Biodiversity Metrics: How Biodiversity Factors Can Influence Firm Value

Nature and biodiversity are under threat. Action is required by firms and regulators to achieve the biodiversity-related goals specified in the Kunming-Montréal Global Biodiversity Framework. One of these action items includes a call for clear and easy-to-use biodiversity metrics and indicators. These metrics and indicators are increasingly being developed, as exemplified by the core global biodiversity indicators by the Taskforce on Nature-Related Financial Disclosures (TNFD). Although a step in the right direction, there are complexities with biodiversity scores, metrics, and indicators that necessitate further improvements in the future. This chapter reflects on why these indicators should not immediately be regarded as the holy grail of biodiversity disclosure. Issues include those relating to the static nature of the indicators compared to the complex and dynamic nature of ecosystems, the quality of “capture-all” biodiversity metrics, and the narrow focus on impact mitigation as opposed to adaptation to a degraded state of nature. Additionally, as biodiversity disclosure is in its infancy, firms are facing uncertainty with respect to voluntary or required improvements regarding their impact on biodiversity, and its effect on the value of the firm. We employ a simple valuation framework firms can adopt, subsequently illustrating its use by considering the TNFD biodiversity indicators in combination with relevant literature to reason about the effects that reducing biodiversity impact has on firm value. Such actions likely lead to reduced firm value in the short-term. Nonetheless, disregarding the importance of nature may impair the viability of many business models in the long-term. Finally, multiple academic works demonstrate that there are also opportunities for firms to embrace the reduction of biodiversity impacts through the creation of novel products, the exploration of new markets, rethinking business models, and proactively applying advanced practices and technologies.