Johan Rockström: The planetary boundaries show that the remaining natural resource base is shrinking, and it’s finite. Circularity, efficiency, then moving towards zero impacts is the melody of the future.
Dan O’Brien: It’s not just panda bears and birds. Nature encompasses all of the natural world that we live in. It’s the air. It’s the oceans. It’s the land. And if you think about nature risk, it’s more than just the availability of water and the effects of drought. But there’s also opportunities.
Johan: My advice would be, for business leaders: don’t get too bogged down by that headwind. There’s a stronger tailwind. When you’re out cycling, and you’re cycling really well, you always have a bit of wind in your face, but you’re making speed.
Ayesha Hazarika: From PwC’s management publication, strategy and business, this is Take on Tomorrow, the podcast that brings together experts from around the globe to figure out what business could and should be doing to tackle some of the biggest issues facing the world. I’m Ayesha Hazarika, a broadcaster and writer in London…
Lizzie O’Leary: …and I’m Lizzie O’Leary, a podcaster and journalist in New York.
Ayesha: Today, we’re talking about how business interacts with nature, for better and for worse. The natural world provides the air we breathe, the water we drink, and the essential goods and services that enable our societies and economies to thrive. However, the value of nature is not fully recognized within our financial systems. PwC research that looked at the link between economic activities and the natural ecosystem found that 55% of global GDP—equivalent to about US$58 trillion—is moderately or highly dependent on nature.
Lizzie: With so many natural ecosystems at severe risk, businesses have a crucial role to play in restoring habitats and preserving the value the world gets from nature. But how do they make that happen?
Ayesha: And what are the opportunities for businesses in becoming nature positive? To answer those questions, we’ll talk to earth scientist Johan Rockström, who you heard at the start. Johan will talk us through his internationally renowned work on global sustainability.
Lizzie: But first, we’re joined by Dan O’Brien, a partner with PwC Canada who leads the Sustainable Business Solutions practice in Western Canada and is a member of the task force on nature-related financial disclosures. Dan, welcome to the podcast.
Dan: Thanks, Lizzy. It’s really good to be here today.
Lizzie: PwC has published an analysis of the nature risks that organizations could be facing that found that more than half of global GDP is moderately or highly dependent on nature. Or, in real terms, the equivalent of US$58 trillion.
Ayesha: Clearly, a colossal number, but what does that actually mean for individual businesses who can’t possibly impact things at that scale. I mean, why should an individual CEO or board care about this, Dan?
Dan: What’s changed now is that there’s more and more expectation that this information is going to be made available, so that their key stakeholders, their investors, their insurers, their banks that lend them capital can see what those risks are and how their businesses is addressing them. Without providing that information, this flow of capital will start to tighten up. Because one of the key drivers behind this is that the financial services sectors is starting to worry about these risks. They’re not afraid of risk. They’re used to dealing with risk. But they need to have all of the information in order to create a better understanding of that risk. And then they’ll flow capital to those businesses that they understand well and that they know where those risks are being mitigated.
Ayesha: What are your clients telling you about their challenges and concerns in this particular area?
Dan: For most businesses right now, especially those that operate in nature-dependent sectors, there is some inherent understanding of the dependencies, and they’ve experienced some of these impacts and and some of the risks materializing over the years. Probably what’s more challenging is those sectors that in terms of their direct operations, they don’t have high levels of dependency, but they might do in their supply chain. The challenge right now is really trying to understand where in the supply chain business activities are located and what the associated dependencies and impacts are for those business activities.
Lizzie: Dan, we’re gonna come back to you to unpack more of these risks and issues. But, Ayesha, you spoke to Johan Rockström, director of the Potsdam Institute for Climate Impact Research. He’s an internationally renowned scientist, known for his work on global sustainability. Can you tell us a little bit about what you discussed?
Ayesha: Johan was a leading member of the team that created the planetary boundaries framework, which is a way of drawing together and understanding human impact on a number of earth systems. And I began by asking him to outline that idea.
Johan: So the questions we try to answer is, what are the large environmental systems that regulate the stability of the planet? And we’ve identified nine. And they’ve been scrutinized over 50 years of research. We then quantify safe boundaries beyond which we risk causing a drift away from a stable state that can support humanity. But within which we have a safe operating space. We have a high chance of prosperity and equity for humanity.
Ayesha: As you say, you and your team have worked hard to look at these safe operational limits for particular resources, for example, fresh water use. How did you calculate that? And how did you make the right balance?
Johan: It’s an international collaboration among top scholars around the entire world. Basically, all the spheres of the earth system—the hydrosphere, the geosphere, the biosphere, the cryosphere, the atmosphere—have been represented in quantifying the safe boundaries. And what we’re trying to measure against is to keep each boundary within a range of variability that we’ve seen in the Holocene, this stable state that we’ve had over the past 12,000 years. And then we are matching that against risk assessments. One generic feature is to avoid crossing tipping points. And a tipping point is when a system crosses a threshold and feedbacks change from stabilizing to self-amplifying. So for climate, for example, when the Greenland ice sheet crosses a tipping point, that would occur when the Greenland ice sheet shifts from being self-cooling, reflecting back incoming solar radiation out to space, thanks to the fact that it’s a white, permanent ice surface, to becoming so dark because of liquid and melting that it would absorb more heat than it’s reflecting back. That’s a tipping point. So strictly speaking, when you cross a boundary, it does not mean that you collapse; it means that you enter a danger zone where things can start going wrong. And then we’re running earth system models and climate models to look at interactions between boundaries. We have climate being one of the boundaries, of course. But a second boundary is biodiversity. And biodiversity is about living species and carbon sequestration capacity in ecosystems. So, of course, if you cross the safe boundary on biodiversity, you have a feedback of carbon that will impact your climate boundary.
Ayesha: And in your work, you distinguish between safe boundaries and just boundaries. Can you explain what those two things are? What is the distinction?
Johan: Yes. And I’m really grateful for that question, because that’s one of the big breakthroughs of recent research. So, to give you an example, that if the safe boundary for climate is 1…to keep ourselves below 1.5° Celsius warming, to keep the planet in a manageable state, the social science analysis of levels to avoid causing significant harm to [an] unacceptable large number of people, then the just boundary ends up at around 1° Celsius. Already beyond 1°, we pass the just boundary of unacceptable harm to tens of millions of people because of heatwaves, floods, disease patterns, fires, droughts. The planet is still, so to say, coping. And it isn’t until you come to the safe boundary that you start putting the stability of the earth system at risk.
Ayesha: If we just keep going as we are now, how great is the scale of the threat in your estimation?
Johan: Unfortunately, we are in a very, very dire situation. Not only are we in the midst of a climate crisis, we have an ecological crisis well outside of the biodiversity boundary. We are in the third super El Niño. So, at 1.2° Celsius of warming, where we are beyond the safe boundary on climate already, all continents are experiencing extreme heat in this super El Niño, which is amplified by the fact that we’re crossing the climate boundary. And it’s already, today, affecting economies and businesses around the world. But it will only get worse if we do not bend the curves and start moving back within a safe space of all these planetary boundaries.
Ayesha: Can you give our listeners some examples of how businesses rely on nature to operate and how some companies might suffer if the planet systems continue to degrade?
Johan: Yeah. And let me first congratulate PwC for the study quantifying that more than half of the global GDP is moderately or highly dependent on nature. The US$58 trillion. But let me just say at the outset, of course, that is an underestimate, because the number is the entire global GDP. There’s not one single item in the global economy that does not depend on nature, because nature provides us with all resources. And here, just to state the obvious, I mean, why are we crossing planetary boundaries? Well, to a very large extent, it is because we’re not paying for the use of those resources. So we are allowed to basically exploit for free the boundaries of the planet, the budgets of natural resources. And then we earn money in GDP terms in the value creation and consumption of those resources. In accounting terms, the planet is subsidizing us for free, and then we count that as an income in GDP terms. If we had factored in the externalities properly of all the damage we’re causing when we exploit in the wrong way, we would very likely be much, much smarter stewards of the planet. It’s also about having customers demanding your goods and services. Because what we are seeing increasingly is that climate change and ecological crisis is causing instability in societies. You get displacement, migration, and conflicts. You get forest fires in Greece knocking over the whole tourist industry. So, any business leader wants to have not only secured access to natural resources, to be able to produce what you’re offering to your customers, you also want your customers to have reasonable purchasing power. For that, you want to have stable societies. And you don’t get stable societies if those economies are plagued by heatwaves, plagued by droughts, plagued by floods, and continuously under states of instability and turbulence. So we all lose from an unstable planet.
Ayesha: There’s a lot of different competing priorities at the moment. The economy is in a very difficult place. So why should business leaders care about the planetary boundaries when they have so much else going on?
Johan: You can no longer separate the ecological crisis from the climate crisis, from the social, economic, and geopolitical crises in the world. So whether you like it or not, you have to keep many balls in the air at the same time, period. That’s one key factor here. The second is that the environmental crises are more slow-moving than the faster-moving, war, inflation, immediate social crises. The challenge for us to understand is that these slow-moving crises, the environmental or climate crises, they will hit us back in the future. And they can hit us back in a very abrupt way. So it’s not a solution to say, okay, let’s simply deal with the most immediate crises and deal with climate further down the line because we cannot cope with it today. That doesn’t work, because these environmental crises, they just accumulate. So we have no choice. We simply need to recognize that they’re all interconnected, and we have to deal also with these slow crises simultaneously with the fast crises, if we want to have the chance of markets and viable living conditions in the future.
Ayesha: You’ve outlined some of the business risks associated with degradation of nature and the planet. But let’s flip that question. What are some of the opportunities that businesses could seize if they do take action?
Johan: Ecological sustainability is increasingly moving away from being something that you do just to have a little green label to increasingly have your whole value chain in a much more competitive, robust, and resilient positioning. That is really exciting. And it’s something that I think any business leader today needs to take very, very seriously for three reasons. I mean, one is your competitors—that you might simply be losing the race if you don’t step on board. The second is that the policy regimes are moving too slowly. Yes. But they are moving. We see the carbon border adjustment tax in the European Union, your largest economic region in the world, being applied, which will very likely lead to other countries to impose carbon taxes to be allowed to export to Europe. So if you want to not be punished as a business down the line, you better be as sustainable as possible today, to not be hit too hard by rising policy measures in the future. The third and final comes back to my original point that I think that the planetary boundaries show that the remaining natural resource base is shrinking, and it’s finite. So the likelihood that we can continue believing that we have some infinite availability of resources to power our businesses is simply over. So, circularity, efficiency, and moving towards zero impacts is the melody of the future. If you don’t step on board that today, I think you are at risk of simply lagging behind and gradually losing your edge on the market.
Ayesha: Now, Johan, you have made an incredibly articulate and compelling case, and many business leaders will agree with everything that you have said. But there is pushback. Some of that comes from people who are unashamedly climate-skeptic, but there’s also more than that. There’s a bit of citizen fatigue creeping in about this issue. Some people don’t like the protests and things like that. Other people [are] just struggling with the cost of living crisis. How do you make sure that this agenda stays relevant, it stays energized, and it stays on track?
Johan: We feel also in the scientific community that there is a backlash: anti-science, misinformation, questioning all forms of fact, connecting that with climate skepticism, and then the short-termism. But at the same time, we’re starting to see that the sustainability transition, particularly the climate transition, is starting to go to scale. You know, we’re going from single-digit number to two-digit numbers on solar voltaics, wind farms, electric car purchase. And that, I think, is also making it clear for all those actors who seemingly want to have status quo that this is for real now. But we’re also starting to see the light in the tunnel. You know, when the European Union took this groundbreaking decision on protecting nature and following on the Green Deal, which already has legislated 55% reduction in emissions by 2030, with a carbon price now over €100, that’s getting serious. So my advice would be for business leaders: don’t get too bogged down by that headwind, because there’s a stronger tailwind. The tailwind is today so strong that the headwind should just be seen as, you know, when you’re out cycling and you’re cycling really well, you always have a bit of wind in your face. But you’re making speed. And I think that’s the question now. Keep the speed.
Ayesha: Well, Johan, it’s been so fascinating speaking with you and getting all your expert analysis and insight. Thank you so much for joining us on Take on Tomorrow.
Johan: Thank you. Great to be with you.
Lizzie: Dan, there’s a lot to reflect on in what Johan is saying. But first, I want to talk about this headwind and tailwind idea, you know. He used the cycling analogy. Do you agree that the tailwinds are stronger than the headwinds?
Dan: I think there’s both. I think the headwinds are the reluctance of business to change the way that they are currently operating. There are significant amounts of capital that are looking for homes in sustainable investments. And those companies that can do a good job of demonstrating how these changes that they’re making to their business are going to create these kinds of impacts will attract that investment. There’s also opportunities for cost savings. So a lot of these initiatives will actually reduce costs. They’ll be removing waste from their process. Consumers are starting to make very strong signals through their buying decisions that they want to align and they want to purchase from companies that have these kinds of practices. So it’s a matter of understanding where the tailwinds are coming from and making sure that you’ve got the right sales setup so that you can catch those tailwinds.
Ayesha: Johan talked a lot about updating the planetary boundaries framework to include an emphasis on just as well as safe boundaries. What does that mean for business?
Dan: So this is really about understanding your stakeholders and the communities, the people that you interact with as a business. It might be your customers. It might be your suppliers, your employees. But it might also be the communities that you’re operating in. Often, companies are operating in areas with indigenous people. And so, understanding how your communities that you’re operating in are being impacted is becoming critical.
Lizzie: We mentioned the big headline number. But I wonder, when you are talking to a business and trying to help them understand their impact on nature and their nature risk and how it ties back to what they do every day, how do you help them see that?
Dan: One of the challenges is that this is a very large and complex topic. It’s not just panda bears and birds. Nature encompasses all of the natural world that we live in. It’s the air. It’s the oceans. It’s the land. It’s more than just the availability of water and the effects of drought. The tourism industry, for example, is hugely dependent on nature. The disaster in Maui, for example, is a good indicator of what can happen when nature risks materialize. You have a significant impact on that part of the economy. But there’s also opportunities. I mean, a good example would be Costa Rica, who really early on realized that they’re sitting on this amazing trove of biodiversity and natural assets. And they changed how they manage their land. And they’ve created this amazing ecotourism industry, and they attract millions and millions of visitors to their country every year. What we talk about with our clients is sort of thinking about doing course filter assessments and then fine filter assessments to understand where in your business, where you might have interactions with high-priority ecosystems, or you might have specific dependencies that might be threatened. And then it’s a matter of drilling down into those hot spots and really understanding what’s going on, and engaging with local communities, indigenous people, academics, consultants, that really understand those systems, to get into that more detailed assessment and understanding of how you can mitigate those risks.
Lizzie: Dan, let’s talk a little bit about the TNFD, the Task Force on Nature-related Disclosures. How does it fit into this conversation about nature-related risks?
Dan: The TNFD is attempting to create a framework that standardizes the approach for how organizations understand their interaction with nature. The capital markets, financial institutions are clamoring for this kind of information. But it’s really challenging to get right now because of the way it’s inconsistently reported. The TNFD is really a voluntary reporting framework. And what it’s doing is it’s attempting to align very closely with the different reporting frameworks, like the TCFD, the ISSB, the ESRS standards coming out of Europe. The expectation is that companies aren’t gonna create a separate TNFD report, that it’ll become part of their overall sustainability reporting. I don’t think the expectation is that every company is gonna get this right, right out of the gate. It is complex. Right? It’s a voluntary approach, but it aligns well with a lot of other risk-management processes that companies are already taking.
Ayesha: What do you think are the real tangible opportunities for businesses in helping the economy support nature?
Dan: So, there’s a concept called Nature-based Solutions. It’s where you’re basically working with nature to create solutions that basically address a number of different challenges—whether it’s climate change mitigation or removal of carbon from the atmosphere; whether it’s increasing the resiliency of an ecosystem so that, you know, it can continue to provide services. A lot of these Nature-based Solutions can actually create value in a number of different ways. It’s trying to understand where that value is coming from and then developing, you know, the case for it, because oftentimes it will involve some level of investment. A really good example would be regenerative agriculture. Intensive agriculture right now is not sustainable in the long term. But the challenge is trying to change practices at the farm level. How do you incentivize landowners and farmers to change their practices? Some of our clients or some of the organizations that we work with, they’re starting to look at, Well, how can we change pricing for certain services or provide microfinancing to those organizations? Because we know, by changing that practice, these farmers are gonna become more sustainable. But they may also be changing practices that allow for higher soil carbon content. And therefore, is there a way that we can actually take credit for the removal or storage of carbon in the soils? Maybe we can even create a carbon credit or we can use it as a way to show that we’re reducing our GHG emissions. Right? So it’s thinking about all these different multiple values that you get from these kinds of investments and building the case for it.
Lizzie: What about those very real difficulties for businesses that Ayesha spoke about with Johan? Inflation, economic pressures all over the world, the cost of living crisis. But what do you say to a business leader who maybe agrees with all the things you’re saying, but is also looking at their company’s bottom line.
Dan: Smaller businesses, this is going to be a a big challenge for them, because, like, there’s initial costs that have to be overcome to change those practices. So for larger organizations, it’s incumbent on them to help support the companies that are in their value chain. And that might mean creating incentives, paying a premium for certain goods that are produced in a more sustainable way. So it’s likely going to be through the value chain that smaller and medium-sized businesses will start to see drive and demand for products and services that are produced in a more sustainable way.
Ayesha: What is the cost of not doing anything?
Dan: Yeah. This is kind of a scary question, really. And we often don’t know what will happen if these tipping points are reached. In some cases, it could be systemic collapse, and we’ve seen examples of that in recent history. One good example would be the cod fishery off the east coast of Canada. Through overfishing and fishing practices, [the] whole economy collapsed. A lot of the science that a lot of our climate projections are based on, there’s a lot of conservatism in there, which means that it could be potentially a lot worse than what’s being predicted. Right? This summer has been probably one of the worst wildfire seasons in Canadians’ history, and elsewhere around the world. We’re really starting to see the effects. You know, my concern is that organizations are reluctant to really get into this because of the complexity. If these frameworks are to be effective, it’s going to be through the sharing and disclosure of information. Even if it’s not perfect, it’s important to get that information out there, so people can start to make decisions. The number one thing is not to let perfect be the enemy of the good.
Lizzie: Wise words on which to finish, Dan. We’re really grateful for your time and your expertise. Thanks for joining us.
Dan: Yeah. It’s been a real pleasure, and I appreciate the opportunity to talk about these topics.
Lizzie: Ayesha, that was a fascinating conversation. And while Dan’s last answer really underscored the urgency here, I also felt that there was some hope. I feel like often in climate-related conversations, I get so nervous for the future. But it was thought-provoking to hear Dan talk about the positives here.
Ayesha: And also the realities of what’s happening and the fact that this is here now. It’s not something which, you know, business leaders have to think about in the future. And something that really struck out from, you know, certainly what Johan was saying that, and to your point about optimism, that the tailwinds are actually stronger than the headwinds. And sometimes it’s easy to forget that. But another point which Dan made, which I was really interested in, is that he said this really important point about investors, that investors aren’t scared of risk. They just want to know, they wanna go in eyes wide open. And that’s why if business leaders and CEOs engage, there is a stakeholder community that will navigate this together, which I thought was really interesting.
That’s it for this episode. Join us next time, when we’ll be asking: could businesses transform the workforce by hiring with a skills-first approach, directly assessing and developing the skills they need rather than focusing on degrees and job histories?
Guest: A lot of employers are realizing there are two choices: do the hard work now for it to be easy later, or stick with the easy ways now and it’s gonna get hard later. Skills is really hard. It’s really early. It’s really messy. But it is better than any other way to judge potential and applicants if you’re trying to build a business that will succeed with agility in the age of AI.
Lizzie: Take on Tomorrow is brought to you by PwC’s strategy and business. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.
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