Add a bookmark to get started

Curved_leaf_N_2256
21 December 202212 minute read

COP15 | Biodiversity: US Legal and Business Perspectives

This article is part of a thought leadership series we’re producing pre, during and post the Convention on Biological Diversity (CBD) 15th Conference of the Parties (COP15). Read the introductory here.

 

The US and the international legal framework around biodiversity

The landmark Convention on Biological Diversity (CBD) defines biological diversity – often referred to as biodiversity – as “the variability among living organisms from all sources ... and the ecological complexes of which they are part.” Biodiversity, which encompasses plants, animals, bacteria, and fungi, is critical to the overall health of Earth’s ecosystems. Even aside from its pivotal role in maintaining life on the planet, biodiversity is also a key business interest, with over USD44 trillion in economic value either moderately or highly dependent on biodiversity and nature, in industries including agriculture, construction, food and beverages, and the life sciences.

The US is party to several multilateral agreements relevant to biodiversity, including the Convention on International Trade in Endangered Species in Wildlife Flora and Fauna (CITES), the International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA), the International Plant Protection Convention (IPPC), the Convention on Wetlands (Ramsar Convention), and the United Nations Framework Convention on Climate Change (UNFCCC) and Paris Agreement. The US has not, however, ratified the CBD.

The US supported the development of a treaty dedicated to biodiversity in the 1980s, and US diplomats participated in the conferences that produced the text of the CBD. But when the convention was opened for signature at the 1992 Earth Summit in Rio de Janeiro, the US was among a small minority of states that didn’t sign the document. Then-President George H.W. Bush expressed concern that the convention may give rise to burdensome overseas obligations, require new domestic environmental regulations, and infringe on the rights of US businesses. President Clinton signed the treaty shortly after taking office in 1993 and submitted it to the Senate along with seven understandings – interpretations reflecting the US position on several treaty provisions and the obligations it would recognize if it were to ratify – meant to address the potential issues identified during the prior administration. Numerous industry leaders urged Senate approval for ratification based on those understandings. But the CBD did not get the required 67-vote majority in the Senate and a resolution for ratification has not been introduced by any president since.

Environmental advocates have called for President Biden to reinvigorate efforts to accede to the CBD, and some commentators have noted that biodiversity is among the rare issues enjoying some level of bipartisan support in Congress. The Biden Administration has made no indication that it will pursue accession, although it has taken steps to promote biodiversity at the domestic level, most notably by pledging to protect 30% of US lands and waters by 2030.

 

Domestic legal framework on biodiversity

In the US, biodiversity is the subject of federal, state, and tribal legislation. The Endangered Species Act (ESA) is the most comprehensive statute protecting biodiversity nationwide. The law requires states to coordinate with the federal government to implement their own programs to protect and manage endangered species, and it requires federal agencies to coordinate with the US Fish and Wildlife Service and the National Oceanic and Atmospheric Administration (NOAA) Fisheries Service to ensure that agency actions do not jeopardize endangered or protected species or their habitats. The law also prohibits any taking of or trade in listed species. Also at the federal level, the Nonindigenous Aquatic Nuisance Species Prevention and Control Act, as amended by the National Invasive Species Act, authorizes the Fish and Wildlife Service to manage invasive aquatic species that put native species at risk.

Several recently introduced bills would expand federal protections for biodiversity if adopted. The Safeguarding America’s Future and Environment (SAFE) Act of 2021, for instance, would revise the federal government’s approach to assessing and addressing how climate change and extreme weather threaten wildlife and biodiversity. The Illegal Fishing and Forced Labor Prevention Act of 2021 calls for a comprehensive overhaul of our existing means to combat illegal, unregulated, and unreported fishing, and the Extinction Prevention Act of 2021 would provide funding to conserve several threatened species of butterflies, moths, tropical plants, mussels, and fish. Under the Tribal Wildlife Corridors Act of 2021, the Department of the Interior would support tribal governments in designating and managing wildlife corridors on tribal land. And under the Recovering America’s Wildlife Act of 2022, nearly USD1.4 billion would be invested in wildlife conservation, including USD97.5 million annually for tribal nations. Finally, a reintroduced House Resolution expressing the need for the federal government to establish a national biodiversity strategy would call for new efforts under existing law and the development of new legislation to preserve biodiversity at the federal level. Although some of these bills have come under committee consideration and been the subject of subcommittee hearings, none has advanced to a vote in its originating chamber.

Also at the federal level, the proposed Securities and Exchange Commission (SEC) Climate Disclosure Rule would require issuers to disclose climate-related risks likely to pose material impacts on their business, operations, or finances. For companies in several sectors, biodiversity loss is a critical climate-related risk that may require analysis under the forthcoming rule. The rule would require registrants to report on their greenhouse gas (GHG) emissions but would not, as currently envisioned, require reporting on companies’ or their supply chains’ adverse impacts on biodiversity.

In addition to state laws implementing their own respective versions of the ESA, some states have enacted statutes that extend and complement biodiversity protections required under federal law. A recent example is California’s Safe Roads and Wildlife Protection Act, signed into law on September 30, 2022, which will provide for infrastructure to reduce wildlife-vehicle collision and improve habitat connectivity. Numerous state- and municipal-level programs also promote biodiversity at the local level.

Tribal governments have also enacted laws and policies to preserve biodiversity within their territories. Globally, 80% of the world’s biodiversity is stewarded by Indigenous Peoples, and Native American tribal land is home to more than 500 threatened or endangered species.Several tribes in recent years have enacted laws recognizing a right to exist for specific ecosystems or threatened species.2

 

US business interests

For some industries, biodiversity is an obvious core business interest. In the pharmaceutical industry, for instance, most new medicines are derived from natural compounds, and some of our most transformative medications, from antibiotics to chemotherapeutics, have come from plants. The agriculture, fishing, and food industries also depend on healthy ecosystems for production. Wild relatives of food crops help promote resistance to disease and invasive pests. And most food crops rely on a range of animal pollinator species. Companies in numerous other, less obvious sectors also benefit from biodiversity. These companies produce genes that drive innovation; raw materials needed for production; and ecosystem services that help maintain the quality and composition of soil, water, and air to support operations and help dissipate waste.

In addition to business risks associated with biodiversity loss, companies may face litigation related to their environmental impacts and risk exposure. Biodiversity litigation in the US has generally raised claims under the ESA, taking aim at development or industrial projects that threaten endangered species. In the future, however, biodiversity litigation may follow the climate and sustainability litigation trends of recent years. Just as municipalities and state prosecutors have sought to hold energy companies liable for the effects of sea level rise and other climate change phenomena, industries associated with habitat loss could be the target of future suits. Publicly traded companies may be vulnerable to securities enforcement actions if they fail to disclose material risks related to biodiversity loss, or be exposed to shareholder derivative litigation alleging that directors have failed to manage the company’s exposure to biodiversity business risks. Companies’ exposure to biodiversity-related liability will be shaped by plaintiffs’ successes on similar climate change theories currently being tested before courts around the country.

Moreover, biodiversity loss is already identified as a systemic risk to global investment portfolios,3 and biodiversity-related risks may be material for some businesses’ reporting under the proposed SEC Climate Disclosure Rule. A separately promulgated biodiversity reporting requirement may be a future priority for the federal government if the Climate Disclosure Rule is upheld in court.

The Taskforce on Nature-Related Financial Disclosures (TNFD), an international initiative led by 30 senior executives from financial institutions, corporations, and market service providers representing various sectors across global geographies, has begun work to develop a disclosure framework for companies to report on and address nature-related risks with the hope of steering capital markets toward more nature-positive outcomes. Disclosures under the framework will be guided by the concept of materiality, meaning that disclosures should include biodiversity and other nature-related factors that will directly or indirectly affect a company’s social, environmental, and economic value.

The TNFD follows the approach of the Task Force on Climate-Related Financial Disclosures (TCFD), which produced a framework that’s to some extent reflected in the proposed SEC Climate Disclosure Rule. The work of the TNFD should thus be of interest to SEC registrants whose businesses benefit from or affect biodiversity.

 

Voluntary framework

In the meantime, a voluntary framework is evolving around ESG commitments and disclosures, including those related to biodiversity. This trend reflects both the possibility that a formal framework is on the horizon and that consumers are increasingly aware of and value business practices that support biodiversity. Recognizing the role the private sector can play in addressing this global challenge, companies have pledged to end deforestation and land use change in their supply chains, to integrate regenerative agriculture practices that help preserve biodiversity, and to invest in measures that bring us closer to a circular economy that would reduce strain on natural resources. Businesses around the world also recognize, however, that government leadership will be critical to protecting biodiversity. More than 1,100 companies, together representing more than USD5 trillion in revenue, have signed Business for Nature’s Call to Action calling on governments to adopt policies that would reverse nature loss by 2030.4

Although a business’ direct impacts on biodiversity can often be reduced or avoided if identified early, indirect impacts associated with a company’s supply chain or a product’s lifecycle can be more difficult to manage. A variety of tools are now available to support companies in assessing and mitigating their biodiversity impacts and incorporating biodiversity considerations into plans for new projects and investments.

  • More than 2,000 companies currently use the biodiversity standard published by the Global Reporting Initiative (GRI). And GRI is collaborating with the European Financial Reporting Advisory Group (EFRAG) to update its biodiversity standard with a view toward publishing the new edition this year.5
  • CDP, a nonprofit charity with more than 280 members, facilitates a global disclosure program for companies to better understand their supply chains and support suppliers in mitigating their biodiversity impacts. CDP develops its guidelines in coordination with the TNFD and GRI.
  • Institutional Shareholder Services (ISS) offers a Biodiversity Impact Assessment Tool to analyze impacts on biodiversity throughout a company’s supply chain.
  • One Planet: Business for Biodiversity (OP2B) has developed a framework for companies to set and report on progress toward goals for promoting regenerative agriculture in their supply chains. This includes integrating practices like varied permaculture, agroforestry, and silvo-pastoral farming into business operations. These are just a few examples of the wide range of tools now available to companies interested in mitigating their biodiversity impacts.

Biodiversity offsetting measures may be another way companies can address their impact on biodiversity. In the US, mitigation banks developed through agreements with regulators under the Clean Water Act (CWA) offer an example of how biodiversity impacts may be offset. CWA mitigation banks typically focus on wetland restoration at or near the site of a development project whose impact is to be offset. Although some biodiversity impacts may be appropriate for offset projects, many likely are not, and it is important to note that biodiversity is a localized phenomenon. In that way, biodiversity offsets require quite a different approach and analysis from carbon offsets, which are premised on the globalized nature of GHG emissions.

 

Implications for the US and American companies and investors following COP15

On Monday, during the final day of COP15, nations agreed to protect a third of the planet for nature by 2030 in a landmark deal aimed at safeguarding biodiversity. There will also be targets for protecting vital ecosystems such as rainforests and wetlands and the rights of indigenous peoples. Where countries enshrine those targets in their national law, any companies – including US-based companies – doing business within their borders and having material biodiversity impacts and risk exposures will potentially be affected. This means not only the potential emergence of a new biodiversity regulatory landscape for companies to navigate, but also potentially significant business and investment opportunities for companies positioned to take advantage of them.


1 Challenges and Opportunities for Indigenous Peoples’ Sustainability, United Nations Department of Economic and Social Affairs (Apr. 23, 2021), David Frey, RAWA offers tribes major increase in conservation dollars, Wildlife Society (Mar. 10, 2021).
2 Alex Brown, Cities, Tribes Try a New Environmental Approach: Give Nature Rights, Pew Charitable Trusts (Oct. 30, 2019).
3 Investor statement on deforestation and forest fires in the Amazon (Sept. 2019).
4 More than 330 businesses call on Heads of State to make nature assessment and disclosure mandatory at COP15, Business for Nature (Oct. 25, 2022).
5 EFRAG and GRI to co-construct biodiversity standard, Global Reporting Initiative (Dec. 1, 2021), GRI - EFRAG and GRI to co-construct biodiversity standard (globalreporting.org).
Print