Controversies in Biodiversity and Community Relations: A Holistic View of Their Interconnection

The current trajectory of biodiversity loss and ecosystem degradation¹ poses significant risks to both companies and financial institutions.² In a previous article, we explored how biodiversity loss exposes corporate entities to both physical and transition risks. However, to successfully manage biodiversity-related risks, companies must engage with and explicitly recognize the rights of indigenous peoples and local communities (IPLC). 

Acknowledging the pivotal role IPLCs play in biodiversity management is not only ethically sound, but also critical to effectively addressing biodiversity-related risks. An analysis based on Morningstar Sustainalytics' Controversies Universe found a correlation between companies entangled in biodiversity and community relations controversies, highlighting the interconnectedness of the issues and the need to address them together. Despite this, the connection between the two is often missed.

IPLCs’ Crucial Role as Custodians of Biodiversity  

IPLCs’ territories often overlap with the world’s most biodiverse areas, comprising approximately 40% of all terrestrial protected areas.³ Their coexistence with nature and their traditional land management practices⁴ have resulted in 91% of IPLC lands being in good or moderate ecological condition.⁵ Despite their considerable role in biodiversity conservation, these groups have lacked support and legal recognition of their role. Acknowledging IPLCs as rights-holders and involving them in decision making processes is essential to effective conservation efforts.

The importance of IPLCs has been acknowledged in the Kunming-Montreal Global Biodiversity Framework (GBF). It emphasizes respecting and preserving the rights, knowledge, values and practices of IPLCs during its implementation. Several targets of the framework specifically highlight the importance of respecting IPLC rights over their traditional territories and their customary use of natural resources. Target 22 of the GBF underscores the need for equitable and inclusive representation and participation in biodiversity-related decision making, and respecting the culture, rights and knowledge of IPLCs.⁶ A fund has now been established by the Global Environment Facility to support the implementation of the GBF and provide enhanced access for IPLCs.⁷  

The recently released Taskforce on Nature-related Financial Disclosures (TNFD) also sends a clear message that the engagement of IPLCs is integral to the assessment and management of nature-related risks and opportunities. Specifically, the TNFD’s general requirement 6 states that an, “organisation should describe its process for engaging Indigenous Peoples, Local Communities and affected stakeholders about their concerns and priorities with respect to nature-related dependencies, impacts, risks and opportunities in its direct operations and value chain.”⁸ 

One of the recommended governance disclosures asks users to report on board and management oversight with respect to IPLCs when addressing nature-related issues. In addition, engagement with IPLCs is a core component throughout the TNFD’s guidance for identifying and assessing nature-related issues (the LEAP approach). To support meaningful engagement with IPLCs, the TNFD has published this guidance document. 

Analysis of Biodiversity and Community Relations Controversies 

The analysis below focuses on companies’ biodiversity and community relations controversies.⁹ A company can have negative environmental and social impacts not just through its direct operations, but across its value chain. For some industries, the most impactful activities are likely to be embedded within their supply chains. Therefore, we have conducted the analysis in two parts to highlight the controversies associated with companies’ direct operations, as well as their supply chains. 

To understand whether there was a correlation between companies facing biodiversity controversies and those facing community relations controversies, we looked at the correlation coefficient. This is a number ranging from -1 and 1 and indicates the strength and direction of a relationship between two variables. We observed a positive correlation between biodiversity and community relations controversies within both supply chains (0.59) and direct operations (0.38). Despite the potential overlap between biodiversity and community relations, our analysis underscores that even when assessed independently, companies facing biodiversity controversies are more likely to encounter community relations issues.

Figure 1 highlights the 10 industries with the highest percentage of combined controversies in biodiversity and community relations within their direct operations. This analysis encompasses controversies across all impact levels (low to severe). 

Among these industries, the precious metals industry exhibits the highest percentage of companies associated with community relations controversies, amounting to 31%. Additionally, the paper and forestry and diversified metals industries stand out for having over 10% of companies implicated in both biodiversity and community relations controversies.