impacts occur alongside co-benefits. For example, security of supply emerges as a primary driver of action in two of the five cases; those that rely directly on a healthy natural environment for their products have a clearer incentive to invest. 

This offers a key avenue for policymakers, both to target incentives where they are known to work, and to identify biodiversity outcomes that require different incentives. On top of this, issues of scale and coordination, and the interconnectivity of large ecosystems, make it difficult for corporations to act individually – further pointing to a coordinating and catalytic role for policymakers.

The financing gap for biodiversity conservation is estimated to be around USD 600–800 billion

For companies themselves, we observe that biodiversity actions tend to be hidden among a range of objectives and aims. Addressing this by improving data measurement, sharing findings openly with partners, and incorporating findings into corporate decision processes could help to scale biodiversity action across the private sector.

Equally, short-termism in corporate management mindsets is a real challenge. Biodiversity investing can have prolonged and uncertain impact on timelines and may look more expensive upfront, but can be profitable in the longer term. Strategic long-term planning could have real benefits both for biodiversity and for companies’ bottom lines.

This article draws on findings from "Nature Investment as a Response to the Climate Crisis: Opportunities in Southeast Asia", an independent expert analysis by Pernille Holtedahl, Alex Köberle and Iva Koci at Imperial College Business School’s Centre for Climate Finance & Investment, with support from Impax Asset Management

Picture of Pernille Holtedahl wearing a white top and colourful scarf around her neck.

About Pernille Holtedahl

Research Fellow
Pernille’s primary research interest are models and incentive systems for increasing investments in nature, hereunder private investments. Her area of expertise is green finance, including fixed income instruments (green and sustainable bonds), carbon markets, investor trends and public-private financing of natural capital. She has a particular interest in the forestry, land-use and agriculture sectors. She has worked as an advisor and consultant on climate change, finance and sustainable development for 25 years and is the founder of Blue Maia Ltd. - an advisory firm. Pernille holds a PhD in environmental economics from George Washington University.
Alex Koberle

About Alexandre Koberle

Research Fellow
Dr Alexandre Koberle is a Research Fellow at the Grantham Institute at Imperial College London. He leads the Flow of Capital for Climate Action project in collaboration with the Business School's Centre for Climate Finance & Investment, and the School of Economics at Fundação Getúlio Vargas in São Paulo.

He is a lead author on the UN Environment Programme’s Sixth Global Environment Outlook, a contributing author on its Gap Report, and a lead author for the Intergovernmental Panel on Climate Change's Sixth Assessment Report.

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