Last week marked the start of COP15, the UN Biodiversity Conference, which runs from 7-19 December 2022. Just like other Conferences of the Parties (COPs), this one brings together government bodies to agree on international goals, in this case a framework to ensure humanity lives in harmony with nature by 2050. As we cover below, certain biodiversity issues are already being addressed by policy makers around the world, but the agreements made during COP15 are expected to go much further and will set out action-based targets for 2030 in a document called the Post-2020 Biodiversity Framework. This Framework will directly impact future legislative and regulatory steps taken by participating governments. Much like the ‘Paris moment’ for climate change, the outcomes of COP15 (specifically the proposal to protect 30% of land and sea by 2030) are hoped to act as a landmark moment for biodiversity and will influence how business, government and financial institutions address biodiversity decline in the next decade.
In this article, we introduce some of the key biodiversity terminology before assessing how nature policy can provide opportunities and legal risks for your sector.
What do we mean by natural capital or ecosystem services and what is biodiversity?
One way to think of nature is the foundation on which all people – and the economies they create – are built, something we can’t exist without. The stock of resources available to us from nature is known as natural capital. It includes foods, fibres, fuels, minerals and metals – everything we grow and take. The flow of benefits resulting from those resources is referred to as ecosystem services, or simply ‘nature’s contribution to people’ (NCP). Think of crop pollination, water purification, clean air, climate regulation and the breaking down of wastes.
At the current time, humans are drawing down on the Earth’s natural capital at an alarming rate, in some cases to the point of species extinction. Typically, this is done to generate economic development, but the ‘extractive’ mindset behind it risks compromising our basis for survival and future economic success. For this reason, companies must consider their impacts on nature carefully, refrain from contributing to biodiversity decline and reverse previous harm through ‘nature-positive’ business models. Companies are also being encouraged to consider their dependencies on nature as failure to do so could leave them exposed to a host of physical, regulatory, reputational and market risks. It has been calculated that around half of the world’s GDP (~$44 trillion) is dependent to some degree on nature’s services.
Biodiversity is a scientific term describing the variety of life on Earth, from humble genes to magnificent forests. It is narrower in scope than ‘nature’ which also includes the planet’s mineral wealth and, as Business for Nature puts it, “the air we breathe, the water we drink, the forests, land and oceans we rely on”. Biodiversity is part of nature, but not the whole thing.
Biodiversity risks for your sector
Biodiversity health and the risk of nature decline affects all businesses, below we look at examples of some of the key issues that governments and policymakers are grappling with which are translating into legal risks for businesses, illustrated in each case with a handful of examples from a range of different sectors:
- Due diligence and reporting: a likely outcome from COP15 will be a greater push for the introduction of requirements for all businesses (public and private, large, medium and small) to assess and report on their dependencies and impacts on biodiversity. Alongside this analysis will be an expectation for businesses to reduce negative impacts by at least half and move towards fully sustainable supply chains.
In the build up to COP15 there has been an increasing demand for large businesses in all sectors (including financial institutions) to assess and disclose their impacts and dependencies on biodiversity by 2030; a demand at least partially met by the EU’s recently proposed Corporate Sustainability Due Diligence Directive (which would require affected businesses to carry out due diligence across their supply chain and report on and address environmental adverse impacts, including with regard to biological resources) and mirrored in national due diligence legislation (such as the French duty of vigilance law and the German Supply Chain Duty of Care Act).
To facilitate these assessments, the Taskforce on Nature-related Financial Disclosures (TNFD) was established in 2021 in response to the growing need to factor nature into financial and business decisions. It seeks to create an international risk management and disclosure framework for organisations to report and act on evolving nature-related risks. The TNFD is hosting sessions during COP15 and will publish their recommendations in September 2023.
Any businesses with particularly complex and far-reaching supply chains (in particular those in sectors such as Automotive, Consumer Goods, Retail and Life Sciences) will want to pay close attention to these reporting developments. Similarly, as biodiversity loss is now viewed as a foreseeable financial risk, Financial Institutions and players in the Insurance market will also be expected to assess and report on risks in their portfolios (an expectation which the TNFD is facilitating via its draft disclosure guidance for financial institutions).
- Habitat loss and deforestation: many businesses are reliant on resources arising from natural, biodiverse habitats. According to the Convention on Biodiversity, 80% of registered medicines come from plants or are inspired by natural products. The protection of natural capital is therefore essential to the continued R&D success of the Life Sciences sector. Likewise, the Manufacturing sector (and others that rely significantly on manufacturing such as Automotive, Consumer and Retail) relies on the conversion of natural resources into a range of goods for consumption or further processing, or depend upon other produce associated with the deforestation of biodiverse habitats so that the same land can be used differently (e.g. for the grazing of cattle or the planting of monoculture crops).
New European and British rules on deforestation-free products across the supply chain will increase scrutiny on commodities sourced from forested regions and oblige business to report publicly on their due diligence to show that the relevant product did not contribute to deforestation internationally. The range of products captured by the proposed legislation (including timber, beef, coffee, soy, palm oil, cocoa, rubber, maize etc.) will particularly impact the Automotive and Aviation sectors (due to the leather used in seats and rubber used in wheels) as well as the Life Sciences sector (given the use of maize starch as a diluent, disintegrating agent or binder in the production of some medicines). Linked to the regulatory demands, deforestation-linked challenges and, in some cases, litigation have also started to be brought by NGOs, for example the pressure being exerted in France on certain businesses in the Retail sector for an alleged lack of supply chain vigilance. Such claims are likely to increase as greater reporting obligations become more widespread.
- Freshwater: ensuring the security of freshwater will be central to the ongoing success of many industries, but is especially important to Agriculture (as irrigated agriculture contributes to around 40% of the total food produced worldwide), Chemical companies (water is used in most chemical processes including temperature control, solvent preparation, product rinsing and distillation), Automotive businesses (key manufacturing processes such as surface treatment, coating, painting etc. rely heavily on freshwater) and Technology centres (who rely on freshwater for water-cooling servers). Alongside the reliance on the availability of freshwater, many of the same sectors risk regulatory fines or the threat of litigation due to the impact of their operations on freshwater (especially whether they have adequate waste-water management in place).
Government bodies in the UK and Italy have recently come under pressure from NGOs threatening litigation for alleged failures to protect waterways with adequate sewage plans. This NGO tactic has also turned to the private sector, in particular evaluating the impact of large-scale Agriculture and the reliance by Retailers on mass farming, or the scrutiny that the Life Sciences sector has faced due to the discharge of active pharmaceutical ingredients into the environment (from, among other sources, the manufacture of medicines, patient use, incorrect disposal of medicines, hospital waste).
- Soil quality & use of pesticides: the global food system is viewed as a primary driver of natural capital loss which, along with an increase in agricultural homogony faces self-destructive risks from degraded soil quality and excessive reliance on chemical inputs and monocultured crops. To protect against those risks the EU released its Farm to Fork Strategy, a package of measures which directly impacts Agricultural businesses and Retailers and includes a series of legislative changes altering the way that food is produced, transported, distributed and marketed.
Connected to a sustainable food system is the impact that the Chemicals sector has on soil, air or water contamination via the impact of pesticides. The EU has recently released a draft regulation for the sustainable use of pesticides. The proposed regulation sets EU and national level targets for the reduction of both the use of and the risk from chemical plant protection products by 50% across the EU by 2030, though the UK consultations have not progressed to a similar level of certainty (see our blog on pesticides here). Legal claims by NGOs and individuals against pesticide manufacturers have also increased in recent years (especially in the US), alleging both health and nature-related damage to localised communities.
- Product material and life cycles: the EU’s Circular Economy Plan seeks reduce the consumption of irreplaceable natural capital by changing the design, production and consumption of consumer products and ensure that no waste is produced. To this end, in the Consumer Goods and Retail sectors, the EU Strategy for Sustainable and Circular Textiles sets out a target that by 2030 textile products placed on the EU market are long-lived and recyclable, made as much as possible of recycled fibres, free of hazardous substances and produced with respect for social rights and the environment.
The EU’s Circular Electronics Initiative and associated measures aims to promote longer product lifetimes and recyclability for the Technology sector, with a public consultation on the Waste from electrical and electronic equipment Directive expected in early 2023.
Of particular note for the Automotive sector is the World Economic Forum Circular Cars Initiative, the increasingly stringent European regulatory proposals found in the EU Green Deal covering batteries (sustainability and treatment across the life cycle) and the over-due legislative proposal for end-of-life vehicles which may include a fully extended producer responsibility system.
Users and producers of plastic-based products (predominantly the Chemicals and Consumer Goods and Retail sectors) will be experiencing the impact of the EU’s Directive on single-use plastics and draft packaging Regulations (discussed here). Both of which seek to reduce the consumption on irreplaceable plastics from product uses. Alongside this regulatory trend, 2022 has seen a rise in minority shareholder action specifically directed against plastic users and producers.
- Land use: new protected areas have been demanded as part of a global ’30 by 30’ ambition to protect 30% of the planet by 2030, within the EU by the expansion of the existing Natura 2000 protected areas network, and through the European Commission’s proposal for a nature restoration law, as well as the UK Environment Act 2021.
The use of land (in particular its repurposing by the Infrastructure and Transport sectors) will be a focus area in coming years. Most major infrastructure projects a disruptive impact on local species habitats and ecosystems and need careful design to minimise this. Natural habitats like forests, wetlands and grasslands can be fragmented, restricting the movement of wildlife and in some cases reducing their scope for survival. This impact is recognised by the UK Environment Act 2021’s introduction of a minimum 10% biodiversity net gain included in UK planning application for each new development from November 2023 onwards. Net gain can be met by the creation of biodiversity measures at a development site, on nearby registered offsite land or by the purchase of credits from the UK Government (credits which will be managed by a national body and be used to invest in habitat creation – more information is expected in secondary legislation in due course).
Actions by NGOs to prevent an alteration in land use are on the rise, with a notable example being the challenge brought by ClientEarth against the construction of a new airport in an area of wetlands near Lisbon. Such biodiversity-based infrastructure challenges are likely to become more commonplace.
In short, policy makers and regulators are taking action and biodiversity is now firmly on the business agenda, having moved over the past decade from margins to mainstream. As ever this presents opportunities and risks for companies based around their level of awareness, capabilities, business models and potential for innovation. All eyes will be on the output of COP15 as an indicator to guide the leading organisations investing in work around their impacts and dependencies on nature.