Insights

After Climate Change Comes Biodiversity: Korean Companies Must Act Now

ㅣTaehan Kim, COO of KoSIFㅣ

“Biodiversity is the next climate change.” This phrase has become increasingly common at ESG and environmental seminars. ESG experts argue that Korean companies must begin preparing for biodiversity-related issues without delay. (Excerpt omitted)

Yet when speaking with corporate practitioners, many say that while they understand the importance of biodiversity, they do not know what they should prepare for or how to begin. Even experts who emphasize the issue often fail to explain clearly how biodiversity relates to corporate activities and what specific actions companies should take.

Under these circumstances, some companies appear to be repackaging existing corporate social responsibility activities as biodiversity initiatives, perhaps out of concern that they must do something to avoid falling behind.

Biodiversity is undoubtedly a critical issue. According to the World Economic Forum, more than half of global GDP—approximately USD 44 trillion annually—is moderately or highly dependent on nature. Wildlife populations of mammals, birds, fish, amphibians, and reptiles have declined by an average of 69% since 1970, while more than one million plant and animal species are threatened with extinction because of human activity. The scale and urgency of the problem are clear.

One point, however, deserves particular attention: the World Economic Forum refers to the economy’s dependence on nature, rather than biodiversity alone. This distinction provides an important clue as to what companies should do.

The term “biodiversity,” as it is commonly used today, encompasses not only the diversity of living species but also the broader ecosystems in which they exist. Society and the economy depend heavily on ecosystem services. These include provisioning services such as water, food, and raw materials, as well as regulating services such as water and air purification and protection against natural disasters. If these ecosystems are damaged, the resulting impacts on society and the economy are inevitable. (Excerpt omitted)

Following the adoption of the Nagoya Protocol in 2010, many companies took early action in anticipation that biodiversity would become a regulatory issue directly affecting business operations. In practice, however, the Protocol focused primarily on access to genetic resources and the fair sharing of benefits between companies using those resources and the countries that had conserved them. Its impact was therefore largely limited to specific sectors, including the pharmaceutical industry.

As companies came to recognize that the Protocol had relatively little direct impact on their businesses, corporate interest in biodiversity gradually declined.

Why, then, has biodiversity returned to the agenda?

Financial institutions are now driving the discussion.

The financial sector has begun to approach biodiversity through a similar lens to climate change. (Excerpt omitted) Because the economic system is highly dependent on natural capital, ecosystem degradation can have direct financial consequences. If ecosystems can no longer provide essential services, or if regulations intended to prevent further damage become more stringent, companies may face higher raw material costs, disruptions to supply, and changes in consumer demand.

This financial perspective is clearly reflected in the work of the Taskforce on Nature-related Financial Disclosures, or TNFD, which has played a central role in recent biodiversity discussions. Its disclosure framework closely resembles that of the Task Force on Climate-related Financial Disclosures, which was developed with strong involvement from the financial sector.

TNFD does not simply ask how well a company protects the environment. It requires companies to disclose how nature-related dependencies, impacts, risks, and opportunities—including those associated with biodiversity—could affect their future financial value and whether they have appropriate systems in place to manage them. (Excerpt omitted)

In many respects, Korean companies already manage issues related to air, water, and soil as part of their basic environmental responsibilities. (Excerpt omitted) The situation changes considerably, however, when attention shifts to overseas operations and supply chains.

Korean companies operating abroad may not frequently violate local environmental regulations. Nevertheless, many remain subject to criticism that environmental management at overseas sites falls significantly below the standards applied at their domestic operations or expected under global best practices. Most companies also pay limited attention to environmental damage occurring across their broader supply chains.

This is where improvement is required.

Companies must establish systems to identify their dependencies and impacts on natural resources, as well as the associated risks, across the entire value chain. They must also introduce management systems aligned with global standards throughout their operations and supply chains—and disclose how those systems are being implemented.

Regulation addressing nature-related damage in supply chains is already becoming more stringent. In June 2023, the European Union introduced the EU Deforestation Regulation, a supply chain due diligence requirement relating to forest degradation and deforestation.

The regulation covers seven major commodities associated with deforestation—cattle, cocoa, coffee, palm oil, soy, wood, and rubber—as well as derived products such as paper, chocolate, and furniture. Companies seeking to place these goods on the EU market or export them from the EU must demonstrate that they were produced without contributing to deforestation.

Suppliers and importers are required to conduct due diligence to confirm that no deforestation has occurred. Companies that fail to comply may face fines of at least 4% of their annual turnover within the EU.

In Korea, the government, industry representatives, and experts have also announced plans to form a nature-related disclosure council. The council is expected to study the main elements of the TNFD framework and explore how they can be applied to corporate reporting.

For recent biodiversity initiatives in Korea to develop in the right direction and continue over the long term, both companies and policymakers should also make greater use of CDP, the global environmental disclosure platform.

CDP already operates its Forests disclosure program, which has a structure similar to the TNFD framework, and plans to further strengthen alignment between the two. No Korean company currently participates in CDP’s Forests program. Korean companies should therefore consider participating as an early step toward preparing for nature- and biodiversity-related disclosure.

They should also draw on leading international practices disclosed through CDP. Alongside environmental conservation activities traditionally undertaken as part of corporate social responsibility, companies must build the internal risk management and supply chain management systems increasingly expected by investors.