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Biodiversity Guidance action 1.2.1
1.2.1 Familiarize yourself with the basic concepts of natural capital [and biodiversity]
a. What is biodiversity and how does it relate to natural capital?
Natural capital is a concept used for describing our relationship with nature. The presence of, and interactions between, natural capital stocks generates a flow of goods and services. These goods and services create value through the benefits they provide to business and society (Natural Capital Coalition 2016).
The flows of benefits from ecosystems to people are often described as ecosystem services (MA 2005). Ecosystem services result from ecosystem function, which describes the flow of energy and materials through ecosystems (IPBES 2019), and is the process by which ecosystems maintain their integrity (MA 2005).
Businesses and financial institutions often already evaluate environmental risk from specific issue perspectives (e.g., energy use, waste, pollution, climate change, natural resource use, and biodiversity). Natural capital encompasses all of these environmental issues and helps to describe how they are interrelated. The application of a natural capital approach builds on the environmental, social, and governance (ESG) and risk initiatives already in use, providing additional benefits such as understanding these as a set of interrelated issues with trade-offs.
So where does biodiversity come in? Biodiversity plays an integral role, underpinning the goods and services that natural capital stocks generate (figure 1.1).
Biodiversity describes the variety of life and is the living component of what can be thought of as natural capital stocks. It plays an important role in the provision of the services we receive from nature. Biodiversity can refer to the level of genetic variation, the variety of species present, or the variety of groups of species or ecosystems. In general, more biodiversity equates to a higher quantity, quality, and resilience of ecosystems and the services they provide, which underpin the benefits to business and society. As such biodiversity can be an indicator of the condition and resilience of natural capital stocks. It also contributes benefits to business and society in its own right, for example through direct and intrinsic value of species, nature-based solutions, and by enriching other benefits such as nature-based recreation.
Figure 1.1 expands on figure 1.1 in the Protocol to illustrate how biodiversity underpins healthy natural capital stocks. The figure provides further examples of biodiverse ecosystem service flows and highlights how biodiversity underpins the value flowing to business and society using the examples of pollinators providing benefits to a coffee production business and mangroves/flamingos providing flood mitigation/wildlife viewing for society.
Biodiversity is in unprecedented decline on a global scale. The rate of species extinction is already tens to hundreds of times higher than in the past and is increasing. The majority of natural ecosystems are deteriorating or have been destroyed. For example, over 85% of wetland habitats present in 1700 had been lost by 2000 (IPBES 2019).
Biodiversity’s decline has important negative implications for business and society. The current rate of loss exceeds a planetary boundary (Steffen et al. 2015) meaning that it poses a high risk of deleterious or even catastrophic environmental change. Biodiversity loss will prevent us from achieving international objectives such as the Sustainable Development Goals (UN 2015) and is considered to be one of the greatest risks facing humanity on a global scale, in terms of both likelihood of occurring and the potential magnitude of negative impact (WEF 2020b).
There is an important and complex relationship between biodiversity and the delivery of ecosystem services. In many cases, biodiversity affects the quantity, quality, and resilience of the goods and services delivered from natural capital stocks:
- Quantity: More biodiversity, in general, has the potential to deliver a greater number of ecosystem services to a wider range of beneficiaries. For example, a biodiverse woodland may have high cultural and recreational values, deliver regulating services like water filtration, soil stabilization, and carbon sequestration, and be sustainably harvested for timber. In comparison, a plantation woodland made up of a small number of species might only provide timber and some regulating services.
- Quality: In many instances, biodiversity is linked with the quality of ecosystem service delivery. For example, a plantation woodland is likely to provide a lower level of ecosystem services such as water filtration, soil stabilization, and carbon sequestration than a biodiverse woodland.
- Resilience: Biodiversity also contributes to the resilience of natural capital stocks and the stability of ecosystem service provision. For example, biodiverse coral reefs (which contribute to ecosystem services such as maintaining fish stocks and defending coastlines against storms and erosion) are more resilient to changes in ocean temperature. The variety and genetic diversity of species and ecosystems present affects the ability of a reef to resist and adapt to the effects of climate change and other disturbances.
Thinking about it in this way, you can broadly equate the benefits of biodiversity to the benefits of a diverse portfolio of financial stock. The more diverse the stock, the greater the spread of risk.
See box 1.1 for frequently asked questions about biodiversity and natural capital.
Box 1.1: Frequently asked questionsIs biodiversity the same as natural capital?
No. Natural capital refers to a stock of living and non-living components that combine to yield a flow of benefits to people. Biodiversity refers to the variety within the living components of this stock, and can be seen as an indicator of its condition.
Is biodiversity just about threatened species and protected areas?
No. The term biodiversity applies to the variety of all living organisms. Threat status or delineation as a protected area are specific designations granted to species or habitats that are considered important or threatened, to support their conservation. However, taking account of all components of biodiversity is challenging, so threatened species, protected areas, and other measures of the area and integrity of ecosystems are often used when attempting to measure biodiversity.
How does biodiversity relate to ecosystem services?
Ecosystem services are provided by the presence and interactions of natural capital stocks. Biodiversity forms a fundamental part of natural capital stocks and their ability to deliver goods and services to business and society. In many cases, the relationship between biodiversity and the goods and services produced is complex. In general, more biodiversity equates to a higher quantity, quality, and resilience of ecosystem service provision. Less biodiverse natural systems can still yield ecosystem goods and services but they are generally fewer, of lower quality, and more vulnerable to change.
I have included ecosystem services in my natural capital assessment. Doesn’t that mean I’ve automatically included biodiversity?
No. Ecosystem services are flows of goods and services, while biodiversity refers to the variety of the living component of a natural capital stock. Natural capital assessments that focus only on the flow of benefits (ecosystem services) rather than the condition of the stock (biodiversity) can lead to poor business decisions. For example, a sole focus on ecosystem services could lead to investments in maximizing highly valued flows in the short-term while stocks are left to deteriorate. Biodiversity’s contribution to ecosystem services is complex, and often poorly understood. Natural capital assessments need to explicitly include biodiversity as the stock that generates benefits.
Is biodiversity the same as natural capital?
No. Natural capital refers to a stock of living and non-living components that combine to yield a flow of benefits to people. Biodiversity refers to the variety within the living components of this stock, and can be seen as an indicator of its condition.
Is biodiversity just about threatened species and protected areas?
No. The term biodiversity applies to the variety of all living organisms. Threat status or delineation as a protected area are specific designations granted to species or habitats that are considered important or threatened, to support their conservation. However, taking account of all components of biodiversity is challenging, so threatened species, protected areas, and other measures of the area and integrity of ecosystems are often used when attempting to measure biodiversity.
How does biodiversity relate to ecosystem services?
Ecosystem services are provided by the presence and interactions of natural capital stocks. Biodiversity forms a fundamental part of natural capital stocks and their ability to deliver goods and services to business and society. In many cases, the relationship between biodiversity and the goods and services produced is complex. In general, more biodiversity equates to a higher quantity, quality, and resilience of ecosystem service provision. Less biodiverse natural systems can still yield ecosystem goods and services but they are generally fewer, of lower quality, and more vulnerable to change.
I have included ecosystem services in my natural capital assessment. Doesn’t that mean I’ve automatically included biodiversity?
No. Ecosystem services are flows of goods and services, while biodiversity refers to the variety of the living component of a natural capital stock. Natural capital assessments that focus only on the flow of benefits (ecosystem services) rather than the condition of the stock (biodiversity) can lead to poor business decisions. For example, a sole focus on ecosystem services could lead to investments in maximizing highly valued flows in the short-term while stocks are left to deteriorate. Biodiversity’s contribution to ecosystem services is complex, and often poorly understood. Natural capital assessments need to explicitly include biodiversity as the stock that generates benefits.
b. What are the values of biodiversity?
Despite the benefits biodiversity provides to business and society, many of its values are often underappreciated in natural capital assessments (see box 1.2 for more discussion of value).
The values of biodiversity can be summarized as follows:
- Direct value: In some instances, biodiversity itself has value to business’s bottom line, for example through providing food, or in tourism based on wildlife watching.
- Underpinning value: More commonly, biodiversity has value through its role in the delivery of ecosystem services. Systems such as water cycles, carbon cycles, and crop production rely on the interactions of living things, and the diversity of these living things will influence the quantity and quality of the services delivered.
- Insurance and options value: Some goods and services can be delivered with relatively low biodiversity, but are vulnerable to change from factors such as pests, diseases, or climatic instability. Biodiversity increases the resilience of a system, enabling it to continue providing ecosystem services despite changes in conditions that may occur in the future, which are often uncertain. Biodiversity provides options for delivery of ecosystem services from alternative sources in the future (for example new crop species that might be domesticated for agriculture or new medicines). Biodiversity also provides options for new ecosystem services, for example benefits from biodiversity that are not yet recognized (i.e., where biodiversity is currently providing benefits to business and/or society that we are not yet aware of) or services that will only become beneficial in the context of future technological or societal innovations (i.e., where biodiversity contributes to processes that are not currently beneficial but become beneficial due to future changes to the natural environment or changes to the way people live or what they value).
- Intrinsic value: Biodiversity has value independent of human use of the goods and services it provides. This value is associated with the moral right of living things to exist. Some people consider intrinsic biodiversity values to also be intertwined with other values, such as bequest value (knowing that future generations will continue to benefit from biodiversity), altruist value (knowing that other people of the same generation can benefit from biodiversity), and existence value (connected to our desire to protect biodiversity irrespective of whether we derive any value from it other than associated with our knowledge of its existence).
You may also come across the terms “use value” and “non-use value” to describe and categorize biodiversity values. Use values encompass the direct values, underpinning values (also sometimes called indirect values), and insurance and options values outlined above. Non-use values relate to biodiversity’s intrinsic value, bequest value, altruist value, and existence value (TEEB 2010).
The relevance of biodiversity to your business relates to both the values it provides to your business and the value of biodiversity to wider society. Often, the value of biodiversity will be realized from the perspective of wider society, rather than solely for your business.
Box 1.2: What is meant by value?In the Protocol, value is defined as the importance, worth, or usefulness of something (Natural Capital Coalition 2016). The concept of value represents what something is worth to someone. Biodiversity may have different values to different groups of people, and the value of biodiversity may be different from a business perspective and from a societal perspective.
Value is not the same as cost or price. Cost represents the amount incurred through an action (or lack of action), while price is the amount paid for something (Olajide et al. 2016).
Valuation is the process of estimating the relative importance, worth, or usefulness of natural capital to people (or to a business), in a particular context. Valuation may involve qualitative, quantitative, or monetary approaches, or a combination of these (Natural Capital Coalition 2016). See the Valuing Guidance for further information on valuing biodiversity as part of your natural capital assessment.
In the Protocol, value is defined as the importance, worth, or usefulness of something (Natural Capital Coalition 2016). The concept of value represents what something is worth to someone. Biodiversity may have different values to different groups of people, and the value of biodiversity may be different from a business perspective and from a societal perspective.
Value is not the same as cost or price. Cost represents the amount incurred through an action (or lack of action), while price is the amount paid for something (Olajide et al. 2016).
Valuation is the process of estimating the relative importance, worth, or usefulness of natural capital to people (or to a business), in a particular context. Valuation may involve qualitative, quantitative, or monetary approaches, or a combination of these (Natural Capital Coalition 2016). See the Valuing Guidance for further information on valuing biodiversity as part of your natural capital assessment.
c. Why are some of these values often underappreciated in natural capital assessments?
The full value of biodiversity may be overlooked in your natural capital assessment if links have not been identified between your business activities and biodiversity. For example, your business might depend on water extracted from a natural water source, and the quality and quantity of water available might be affected by biodiversity in the upstream watershed. This link between biodiversity and delivery of water needs to be recognized to identify and include the value of this business dependency on biodiversity within your natural capital assessment. Furthermore, your business may not have identified all impacts on biodiversity. For example, abstraction of water may have impacts on species in downstream wetland areas, and these impacts cannot be included in your natural capital assessment if they have not been identified.
Another reason why biodiversity might be underappreciated is due to the multitude of different components (e.g., species, habitats, ecosystems, genes) that make up biodiversity, and upon which your business might have impacts and/or dependencies. For example, the impacts of your business activities on some species might be minimal, however other species might be more sensitive. Lack of knowledge and understanding associated with these different components of biodiversity, and the interactions between them, may lead to underappreciation of some biodiversity values in natural capital assessments.
In addition, the Protocol focuses primarily on flows of ecosystem services from natural capital, and their value to business and society. Capturing flows is important, however the full contribution of biodiversity to the quantity, quality, and resilience of ecosystem service delivery can be unclear when using this approach (CCI 2016, Mace 2019). The biodiversity values likely to be underappreciated when focusing on flows of benefits are outlined below.
- Underpinning value: By focusing on flows of final benefits, assessments may fail to recognize the role of biodiversity in delivery of ecosystem services. Recognizing this underpinning value can be challenged by the difficulty of untangling the specific contribution of biodiversity to ecosystem service delivery, particularly given time lags between the loss of biodiversity and the decline in delivery of goods and services. Furthermore, underpinning value can be underappreciated where biodiversity contributes to goods and services that we are unable to measure, or may even fail to recognize as providing us with benefits in the first place.
- Insurance and options value: By focusing on flows of immediate and tangible benefits, natural capital assessments may overlook future benefits that biodiversity could provide. These benefits could include biodiversity’s role in providing a stable and resilient flow of ecosystem services under changing environmental conditions (insurance value), and/or delivering other benefits in the future that may not yet be known, such as new medicines, materials, or crops (options value).
- Intrinsic value: Biodiversity’s intrinsic value is independent of any use of goods and services by people and therefore will be overlooked when focusing on ecosystem service flows.
Better recognition of the importance of biodiversity can be achieved through improvements in assessment methodologies. However, it is important to recognize that gaps will remain and some values will continue to be underappreciated. For example, this may be due to limitations in scientific understanding of the relationships between biodiversity and delivery of goods and services. You should usually consider the values of biodiversity identified in a natural capital assessment as minimum estimates and take a precautionary approach in business decision-making, considering biodiversity values alongside other information and in consultation with stakeholders.
