As it becomes more imperative for companies to measure and manage their greenhouse gas (GHG) emissions, an effective starting point is reviewing the business and economic activities that produce those emissions.

Because any GHG emissions will result from an activity that requires an economic cost, financial accounting provides a powerful starting place to identify corporate emissions sources that can then be augmented with activity-based carbon accounting for even deeper insights.

By examining the intersection of carbon-emitting activities and their resulting financial impact, you’ll be better able to prioritize your emissions-reduction efforts by targeting high-priority activities that can also help reduce operating costs, enhance efficiency, or mitigate other environmental risk factors.

GHG emissions are classified in three categories, known as “Scopes,” to help organizations understand, measure, and report those emissions:

Scope 1, or direct, emissions are produced from sources an organization owns or controls. These can include:

Scope 2 emissions result from the generation of purchased energy such as electricity, steam, heat, and cooling. Although these emissions occur where the energy is generated, the consuming organization is responsible for reporting them. As such, they are also considered direct emissions.

Scope 3, also known as value chain emissions, are the indirect emissions that occur in an organization’s upstream and downstream activities. These often include:

Understanding these business activities provides valuable insights into organizational emissions, and the associated opportunities to reduce emissions and operational costs across a company’s entire value chain.

Consider an organization’s vehicle expenses. Identifying how much fuel the organization (or a business unit) spends on fuel in a year provides a great baseline for estimating annual fuel-related Scope 1 emissions. Augment this with reliable activity-level data such as how many gallons are purchased, how many miles are driven, and the mileage the organization’s fleet gets per gallon will provide a much more precise, and actionable, picture.

Repeating this analysis for additional organizational activities, such as product packaging or end-of-life disposal strategies, will provide insights into what the organization is doing, the related costs, and the resulting emissions. This will enable management to identify patterns and understand the core sources of organizational emissions.

This data, in turn, will help the organization develop emissions-reduction action plans by uncovering the highest emissions as well as the areas with the highest financial impact. The organization can then cut back or change the activities to be more efficient, reduce emissions, and save money.

As the realities of climate change increasingly take a financial toll on private enterprise and civil society, companies will undoubtedly face enhanced regulatory, marketplace, and investor mandates to expand the breadth and depth of their GHG emissions measurement and reduction, and broader sustainability efforts.

In the United States, for instance, California’s Climate Corporate Data Accountability Act includes two separate bills that require companies to measure and report their emissions and climate-related financial impacts:

These regulations are likely to inspire similar legislation in other states.

Internationally, many U.S.-based companies face mandates, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) to disclose sustainability-related information. Common reporting frameworks include the International Sustainability Standards Board’s IFRS Sustainability Disclosure Standards (ISSB) and the European Sustainability Reporting Standards (ESRS).

Interoperability guidance developed by the IFRS Foundation and the European Financial Reporting Advisory Group (EFRAG) is available to help companies reduce complexity, fragmentation, and duplication by understanding the alignment of general requirements including key concepts such as materiality, presentation and disclosures for sustainability topics other than climate. The guidance also helps companies starting with one set of standards identify how to apply the same data to another. 

Aside from direct disclosure mandates at the sub-national or national level, U.S. companies are increasingly subject to sustainability information requests from larger customers and business partners who face disclosure requirements for their value chains. To meet these mandates, many large companies are asking suppliers for detailed information about their GHG emissions and other ESG data.

A growing number of investors are also factoring climate-related evaluations into their due diligence and risk management processes.

Sensiba provides sustainability services that help middle-market companies integrate GHG reporting and emissions reductions into their planning initiatives. To learn more, reach out to our sustainability professionals today.

U.S. companies with major customers, subsidiaries, or parent companies in Europe need to determine whether they’re required to make disclosures under the European Union’s Corporate Sustainability Reporting Directive (CSRD). Disclosures may be expected as early as 2025, depending upon such factors as headcount, revenue, and status as a publicly traded entity.

The CSRD is an EU regulatory framework designed to enhance corporate sustainability reporting and to promote environmental, social, and governance (ESG) considerations. The regulation is also intended to support investors and other stakeholders in evaluating climate- and sustainability-related risks and opportunities that may affect a businesses’ future cash flows and long-term resilience.

Under the CSRD, companies (known as “undertakings” in the regulation) must conduct a “double materiality” assessment to identify material sustainability issues from two perspectives:

Reporting area requirements cover governance processes and controls, the incorporation of material impact areas into overall business strategy, and impact, risk and opportunity management. CSRD disclosures cover a broad range of ESG issues, such as: 

The related European Sustainability Reporting Standards (ESRS) outline the specific information companies are required to report under the CSRD. The ESRS (see table) includes two general (or “cross-cutting”) categories and 10 standards covering various ESG topics.

In addition to historical data, companies are required to disclose forward-looking information on their sustainability metrics, targets, and progress. Sustainability information must also be included in the entity’s Management Report.

Each filer’s sustainability disclosures must be audited independently for accuracy and completeness. This assurance will be limited at first but may expand over time.

The CSRD establishes a range of reporting criteria and effective dates for mandatory reporting. Large enterprises began reporting in 2024 if they were previously subject to the Non-Financial Reporting Directive (NFRD). Other large companies will begin reporting in 2025. 

Large undertakings are defined as entities that meet at least two of the following criteria:

The relatively low reporting thresholds will likely mean a range of companies that don’t consider themselves to be large will have to meet the CSRD’s requirements.

Companies listed on regulated markets in the EU, including small and medium-sized enterprises (SMEs), must comply with the CSRD starting in 2027.

Beginning in 2027, non-EU companies with a net turnover above €150 million in the EU will need to comply if they have at least one subsidiary or branch in the EU with more than €40 million in net turnover.

Beyond any direct compliance requirements, U.S. companies will need to prepare a variety of disclosures in response to requests from large customers that are required to report on their own. Because those disclosures include the larger organizations’ value chains, many will be asking their suppliers for detailed information about CSRD reporting topics such as greenhouse gas emissions and other ESG data.

Companies throughout the value chain will need to identify their emissions-generating activities and develop reliable systems, controls, and procedures to ensure information is shared with customers accurately.

Recognizing the complexity of obtaining this information from a range of suppliers, the EU is allowing reporting companies to use estimates for value chain reporting after making reasonable efforts to do so. This will likely change as reporting becomes more common and stakeholder expectations increase.

The Voluntary European Sustainability Reporting Standards (VSME) are a related effort designed to allow non-listed SMEs to comply with stakeholder information requests by preparing voluntary disclosures similar to those outlined in the CSRD and ESRS.

The VSME features three modules:

To make it easier for companies to understand and comply with the CSRD reporting requirements, the EU has published an FAQ document outlining the directive’s scope, application dates, and exemptions.

Sensiba has made incorporation of the ESRS standards a core part of our ESG Assessment process. To understand the benefits of planning for disclosures and assess relevance to your business, contact our team to learn more.

With climate considerations playing a larger role in corporate risk management and strategic planning, the ISO/IEC 27001 cybersecurity standard has been updated to include the potential impacts of climate change on an organization’s Information Security Management Systems (ISMS).

Under an amendment issued in February 2024, organizations preparing for an ISO/IEC 27001 audit are required to consider the potential risks climate change can present to their ISMS, as well as any potential implications for interested parties.

In a joint statement, ISO and the International Accreditation Forum highlighted the need for organizations to consider the effects of climate change on their ability to achieve the intended results of the management system.

The statement explained that some climate-related risks, such as regulatory compliance or organizational resilience, may have a general effect on an organization’s ISMS. Some organizations will face more specific climate-related ISMS risks related to their industry (such as energy production or agriculture) or factors such as their geographic location.

The ISO/IEC 27001 standard adds two references to climate change within Clause 4, “Context of the Organization.” Clause 4.1 (Understanding the Organisation and its Context) adds a sentence reading “The organisation shall determine whether climate change is a relevant issue.” Clause 4.2 (Understanding the Needs and Expectations of Interested Parties) adds the sentence “Relevant interested parties can have requirements related to climate change.”

The changes are designed to help organizations address several climate-related risks to their ISMS and its operations. If, for instance, a severe weather event such as a windstorm or flooding affects an organization’s data center, the availability of its systems and data can be disrupted.

Similarly, vendor or supply chain disruptions following climate-related events could affect an organization’s ability to maintain an ISMS and its performance. Customers may also have concerns about whether a climate-related disruption to a service organization can affect their operations.

To comply with the revised standard, organizations need to consider whether climate change can affect their ISMS, and whether they’ve implemented controls or other measures to address climate-related risks. For many organizations without material climate exposures, this can be addressed with language similar to:

“The organization acknowledges the potential impact of climate change on its operations and has considered these risks in the context of its Information Security Management System (ISMS). While no specific mitigation actions are committed at this stage, the organization remains aware of climate-related factors that may affect its business environment.”

Similarly, organizations should also consider addressing climate risk with policy statements in their Management System’s risk assessment documentation. Management should include language saying it has considered the impact of climate risk on the ISMS and whether that risk meets a threshold for mitigation. (If it does, the organization should outline the mitigation measures it has taken.)

If an organization has more than one ISO/IEC Management System, it needs to conduct separate climate risk assessments for each one.

To learn more about ISO 27001 certification and its valuable role in helping your organization protect its systems and information, contact us.

Satisfying consumer demand, increasing employee engagement and retention, and meeting stronger regulatory expectations are among the compelling benefits organizations can achieve by integrating environmental, social, and governance (ESG) considerations into their strategies and operations.

Speaking during a Sensiba webinar, Carrie Mayo, founder and CEO of marketing services firm MAYO Web + Marketing, and Eric Hudson, founder and CEO of environmentally friendly consumer products company Preserve, said the benefits of ESG initiatives far outweigh the time and financial investments.

“There is absolutely a growing trend of consumers buying sustainable products who are willing to pay more for them, Mayo said. “Consumers are willing to embrace the brands that are choosing purpose and sustainability.”

Hudson’s company has focused on creating environmentally focused products since its founding in 1997. He said his company’s fastest-growing product is the POPi 5 shave system, which features a handle manufactured with plastic diverted from oceans.

“We work with nonprofits that are pulling waste plastic out of waters that’s bound for the ocean,” Hudson said. “That plastic comes to us and gets ground into material that can make a razor handle. We also give 25% of our proceeds to nonprofits that are working to make a difference for ocean health.”

He also cited a program with Boston University’s cafeteria to replace single-use cups and cutlery with implements that can be returned to the cafeteria for reuse.

“[The school] has saved a lot of money by reducing waste and expense, and reducing the purchase of single-use products,” Hudson said. “They’re seeing incredible financial merits of choosing a more environmentally friendly system.”

Similarly, Mayo said her firm factors environmental considerations into its purchases, such as sourcing promotional merchandise locally or using products that incorporate recycled materials.

A demonstrated commitment to ESG efforts can also help companies with their employee recruitment, retention, and engagement efforts.

“People want to work for companies that align with their values,” Mayo said. “The way we do this is giving our employees the power to choose how we donate our money, how we donate our services, or where we spend our volunteering time.”

“Our ESG initiatives…have led to people being attracted to working at Preserve,” Hudson said. “We have very low turnover, and we have a highly engaged and motivated team. The initiatives that we have engaged in really help our organization and our employees understand what we do on an ESG front, and they love that aspect of Preserve.”

Beyond employees, Mayo said sharing an authentic ESG story can increase an organization’s attractiveness to a wide range of stakeholders.

“From a brand and marketing perspective, it is critical right now to incorporate [ESG] into your value proposition sooner rather than later. Do it authentically, and it is far deeper than a tagline or a page that’s hidden somewhere on your website,” Mayo said.

Karen Burns, leader of Sensiba’s ESG and Sustainability practice, shared a variety of regulatory mandates and explained how standards are converging to harmonize sustainability reporting. These include disclosure laws in California, climate disclosure rules in Europe, and climate reporting requirements proposed by the U.S. Securities and Exchange Commission.

Hudson said his company factors regulatory considerations into his company’s products and materials decisions.

“It’s going to be happening more, but we already have concrete examples of where regulation in a number of states is affecting Preserve and our offerings,” Hudson said. “There are regulations that require recycled content, or that limit the use of single-use products, and that demand the recyclability of a product or the compostability of a product. Our products, because we’ve been focused on sustainability, comply. We’ve been ahead of the curve.”

To learn more about incorporating ESG in your business strategy and operations, contact us.

To reduce compliance costs and clarify the implementation timeline, the California Senate has passed legislation updating the state’s landmark corporate climate disclosure regulations.

Under the new legislation, SB 219, the state legislature approved several changes to the previous regulations:

Gov. Gavin Newsom has until September 30, 2024, to sign the bill, veto it, or do nothing and allow it to pass.

The original 2026 effective date for reporting Scopes 1 and 2 GHG emissions and climate risks will remain in place, as does the 2027 date for reporting Scope 3 emissions.

Even though CARB has until July 1, 2025, to issue its regulations (essentially a “how to guide” for companies), the effective reporting date remaining in 2026 means companies should start measuring and collecting data at the beginning of 2025 and adjust as needed when the guidance becomes available. Waiting to start will mean having to scramble later.

To learn more about these California climate disclosure bills and carbon accounting, contact our sustainability team.

Functional foods, international flavors, and sustainable production practices were among the leading themes highlighted at the 2024 Natural Foods Expo West conference.

Expo West, the largest gathering of natural products and food companies, provides insights into the consumer preferences and trends shaping the food and beverage industry over the next couple of years.

A growing number of consumers are basing a larger percentage of their diets on functional foods. These foods help improve their health, reduce chronic disease, and contribute to their quality of life. This is creating opportunities for producers of natural and specialty products designed to promote wellness, such as snacks based on mushrooms, plant and animal proteins, and adaptogens that help the body respond to stress more effectively.

On the show floor you could not walk more than a few steps without coming across functional beverages, such as sparkling waters that relieve anxiety, support mindfulness, cleanse and detox consumers, or provide energy. As part of this interest in healthy beverages, non-alcoholic beers and mocktails were also featured at the show and are the fastest-growing segment of the beverage sector as younger consumers enjoy social interactions but prefer alternatives to alcohol-based drinks.

Consumers are still very interested in plant-based food products for several reasons, including the greater variety of products and flavors available today. Some consumers are avoiding animal-based proteins for personal health reasons, environmental considerations, and for being displeased with animal-based food production methods.

A standout in this category was the many forms of gummy products featured at Expo West were plant-based which confused many attendees as they did not know the gelatins found in most gummy products are animal-based. We also saw this with the supplement brands showcasing their plant-based capsules for similar reasons.

International inspiration is appearing in a greater range of food products. For instance, the Korean staple kimchi is featured in snack products, seasonings, and supplements. Other Korean-inspired products include frozen kimbap, burdock root tea, seaweed snacks, and more.

Other countries inspiring popular food products include Venezuela, Tunisia, the Dominican Republic, the Philippines, and Morocco.

Consumer interest in natural foods and ingredients extends to higher awareness of food production and stronger expectations that food brands will follow regenerative production practices.

Regenerative food production includes planting diverse crop varieties and cover crops, and rotating grazing fields, to more closely mimic natural grasslands and forests. This, in turn, provides a habitat for pollinators and soil microbes that promote food production while reducing the use of synthetic pesticides and fertilizers.

Consumers are embracing these practices, searching for labeling that includes:

This movement extends to large food retailers demanding their produce suppliers reduce pesticide use, while working to reduce waste and energy use in their operations and promoting environmentally responsible packaging.  

Ethnographer June Jo Lee in her keynote at Expo West said Gen Z, the largest generation globally and 27% of today’s workforce, values the social aspects of cooking and eating more highly than the Millennials or their Gen X parents. Gen Z uses food as a basis for social interaction and emotional support, frequently cooking for and eating with groups of friends.

They are more willing to purchase sustainable and natural products as an investment in the meal they are preparing to share. Food is more of a ritualistic process of showing care and love for Gen Z.

“They enjoy cooking for each other and hanging out,” Lee said. “Cooking is a practice of caring for each other.”

Gen Z entrepreneurs are also starting their food brands, often tapping into their ethnic heritage and strongly emphasizing sustainable production.

To learn more about the benefits of sustainable and regenerative business practices, contact us.

As executives incorporate sustainability considerations into their strategic planning and operations, the resulting benefits include more effective employee attraction and retention, risk mitigation, supply chain management, and more.

A panel of company leaders participating in a Sensiba webinar said that while some executives approach sustainability as a compliance exercise, the potential benefits can spread through to an organization’s culture and help it save money as well.

“There are many thoughtful people that are looking to drive change and to work with organizations that are doing good, celebrating people, and nurturing growth,” said Ahmed Rahim, Chief Visionary Officer and Co-Founder of Numi Organic Tea. “We’re here not to just focus on shareholder profitability, but also all the stakeholders involved, including employees. It is very important, and organizations are attracting people that want to create impact and put their time sweat, blood, and tears into something that goes beyond just creating a product.”

With more people interested in working for employers who share their values and provide a sense of purpose, including sustainability in the organization’s operations makes it more attractive to prospective employees.

“Since we’ve really become focused on sustainability, we’ve doubled our firm in the last four years, without acquisition, and that’s the proof in the pudding,” said John Sensiba, Managing Partner, Sensiba LLP. “That’s not the point—the point is to do the right thing—but it’s evidence that doing the right thing, especially in today’s transparent world, helps you attract a labor force and customers.”

To learn more about this sustainability benefit read our articles “Sustainability Attracts Talent” and “Sustainability and Employee Retention: A Winning Combination for Businesses.”

With an increasing number of sustainability-related disclosure requirements and growing expectations for sustainable practices among customers, companies that overlook sustainability can be taking on a higher level of compliance, reputation, and marketplace risk.

“We do a total risk assessment when we onboard our customers because this is such a dynamic environment, with changing regulations and changing situations,” said Hannah Kain, President and CEO of the supply chain management firm ALOM Technology. “When it comes to sustainability and reporting, it’s important to help our customers with understanding their requirements and providing information so they can report quickly. There’s a lot of risk in the supply chain, starting with environmental risk, but there’s also social, and of course, governance, compliance, and oversight risks.”

Organizations face risks from failing to describe what they’re doing effectively to business partners or customers. “We worked with a company that was actually a pretty good actor, but didn’t tell their story well and they didn’t get a good grade on a scorecard for a certain buyer,” said John Sensiba. “We helped them identify and explain what they were doing in a way that allowed them to continue to sell to that customer. It shows you the risks they had—not because they weren’t doing the right thing, but because they didn’t know how to tell their story well enough.”

Sustainable practices also provide opportunities to increase efficiency and reduce operational costs throughout organizational supply chains. Kain said minimizing product packaging, choosing suppliers close to production facilities or customers, and optimizing shipping routes can reduce the waste and carbon emissions in an organization’s supply chains.

“The first thing we look at is, ‘are we doing things we don’t need to do?’” Kain said. “When a package comes to your doorstep, maybe two-thirds or three-quarters of the box contains air that has been transported around and used up resources.”

The opportunities to maximize the benefits and ensure economic resilience for your business are growing. To learn more about integrating sustainable practices into organizational strategies, planning, and reporting, contact us.

One of the defining characteristics of successful B Corporations is an affirmative commitment to continuous improvement. Obtaining B Corp certification, while impressive, is just the first step. B Corps continuously strive to improve their operations, reduce their impacts, and serve their stakeholders more effectively.

Certified B Corporations are companies that have been certified to have met rigorous standards of social and environmental performance, accountability, and transparency. The B Corp certification process assesses a company and its practices in categories including worker engagement, community involvement, environmental footprint, governance structure, and customer relationships.

Under B Lab’s Theory of Change, B Corps work “toward a world where business is a force for good, and plays a leading role in positively impacting and transforming the global economy into a more inclusive, equitable, and regenerative system.”

The B Corp movement began in 2006 with the idea that businesses could lead the way toward a stakeholder-driven economic model. In the following 18 years, more than 8,000 businesses in 96 countries have become B Corp Certified.

The primary criteria for certification are verified social and environmental performance, legal accountability, and public transparency. As part of the assessment process, companies must undergo an assessment of risk factors based on their industry and other practices. The risk factors are designed to smooth out variations in industries with inherently different environmental impacts and practices.

For instance, large multinational companies are asked to:

Similarly, bottled water companies must meet requirements around sustainable water usage, fair water access, and waste management.

For companies embracing the B Corp concept, completing the assessment and certification process involves a detailed review of the company’s existing processes and practices. The assessment includes answering more than 250-300 questions and providing verification documentation.

This detailed review identifies opportunities for improvement for the company and its operations, and often results in benefits beyond the certification process.

For instance, enhancing employee benefit programs can increase a company’s workforce engagement score but can also improve employee recruiting and retention. Values-driven consumers also appreciate doing business with companies that are focused on doing good. Becoming a B Corp allows companies to join a growing community of purpose-driven business leaders that, in turn, helps to unlock market and collaboration opportunities.

Once companies create a cadence for their internal reviews, the resulting improvement effort becomes self-reinforcing and often continues long after the initial certification.

According to B Lab, nearly two-third of organizations produce higher scores as they undergo the mandatory three-year recertification. For us at Sensiba, the 99.4 score we obtained during our 2022 recertification marked a 23% improvement from our 80.9 score during our initial certification in 2018.

Just as B Corps embrace continual change and improvement, B Labs applies a similar lens to its certification standards. In December 2020, B Labs announced it was reviewing the standards to reflect changing community and stakeholder expectations about companies making positive impacts on society and the environment. They also wanted to consider the evolving global regulatory landscape and have the changing B Corp standards better harmonize with the international regulations.

The new standards will examine applicants’ performance in fair wages, human rights, climate action, environmental stewardship and circularity, and a variety of other topics. Recertifying B Corps must also demonstrate continual improvement over the last three years since their last certification. This marks a change from the current “previous year” standards.

B Labs says the new standards will help clarify and promote effective and meaningful business practices while showcasing the B Corp movement’s role in driving positive change across the globe. The finalized version of the new standards is expected to be released in Q4 2024, with implementation phasing in during 2025.

For more information on what it takes to become B Corp certified and the benefits for your business, reach out to our sustainability and ESG team for an introduction.

Nearly two years after its initial proposal, the U.S. Securities and Exchange Commission (SEC) adopted final climate disclosure rules on March 6, 2024. The new rules require registrants to disclose certain climate-related information in their registration statements and annual reports.

The final rules require a registrant to disclose, among other things:

Large accelerated filers with calendar year-end reporting will begin financial disclosures in annual reports for the year ending December 31, 2025, with the start of GHG emissions and related assurance ranging from 2026 to 2033.

Accelerated filers will begin financial disclosures after December 31, 2026, with limited GHG emissions starting in 2028.

Non-accelerated filers, smaller reporting companies, and emerging growth companies will begin financial disclosures after December 31, 2027. They will not be required to make GHG-related disclosures.

Scope 1 and 2 emissions, if deemed material by a registrant, will need to be disclosed on Form 10-Q for the second fiscal quarter following the year to which the GHG emission disclosure relates.

The rules also face legal challenges that could affect their ultimate implementation date.

The SEC adopted the new rules in response to growing investor interest in climate-related risk and the financial implications for public companies. SEC Chair Gary Gensler said 90% of the companies in the Russell 1000 stock market index currently provide climate-related disclosures, predominately in annual sustainability reports. Climate-related disclosures may also appear in quarterly and annual SEC filings and registration statements.

Erik Gerding, director of the SEC’s Division of Corporation Finance, said because climate-related risks can affect a company’s performance and share price, investors are interested in the potential effects on the registrant’s strategy, results, and financial condition. Despite this interest, climate disclosures are often inconsistent, and can be difficult to find and compare across entities.

Elliot Staffin, special counsel in the SEC’s Office of Rulemaking, said registrants will be required to disclose any climate-related risks that have had, or reasonably will have, a material impact on registrants, as well as the mitigation processes companies have integrated into their risk management systems.

In its final rules, the SEC omitted the required disclosure of Scope 3 GHG emissions from registrants’ value chains (aka indirect emissions). The omission came in response to registrants’ comments to the initial proposal that collecting the required data would be challenging and cumbersome.

Even without an SEC mandate, private companies will surely face increasing requests from their public-company business partners to provide their sustainability- and climate-related risks and opportunities.

The regulatory landscape, however, goes beyond the federal level. In June 2023, the International Sustainability Standards Board (ISSB) issued requirements for companies reporting under IFRS to disclose the impacts of industry-specific sustainability issues and climate-related risks. Further, In October 2023, California enacted two laws mandating Scope 1, 2, and 3 reporting by companies operating in the state that report more than $1 billion in revenue. As a result, certain retailers and distributors have now made it “table stakes” to report greenhouse gas emissions and other ESG-related information to do business with them.

Beyond regulatory considerations, more companies are examining Scope 3 emissions as part of comprehensive reviews of their supply chains and the associated risks. Small and medium-sized businesses can expect additional questions about topics such as their manufacturing practices, including chemicals and byproducts, and their labor sources.

As large companies compare and select suppliers, they understand that choosing a partner with more sustainable manufacturing practices often leads to lower costs and reduces the reputational risk of being associated with suppliers with undesirable behaviors.

To learn more about the new SEC requirements or effective sustainability- and climate-related disclosures and reporting, contact us.

Biodiversity, a measure of the variety of life on Earth, encompasses the diversity of plants, animals, and microorganisms, as well as the ecosystems they form and the variety of interactions between species. Biodiversity is essential to the health of our planet and all functions on earth, but its significance extends beyond environmental benefits and has profound implications for business.

In fact, new research from S&P Global Sustainable finds that 85% of the world’s largest companies in the S&P Global 1200 have a significant dependency on nature across their direct operations.

Economic endeavors rely heavily on biodiversity and natural capital, highlighting its importance as a driver of sustainable growth and innovation. Biodiversity underpins essential ecosystem services businesses rely on, including water purification, crop pollination, climate regulation, and nutrient cycling. Preserving biodiversity can ensure the continued availability of these critical services, directly benefiting businesses that rely on natural resources.

Changes to, or the loss of, natural ecosystems and the biodiversity within those ecosystems can have profound implications on companies in a variety of industries.

Agribusinesses, for instance, depend heavily on pollinators like bees for crop production. The loss of biodiversity, often caused by pollution, deforestation, and unsustainable land use, can disrupt these services, leading to increased costs and reduced productivity.

Consider the tourism and hospitality sector, which often depends on natural features, such as coral reefs, to attract tourists interested in snorkeling and diving. Coral reefs support diverse marine life, and their decline due to climate change and pollution can reduce tourism revenue.

The automotive sector depends directly and indirectly on biological diversity and ecosystems for renewable resources such as natural rubber for tires, leather for seats, and ready access to water supplies for production processes.

In the financial sector, biodiversity can be a consideration for investment decisions. Accounting firms are increasingly being asked to evaluate ESG disclosures as well as financial reporting.

The diversity of species offers a variety of materials, chemicals, and organisms essential to new products and services. Pharmaceutical companies, for instance, derive numerous drugs from compounds found in plants and animals. Similarly, the fashion industry relies on the variety of plant and animal fibers for fabrics and clothing production. Biodiversity is vital for research and development, driving innovation in various industries.

Preserving biodiversity can also open new markets and create economic opportunities. Consumer demand for eco-friendly and sustainable products is rising, and companies that integrate biodiversity considerations into their operations can gain market share. This shift can lead to the development of new business models, such as eco-tourism or sustainable agriculture, that can be profitable and environmentally sustainable.

For businesses, investing in biodiversity can act as a risk mitigation strategy because biodiverse ecosystems are typically more resilient to market volatility. For example, a diverse forest can be more resistant to pests, benefiting the timber industry. Biodiversity also plays a role in climate change mitigation, which is increasingly becoming a concern for businesses worldwide due to regulatory and reputational risks.

Recognizing the interdependencies within an ecosystem—specifically, the extent to which an organization depends on ecosystem services—can provide valuable insights into the potential risks the organization might encounter if an ecosystem service is disrupted.

From another perspective, engaging in biodiversity conservation can enhance a company’s reputation and brand value. Consumers have become more acutely aware of environmental issues and favor businesses that are committed to sustainability.

When a company openly communicates its dedication to eco-friendly practices, it showcases transparency and accountability and can build trust over time. This trust becomes a valuable asset, particularly during times of crisis or when introducing new products or services.

With the growing emphasis on sustainability, governments worldwide are implementing regulations to further protect biodiversity. Businesses will benefit from being proactive in understanding these regulations to be better protected from the financial risks of noncompliance. Additionally, tax or other financial incentives will likely continue to be available for businesses that successfully and consistently demonstrate a commitment to sustainable practices.

The economic benefits of biodiversity are abundant. Biodiversity ensures the longevity of natural resources that are essential for business operations and opens avenues for innovation, risk mitigation, and market growth. While the global economy benefits from nature, it is also driving nature loss and simultaneously prohibiting ecosystems’ ability to sustain their intrinsic services.

As the world more fully recognizes the importance of sustainability, biodiversity will become a crucial factor in strategic business planning, offering challenges and opportunities. Companies that understand and integrate the value of biodiversity into their business models will likely thrive in the emerging green economy and find value in staying aware of current conservation efforts.

If you’re curious about the benefits of biodiversity and risks associated with your industry, reach out to the Sensiba sustainability team for more information.