Biodiversity loss in Africa: A critical risk and opportunity for impact
- ESG and Sustainable Business
Biodiversity loss in Africa: A critical risk and opportunity for impact
Clara Bonnor | Senior Consultant
According to a 2016 study published by the UN, Africa is one of the most biodiverse regions on Earth, hosting a quarter of global biodiversity. However, biodiversity rates on the continent are declining and this could accelerate as Africa continues to invest in infrastructure in pursuit of economic development. Africa’s well-documented vulnerabilities to climate change, in the form of desertification, wildfires, and severe storms, also amplify its exposure to biodiversity loss.
For organisations investing and operating in Africa, biodiversity is increasingly viewed as a key impact opportunity but, if miscalculated or not properly considered, can be a critical risk to the success of an investment and a company’s reputation.
Biodiversity loss is sector-agonistic and can affect the operations and risk profiles of businesses and investors. Organisations that accelerate the pace of biodiversity loss or take insufficient steps to address it face reputational, legal and financial considerations. These can be triggered by media shaming, regulatory action, boycotts from consumers, increased stakeholder scrutiny, and sanctions from governments.
Against this backdrop, biodiversity is joining the familiar integrity risk checklist items alongside corruption and political exposure in pre-investment, relationship, and environmental, social and governance (ESG) due diligence. It is also a consideration in impact planning and ongoing risk management. Businesses that embrace biodiversity protection and embed it in their investment and corporate strategies will facilitate access to sources of funding, protect their social licence, and positively impact the environment and communities in which they operate.
Biodiversity is a growing risk management consideration
The rise of ESG regulations and principles, and the acknowledgement that businesses and investors must take cross-cutting views of risks to their operations, has driven a growing awareness of the role biodiversity loss can play in an organisation’s overall risk exposure. This pressure will grow with the release of further regulations and taxonomies governing biodiversity risk that will join those already in place, such as the UK’s Deforestation Due Diligence Laws (2021) and the EU Taxonomy Regulation (2020). The Taskforce on Nature-Related Financial Disclosures (TFND), due to be released in 2023, will build on the structure of the Taskforce on Climate-Related Disclosures (TCFD) and provide organisations with the ability to account for nature- and biodiversity-related concerns in their strategic planning, risk management and asset allocation decisions.
Scrutiny of organisations’ supply chains and the reframing of biodiversity as an important community and environmental issue by civil society, consumers, and policy makers is also increasing the emphasis on biodiversity. Ignoring this scrutiny can result in material financial consequences because of significant brand damage following negative NGO and media reports, growing financial and funding constraints, and increased operational burdens due to mismanaged environmental safeguards.
In Africa, there are high-profile examples of organisations affected by biodiversity concerns. The case of West Africa palm oil planters, who have endured near relentless scrutiny by local media over the past five years for their links to biodiversity loss, reflects this reputational impact. The case of Tanzanian infrastructure developers, who lost a legal suit in 2014 through the East African Court of Justice to stop the construction of a paved highway through the Serengeti, is a reminder of the potential legal implications. Pre-investment ESG due diligence could have highlighted the risks biodiversity loss would have posed to these projects, saving organisations time, money, and social capital.
Trade-offs in biodiversity considerations – the example of deforestation
Biodiversity-related risks – in Africa and elsewhere – typically manifest through the destruction of local habitats and ecosystems, and the accompanying harm caused to ecosystem services. Ecosystem services – defined as the benefits that ecosystems provide people, such as clean air, pollination, or carbon sequestration – are increasingly considered assets or “natural capital”. Declining rates of natural capital through biodiversity loss can lead to less clean water, more polluted air, and fewer resources, such as food and firewood, for rural communities.
Deforestation is often highlighted as a key cause of biodiversity loss in Africa. According to statistics released by the UN, indigenous or “old-growth” forests in Africa are being cut down at a rate of more than 4m hectares per year: twice the world's deforestation average.
However, biodiversity loss can also be caused by activities that are seemingly environmentally friendly. For example, afforestation – the planting of new trees – can harm biodiversity if new plantations of crops and trees are not native to the local ecosystem. Carbon offset programmes are an example of this. Studies published by the Oakland Institute, a policy think tank in California, have drawn a direct correlation between afforestation programmes in East Africa introducing non-native species and subsequent tensions and violence between the plantations’ managers and local communities. Communities have reported that the dominance of just a few non-native species, such as pine and eucalyptus trees, reduces the diversity of the local flora and fauna critical to communities’ food supplies and firewood. Programmes that present sustainability and ESG-positive credentials at face value could therefore also have negative consequences for biodiversity. It is important that investors, businesses and governments are aware of and actively mitigate these risks in order to avoid consequences such as divestment and loss of funding.
Biodiversity considerations are an impact opportunity
There are huge opportunities for organisations that mitigate the risks of biodiversity loss by embracing biodiversity protection as a standalone issue in their investment and corporate strategies.
To do this, investors and businesses should prioritise biodiversity as a key element of their ESG due diligence considerations. Methodologies for opportunity screening should include sufficient environmental data, such as maps of nearby protected areas and lists of threatened or endangered local species. This data should then be evaluated through an integrity and reputation risk lens, which can feed into longer term impact planning. For example, how does existing biodiversity affect the lives of communities? What programmes can be put in place to minimise negative outcomes and restore ecosystems? Investors can also play a critical role in the stewardship of their investee companies and engage with NGOs and other stakeholders to improve biodiversity impacts.
Furthermore, organisations can embed biodiversity protection into their business plans in various meaningful ways. Adherence to biodiversity standards is a good starting point. These can include:
- IFC Performance Standard 6 (Biodiversity Conservation and Sustainable Management of Living Natural Resources)
- Sustainable Development Goals 14 (Life Below Water) and 15 (Life on Land)
- GRI Standard 304 (Biodiversity)
Other ideas include strengthening and clarifying management’s role in addressing and managing biodiversity, appointing biodiversity experts to boards, and increasing in-house expertise and awareness on the subject.
Opportunities for organisations that implement these measures abound. Improved reputation can result from positive media coverage thanks to government and local NGO statistics about growing rates of biodiversity protection and recovery, and the subsequent positive impacts this has on local communities. This can result in an organisation’s improved social licence to operate and pave the way for further investment opportunities locally.
There are positive financial implications as well. Corporations and investors could become eligible for new sources of funding if they are able to show that they are successfully meeting ESG standards governing biodiversity. Development finance institutions and private investors operating in Africa, for example, are increasingly using these metrics to screen-in – and out – potential investees. Decreased costs are a similarly complementary by-product, as organisations lower their exposure to the expenses that accompany biodiversity collapse, such as litigation from local communities, retroactive environmental safeguarding, and stalled supply chains.
Then there are the inherent benefits for humanity from ecosystem services. Although governments, NGOs and some investors are increasingly working towards placing a real and current financial value on the benefits that ecosystem services provide, their true value is priceless. Without the clean air, fresh water, and healthy flora and fauna that truly biodiverse ecosystems provide, there would be no commercial opportunities at all. Securing these assets for the future is, arguably, the most important consideration to any investor who is seeking long-term financial returns from opportunities that abound in biodiverse areas.
Factoring in biodiversity and biodiversity loss when investing in Africa can help organisations efficiently navigate its accompanying opportunities and risks and generate investment upsides. ESG due diligence is an effective and widely applicable tool to this end. As incoming legislation in the form of ESG standards and governance will make biodiversity an increasingly pressing issue for organisations, likely on par with the management of carbon emissions, the reputational and regulatory risks of mismanaging biodiversity loss will become too significant to ignore.