Reporting the corporate risks of climate change is increasingly becoming a required part of doing business. This month, the Securities and Exchange Commission made such disclosures mandatory for public companies in the United States, following the lead from the European Union and California.
But climate is not the only aspect of the natural world that is being transformed by human activity.
Oceans, forests and fresh water supplies have also suffered. Though corporate leaders often don’t talk about these other parts of nature, they could deeply impact the corporate world in ways that we are only beginning to measure.
Will the demise of insects that pollinate crops slash productivity? Could groundwater depletion threaten the boom in data centers? (More on that below.) Will policies to stop ocean pollution impact how companies produce plastic?
Hundreds of companies have already committed to start reporting their nature-related risks in their financial disclosures, and they will start rolling them out in the next few months.
“We’ve got to change the mindset around nature being something we can take for granted,” Tony Goldner, the executive director of the Taskforce on Nature-Related Financial Disclosures, which produced the framework the companies are using. “It’s a risk we have to actively manage. And the resilience of nature underpins the resilience of business.”
Here are a few ways companies are trying to chart the complexities of nature, and why it matters.
A practical money problem
Disclosing more corporate information may seem like a baby step. But experts say more transparency can help stop companies from greenwashing their environmental claims, as we’ve reported in a previous newsletter, and guide nature-conscious investors like New York state’s pension fund.
It may also make sense for the bottom line. Half of the world’s gross domestic product is moderately or highly dependent on nature, according to a 2020 World Economic Forum report.
A few examples: The struggling aquifers in parts of Arizona may be a major obstacle for the data centers being built there. The demise of Europe’s bumblebees, which pollinate crops such as strawberries and tomatoes, will likely make it harder for supermarkets to source products. A European law that creates obstacles for companies buying palm oil and other products from deforested areas, as my colleague Patricia Cohen has reported, can significantly affect companies based in tropical nations.
“Every single company depends on nature, whether it’s directly or through indirect links,” said Sebastian Bekker, who is developing a tool to help assess nature-related risks for the United Nations Environment Program World Conservation Monitoring Centre.
How it’s done
The Norges Bank Investment Management, which is responsible for investing money from Norway’s trillion-dollar sovereign fund, published a report about nature-related risk a few weeks ago. The fund, largely created by profits from the country’s fossil fuel exports, is the largest in the world.
Snorre Gjerde, who works on the bank’s responsible investment strategy, told me Norges Bank’s experience shows that understanding nature-related risks can be a lot more complex than accounting for climate alone.
When the bank wants to figure out how a company contributes to climate change, it’s relatively straightforward to measure greenhouse gas emissions. “One ton of emissions anywhere in the world have the same impact globally,” he said.
Impact on nature is far more complex. First, he said, there isn’t a global unit to measure nature. Second, a company’s impact on ecosystems will vary according to the location of a factory or a farm. Drawing water from a healthy river isn’t the same as depending on a nearly dry aquifer, and deforesting a biodiverse ecosystem doesn’t have the same impact as razing trees in an area that doesn’t host as many species.
“How do you account for those nuances? I don’t have an answer to that yet,” he said.
The fund owns about 1.5 percent of the entire global stock market, or “a small slice of the global economy,” Gjerde told me.
“Our mandate is to manage the fund for the benefit of the current, but also future, generations,” he added. “In the very long run, then, our financial returns will be dependent on sustainable development in economic terms, but also social and environmental terms.”
A big surge in electricity demand
Something unusual is happening in America. Demand for electricity, which has stayed largely flat for two decades, has begun to surge.
Over the past year, electric utilities have nearly doubled their forecasts of how much additional power they’ll need by 2028. Peak demand is projected to grow by 38,000 megawatts nationwide in the next five years, equivalent to adding another California to the grid.
Utilities are confronting an unexpected explosion in the number of data centers, an abrupt resurgence in manufacturing, and millions of plug-in electric vehicles.
The stakes are high. If more power isn’t brought online relatively soon, large portions of the country could risk blackouts, according to a recent report by the North American Electric Reliability Corporation, which monitors the health of the nation’s electric grids.
In an ironic twist, the swelling appetite for more electricity could also jeopardize the country’s plans to fight climate change.
To meet spiking demand, utilities in states like Georgia, North Carolina, South Carolina, Tennessee and Virginia are proposing to build dozens of natural gas-burning power plants over the next 15 years. In Kansas, one utility has postponed the retirement of a coal plant to help power a giant electric-car battery factory.
Burning more gas and coal runs counter to President Biden’s pledge to halve the nation’s planet-warming greenhouse gases by 2035.
“I can’t recall the last time I was so alarmed about the country’s energy trajectory,” said Tyler H. Norris, a former solar developer and expert in power systems. If a wave of new gas-fired plants gets approved by state regulators, he said, “it is game over for the Biden administration’s 2035 decarbonization goal.” — Brad Plumer and Nadja Popovich
Read the whole article here.
