Comment: Simon Zadek, chair of Finance for Biodiversity, explains how the newly launched Taskforce on Nature-related Financial Disclosures will help ensure that the low carbon transition is also nature-friendly
The Taskforce on Nature-related Financial Disclosures (TNFD) launched this week, creating a global framework for companies and investors to report and act on nature-related risks.
Elizabeth Maruma Mrema, executive secretary of the United Nations Convention on Biological Diversity, will co-chair the TNFD with David Craig, founder of financial-data company Refinitiv and group leader of data and analytics at London Stock Exchange Group Plc.
Just as Mike Bloomberg and Mark Carney’s Taskforce on Climate-related Risk (TCFD) has galvanised thousands of organisations into reporting on climate-related physical and transition risks in a standardised way, TNFD is likely to shift focus to ensure that a low carbon transition is also a nature-friendly transition.
Common perceptions suggest the bioenergy market might be worth $500bn globally by 2050, but once we factor in planetary boundaries it is likely to peak at $25bn
As a new paper entitled The Climate-Nature Nexus: Implications for the Financial Sector shows, this distinction is critical. Take second-generation bioenergy, for example. Common perceptions of what a climate transition will look like might suggest that this market is worth $500bn globally by 2050.
But this is a future that cannot play out if we are to deal with the nature crisis alongside climate. Once we factor in planetary boundaries – nature’s natural thresholds for change – the market for bioenergy is likely to peak at around $25bn. This is a dramatic change, especially for climate-positive investment strategies.
The TNFD’s preparatory phase of work began in September 2020, supported by an Informal Working Group (IWG) and an Informal Technical Expert Group (ITEG), which I co-chaired. The role of the ITEG was to support the IWG in defining and creating the scope of the Taskforce, and this week’s launch included a full technical scoping document and workplan, along with a summary report entitled ‘Nature in Scope’, providing an overview of how TNFD will make progress towards providing a framework for organisations to report and act on evolving nature-related risks.
In essence, TNFD reporting is about leveraging the progress that’s already been made on climate, considering both physical and transition risks related to nature, and identifying the right metrics. Here are three things that the framework will require companies and investors to do:
Factor nature into physical risk and opportunity assessments
Many financial institutions now have plans and procedures in place to mitigate physical climate risk in carbon-intensive sectors such as agriculture, forestry, fisheries, utilities, and built infrastructure. But the physical impacts of nature can also compound business risks significantly, and institutions should start to factor these in alongside climate risks. For example, agriculture investors should consider how the degradation of nature will change crop yields, and healthcare financiers should analyse how loss of genetic biodiversity may drive risks to pharmaceutical research.
Organisations should also consider how an expansion of nature-based solutions (NbS), which use biodiversity and ecosystem services as part of an overall adaptation strategy, can create opportunity. NbS often cost less than hard engineering approaches with, for example, coastal wetland restoration up to five times cheaper than submerged breakwaters.
Consider nature-related transition risks
Just as climate-risk management splits into understanding both physical and transition risks, so should management of nature risk. Transitioning to a nature-positive (as well as a zero-carbon) economy may entail extensive policy, legal, technological, and market changes. Transition risks and opportunities may occur when businesses suffer or gain financially due to changes that penalise or reward their impact on nature or climate. This includes reputation, litigation, and broader liability risks.
Nature-related transition risks may include lower than expected growth in meat, bioenergy, large infrastructure, and materials for the zero-carbon transition. Transition opportunities can be found in new agriculture technology and business models, reducing food waste, and supporting sustainable oceans and healthy diets.
Identify nature impact metrics
Organisations getting ready for TNFD should start to integrate a set of simple and readily available nature impact metrics into their procedures. Relatively good data exists on indicators such as land-use change, water withdrawal, and some forms of pollution.
Over the longer-term, there is a need to evolve more granular and geolocated metrics to measure nature impacts. We are approaching a crucial tipping point for nature; financial institutions can no longer look at climate transition or nature transition in isolation.
Governments are now shifting their focus towards the protection of the planet’s natural ecosystems, and the new Taskforce for Nature-related Financial Disclosures will accelerate the pace of change in nature-related risk analysis. Financial institutions and businesses should be ready to respond.
Simon Zadek is Chair of Finance for Biodiversity (F4B), an initiative to increase the materiality of biodiversity in financial flows and decision-making.
See also the natural capital briefing in the latest issue of The Ethical Corporation Magazine, free to download by clicking on the cover of the magazine below.
TNFD TCFDs Finance for Biodiversity Refinitiv naturebased solutions