It’s time to work towards a nature-positive economy

Many businesses, recognising the perils facing the planet, are changing the way they operate.

The planet’s ecosystems are nearing critical tipping points, with extinction rates 100-1,000 times higher than they were a century ago. Our current economic system has put natural resources under ever-increasing pressure. As the recent UK Treasury-commissioned Dasgupta Review of the Economics of Biodiversity puts it, our economies “are embedded within Nature … not external to it.” The task now is to embed this recognition in our “contemporary conceptions of economic possibilities”.

Many businesses, recognising the perils facing the planet, are changing the way they operate. But they can’t do it all alone, and the current rules of our financial and economic system must change if we are to build an equitable, nature-positive, net-zero future.

Such changes make economic sense. Firms that take a long-term view and meet the needs of all stakeholders by prioritising environmental and social risks and opportunities over short-term gains and profitability outperform their peers in terms of revenue, earnings, investment, and job growth. Similarly, companies with strong environmental, social, and governance (ESG) policies perform better and have higher credit ratings.

According to the World Economic Forum’s 2021 Global Risks Report, four of the top five risks to our economies are environmental  — including climate change and biodiversity loss. Human-driven nature loss, its links to the spread of diseases such as Covid-19, and the estimated $300 billion annual cost of natural disasters caused by ecosystem disruption and climate change highlight the risks of unbridled economic growth. Thinking beyond GDP and short-term profit is therefore essential in order to restore our relationship with the planet and transform our system into a viable one.

The true risks arising from nature loss and climate change often are not accounted for or understood, including by investors. The economic cost of land degradation amounts to more than 10 per cent of annual gross world product, and human-caused declines in ocean health are projected to cost the global economy $428 billion per year by 2050. The flip side is that shifting towards a nature-positive economy could generate $10 trillion of business opportunities and create nearly 400 million jobs.

Thriving companies supporting this transition are in a true leadership position. But if a sustainably-oriented firm’s profits dip, reality hits. Investors often chase short-term profits instead of using ESG indicators as a credible proxy  — alongside financial performance  —  to measure a company’s value. This definition of business success must change.

Consider the case of consumer goods multinational Danone. In 2020, Danone became the first listed French company to adopt the model of an entreprise à mission, or purpose-driven company, when 99 per cent of shareholders agreed to embed sustainability into the firm’s governance structure. This year, the company came under increasing pressure from activist shareholders  —  including from those in the 1 per cent who opposed the new model  — owing to what they regard as the firm’s “prolonged period of underperformance”. While Danone’s share price has underperformed those of its rivals, the company is not in the red. Nonetheless, in March it announced the departure of chairman and CEO Emmanuel Faber, who had championed the firm’s sustainable business model.

It is fair to say that not all shareholders value the same things, and the fact that investors are questioning companies’ ESG efforts can only be positive. But that should not stop advocates of a purpose-driven strategy that considers a wider range of stakeholders and their interests from seeking ways to strengthen the rules and bolster non-financial performance further. As the Dasgupta Review argued, we must “change our measures of economic success to help guide us on a more sustainable path”.