Executive Summary

An estimated 49.3% (1) of Australia’s GDP is moderately or highly dependent on natural systems. Differences between assessment tools primarily reflect methodological limitations, particularly the partial treatment of supply chain and financed impacts.

Context

Biodiversity loss is accelerating at an unprecedented pace. Approximately 75% (2) of the Earth’s land surface is significantly altered and approximately 25% (2) of species are threatened. Degradation of ecosystem services is anticipated to cause an annual global GDP reduction of up to 2.3% (2) by 2030 (2). Approximately US$7 trillion (2) of investment is directed each year toward activities damaging nature, with the private sector contributing roughly US$5 trillion (2).

Direct And Indirect Nature Impacts

Direct impacts arise from a company’s own operations. Indirect impacts occur through supply chains, product use, and financing activities. Assessment tools prioritising direct pressures can underestimate the impacts of businesses with large supply chains.

Impact And Dependency

Dependencies describe how much a business relies on ecosystem services. Both impact and dependency are sources of financial risk, although dependency risk is challenging to measure.

Approach To Assessing Impacts

This analysis uses data from three (3) widely used assessment tools to rank ASX200 companies from lowest to highest impact. The ENCORE dataset was also used to assess the materiality of environmental impacts.

Who’s Having The Greatest Nature Impact?

Utilities, energy, materials, industrials and consumer staples emerge as the highest impact sectors. Six (4) of the ten (4) firms with the greatest nature impacts are in the materials sector.

The Most Impactful Companies In The Asx200 And The Nature Of Their Impacts

Mining and energy sector impacts are driven largely by greenhouse gas emissions and water consumption. Conversely, IT, consumer staples, and finance exhibit low direct footprints, but predominantly impact nature through supply chains.

An Alternative View On Environmental Impact Materiality – Encore

The ENCORE analysis shows lower-impacting sectors generate lower pressures in soil pollutants, solid waste, and ecosystem use. The financial sector had very few materiality ratings.

How Can Companies Reduce Their Impacts?

Companies should embed nature into enterprise risk frameworks, conduct location-specific assessments, and strengthen supply chain resilience.

Taskforce For Nature-Related Financial Disclosures (Tnfd)

The TNFD provides a practical framework, and its LEAP approach guides internal assessments.

Assessment

Companies should assess biodiversity impacts across entire value chains and identify opportunities for avoiding impacts.

Addressing Impacts

Companies should commit to addressing material impacts by setting ambitious, time-bound, science-informed goals following the mitigation hierarchy.

Measure And Report On Progress

Measuring progress towards reducing impacts should focus on material risks identified during assessment.

Advocate For Sectoral Improvements

Companies should work within their sector to reduce impacts, as robust industry standards protect leading efforts.

What Should Investors Do?

Investors have three (11) distinct but complementary levers: capital allocation, stewardship, and company-specific engagement. Capital allocation can increase the cost of capital for high-impact sectors. Stewardship includes public policy advocacy for stronger nature laws. Engagement can improve governance and management of nature-related impacts.

Conclusion

Nature-related risks are material for Australian companies. Companies should assess impacts using TNFD, while investors must leverage capital allocation and stewardship to drive transitions.