The global transition towards greater sustainability doesn’t only apply to the planet, but to our wallets – and with new sustainable investments like ESG investments, impact investing, and socially responsible investing – it begins to make sense why the PBAF released a new standard to monitor the impact of biodiversity in the financial sector.
What is the PBAF standard, why is it useful for financial institutions seeking to monitor the impact of the environment on their monetary activities?
What is the PBAF Standard?
The PBAF standard, or the Partnership for Biodiversity Accounting Financials, is a foundation originated in the Netherlands similar to its sister initiative, the PCAF – as the PBAF aims to improve financial activities and financial disclosures. Specifically, the PBAF is designed to develop a new standard, referred to as the PBAF standard, which focuses on the importance of biodiversity in conjunction with finances, and how biodiversity can hinder economic growth.
Ultimately, the PBAF standard seeks to educate financial institutions and relative companies on the information necessary to help the organizations better manage the risks and economic opportunities associated with supporting biodiversity.
What is biodiversity and why is it important in the PBAF standard and the financial sector?
The PBAF standard is built on the value of monitoring the impact of biodiversity on the financial sector. Many may be confused by this, as the link between biodiversity and climate change do not seem prevalent – but biodiversity has a direct impact on global warming, and can help to improve the current state of climate change and vice versa.
Biodiversity refers to the various living organisms on Earth, such as all the various types of animals or plants one may find in a rainforest or a mountainscape. Biodiversity is essential for all life on Earth – as biodiversity is the binding force that sustains and propels all life on the planet. Biodiversity can be found in forests, oceans, or other large bodies of land – all of which have been compromised due to the current climate change crisis.
Biodiversity may not seem important for investors to keep in mind, but it is – as the majority of financial and economic activities will be dependent on the supply of resources provided by our natural ecosystems, which are ultimately governed by biodiversity.
The natural resources provided by biodiversity and used to fuel economic growth are continuously compromised given the current state of climate change and its impact on biodiversity. Companies and financial institutions can easily be affected by a lack of well-functioning biodiversity as it can pose physical risks and business risks for investors interested in the project or organization. For example, say there is an investor interested in investing in a clothing company that uses a cotton field to supply raw materials for a T-shirt company. If biodiversity is lacking, then the clothing company will be in peril – as will the investor. This is an example of a physical risk, whereas a transitional risk is one where the choice to slow-down economic growth is a somewhat voluntary choice, but one that is encouraged due to new climate legislation – such as with the Tongass National Forest’s repealed Roadless Rule.
If more financial institutions and companies were to remain mindful of the impact that biodiversity has on climate change and therefore other economic activities, it could be a win-win for both the financial enterprises as well as the planet.
What are the main goals of the PBAF standard?
The overarching goal of the PBAF standard is that it seeks to help businesses, investors, financial institutions, and stakeholders to cultivate standardised practices in accounting that will adhere to the value of protecting biodiversity for both economic activities and to protect the planet.
In order to ensure those who follow the PBAF standard are successful in monitoring the impact of biodiversity on their financial activities, those who seek to follow the PBAF standard should keep several different goals in mind, such as by:
cultivating an organization that operates on an accounting platform striving towards natural capital management;
aiming for better communication and transparency between stakeholders and businesses or financial institutions;
striving to create a new discussions garnered towards problem-solving the discrepancies between biodiversity and economic success;
developing new evaluation methods to better understand and determine how biodiversity in peril impacts business and economic endeavors;
seeking to standardise the practice of evaluating the impact of biodiversity on financial activities;
recognizing the areas of improvement, including how training, research, and education could help to further develop the standardizing of natural capital management accounting practices for both the businesses and surrounding communities impacted by the biodiversity relevant to the locale.
Ultimately, the PBAF standard seeks to create a standardised and transparent approach to financial activities while keeping the importance of biodiversity in mind. Therefore, one of the main and most pivotal goals of the PBAF standard is to develop a balance between the dependency on biodiversity on financial activities without compromising either economic activities or biodiversity itself.
How does the PBAF standard work?
The PBAF standard works mostly effectively by evaluating the dependent circumstances of said financial institution or company that are contingent on well-rounded biodiversity. Some questions that financial institutions or companies may seek to self-asses include determining where the main locations of the business activities take place and where biodiversity is most important geographically, organizing these locales of biodiversity with priority in mind, and evaluating the size and scale of these biodiversity contingencies according to each location of their business. In other words, an orange juice company may not face the same biodiversity predicaments in an area such as Florida as opposed to an orange juice company based in Upstate New York.
In addition to monitoring the impact that biodiversity may have on the use and supply of raw materials, it is also important for financial institutions and companies to decipher if natural disasters, also correlated to biodiversity, can impact the economic endeavors of a financial activity. Ultimately, companies can evaluate the impact of biodiversity across the map given the various locales of their economic activities and seek to adjust accordingly in order to adhere to the PBAF standard.
The PBAF is updated to ensure that financial institutions and companies seeking to follow the guidelines provided by the PBAF remain viable and yield economic benefits.
How has the 2022 version of the PBAF standard been updated for success?
Despite the fact that the PBAF released its first report only three years ago – the PBAF standard has already been updated as of 2022 to ensure continued success in financial activities directly related to biodiversity.
The updated PBAF is dedicated towards not only mitigating negative impacts towards biodiversity, but to invest in positive benefits for biodiversity. In other words, the updated PBAF is determined to shift the mindset from avoiding harming the environment to what can be done to improve it. Investments that may encourage positive biodiversity investments will require a heavier data analysis in order to determine if the financial or economic activity will indeed bring about positive benefits for biodiversity.
In addition to encouraging those already adhering to the PBAF to shift their mindset towards benefiting biodiversity as opposed to merely avoiding harm – the updated version of PBAF will also aim to zero in on the impact of being too dependent on distinct biodiversity and what that means for economic success and sustainability. In 2023, PBAF is expected to improve upon providing the resources and guidelines necessary to better assess how these dependencies are cultivated in the first place, and what can be done to lessen the impact on biodiversity as a result.
However, the problem with the current version of the PBAF is that it still lacks the evaluation methods necessary to yield this type of data – which makes it difficult for companies to shift their mindset and take the appropriate actions to make a positive difference in their biodiversity of choice. Some of the roadblocks prohibiting this development of more precise data collection include the various locations of biodiversity and differing supply chains.
Ultimately, the PBAF in 2022 has improved by developing new resources and reasoning as to why directly benefiting biodiversity will prove more economically viable than merely avoiding the financial impact of mitigating harm to biodiversity.
Why should financial institutions follow the PBAF standard?
There are a multitude of reasons why financial institutions, and even companies interested in the economic impact of biodiversity should seek to follow the PBAF standard. For starters, biodiversity has a direct impact on climate change, just as climate change has a direct impact on climate change – meaning adhering to the values of the PBAF standard can demonstrate an organization or project’s dedication to cultivating greater sustainability. In addition to this, companies and financial institutions will be monitoring the climate change crisis by seeking to work in line with biodiversity – and ultimately ensure financial success while still looking after the environment.
It can be hard for financial institutions, investors, companies, and projects to get started in shifting their business models to match the values necessary to fight against climate change – but the PBAF standard serves a great way for companies to realise the importance of our natural ecosystems, biodiversity, and how working in conjunction with those vital resources can reap greater economic benefits.
What about Greenly?
If reading this article about the PBAF Standard and why it is useful has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!
The PBAF Standard is just one of the many environmental regulations your company might have to comply with. Check out our legislation tracker here to see which rules your company has to adhere to.
Greenly can help you make an environmental change for the better, starting with a carbon footprint assessment to know how much carbon emissions your company produces.
Green-Tok, a newsletter dedicated to climate green news
We share green news once a month (or more if we find interesting things to tell you)
In this article, we'll explore the insights from the Greenly Scientific Council's Annual Review on carbon accounting, sustainability, and ESG strategies, highlighting the evolving trends and practices in sustainable business.