30 June, 2021 / Comment
Q&A: Getting to grips with nature-related disclosures
By David Craig, co-chair, Taskforce for Nature-related Disclosures and CEO, Refinitiv
Co-chair of the TNFD explains how the framework will assist businesses in assessing nature-related risks and opportunities
The Taskforce for Nature-related Financial Disclosures (TNFD) was officially launched on 4 June in order to help businesses assess nature-related risks and opportunities. But what does it mean for investors? Co-chair of the framework, David Craig (pictured), who is also CEO of Refinitiv and group leader of data and analytics division at London Stock Exchange Group, answers ESG Clarity Intelligence‘s questions.
Why was the TNFD launched?
Built upon the success of the Task Force on Climate-related Financial Disclosures (TCFD), which has become instrumental in mainstreaming the issue of climate-related financial risks, the TNFD’s framework for nature-related risks aims to complement this to give companies and financial institutions a complete picture of their environmental risks.
We must start to shift global financial flows away from nature-negative outcomes and push towards nature-positive outcomes but in order to do so, the TNFD will support businesses in assessing their nature-related risks and dependencies.
What are it’s short and long term aims?
Short term: To create and deliver a framework by 2023 for organisations to report and act on evolving nature-related risks, to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
Long term: To help businesses implement and utilise the framework so that we begin to see this change.
Who will be working on this?
Two newly appointed co-chairs, myself as well as Elizabeth Maruma Mrema, executive secretary of the United Nations Convention on Biological Diversity (CBD).
We expect to announce our Taskforce membership later this year. It will likely consist of approximately 30 members and a wider TNFD Alliance with a strong representation of financial institutions, corporates and data/service providers from developed and emerging markets. It will be informed by a diverse Stakeholder Group.
A diverse Stakeholder TNFD Alliance group – consisting of governments, regulators, multilaterals, financial and business consortia, NGOs, think tanks and research organisations. The TNFD aims to consult with this variety of stakeholders to develop and build on voluntary, consistent disclosures to help corporates, investors, lenders and insurance underwriters manage nature-related risks, such as new legal liabilities and systemic loss of soil fertility.
How does biodiversity loss impact the economy and investment portfolios?
There is an inexplicable link between nature and the economy. More than half of the world’s economic output – $44tn of economic value generation – is moderately or highly dependent on nature, which is why it is important to protect it.
For example, last year the Dutch central bank DNB found that 36% of the global portfolios of Dutch financial institutions was exposed to companies dependent or highly dependent on nature.
We must therefore limit the exposure of biodiversity-related risks on financial stability because you are naturally going to lose investment if biodiversity is not protected because of how much it is relied upon for global finance to continue as it is.
The Covid-19 pandemic, a zoonotic disease that can be linked to nature degradation, has underlined the fact that nature-related risks can impact the economy faster than climate risks, and can affect all sectors.
Action for nature-positive transitions could generate up to $10.1trn in annual business value and create 395 million jobs by 2030, according to the World Economic Forum.
In its 2020 Global Risks report, the World Economic Forum ranks biodiversity loss and ecosystem collapse as one of the top five risks in the next 10 years.
What can be done to mitigate this?
Ensure businesses and organisations know how to better understand their dependencies to nature and risks on nature, but also how to report those risks and dependencies with the aim of making operations more sustainable and less damaging.
What are the key challenges around data and disclosure from a natural capital perspective?
While the TNFD builds on the successful TCFD, the new nature-focused Taskforce faces unique challenges: when it comes to data, metrics and methodologies, there are critical differences between climate and nature.
Measuring and disclosing nature-related risks is an even more complex challenge than it is for climate-related risks. A key challenge is that, unlike for climate, it is not just what your activities are, but where they are, which matters, which means having more location-specific data from corporates will be part of the solution.
Improving corporate disclosures will also only be one of many levers to close the data gap on nature-related financial risks. In the climate space, better corporate disclosures were at the centre of the solution to the data challenge. Satellite data may also play a significant role in closing data gaps on nature-related risks.
What would you like to see happening in the lead up to COP26?
There is more of a focus for the TNFD to be involved in COP15 which is the Conference of the Parties to the Convention on Biological Diversity Kunming, China, 11 – 24 October 2021 where world leaders will agree on biodiversity targets for the next ten years.
It is no exaggeration to describe COP15 as an event as of historical significance. Humanity has wiped out 83% of wild mammals and half of all plants. Three-quarters of ice-free land and two-thirds of marine environments have been severely altered. The discussions at Kunming are as important to biodiversity as the Paris Agreement was to climate, and are likely to be similarly complex, if not more so. By extension, COP15 matters hugely to corporates and financial institutions around the globe, as tackling nature-related risks is set to become the new frontier for sustainable business and finance.
It is therefore important that COP15 has a similar ambition as COP26 with clear measurable and meaningful targets.
Can you see TNFD becoming mandatory in some countries much like TCFD?
This would be the ultimate aim but we are unable to guarantee anything at this early stage.
We expect that complying with the recommendations of the TNFD will initially be voluntary for financial institutions and corporates but over time, mandatory disclosure requirements are expected, as we are now seeing with the TCFD.
The scale of regulatory endorsement has been really promising so far, similar to that of the TCFD. The TNFD has so far had backing from the G7 ahead of the recent summit, as well as from the President of France and from Mark Carney, UN Special Envoy for Climate Action and Finance.
Part of the Bonhill Group.