Biodiversity concerns represent the next frontier in climate disclosure, new framework says

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More than US$44-trillion a year in global economic activity is either moderately or highly dependent on nature and the ecosystem services it provides. Now, an international, market-led move is afoot to put nature-related risk and opportunity analysis into the heart of corporate decision-making.

On Tuesday, the Taskforce on Nature-related Financial Disclosures, or TNFD, released a beta version of its risk-management and disclosure framework, which was designed by leaders from 34 financial institutions, businesses and market service providers.

The members of the task force, including BlackRock, Nestlé and Moody’s, have a total of US$18.3-trillion in assets under management and operations in more than 180 countries. Leading scientific, standards-setting and data organizations also provided input into the first iteration of the framework.

The prototype framework builds on the work done by the Task Force on Climate-related Financial Disclosures, or TCFD, which in 2017 released a reporting template that has been widely adopted by public companies and other organizations around the world. Former central banker Mark Carney and billionaire ex-mayor of New York Michael Bloomberg led the effort to develop the TCFD standards.

The TNFD said its close alignment with the TCFD approach was deliberate: market participants have called for consistency in the tack and language used across sustainability reporting.

“The two crises of climate change and nature loss are tightly interconnected, and although businesses have moved faster on climate change, we’re now bringing nature into the equation,” Elizabeth Mrema, TNFD co-chair and the executive secretary of the United Nations Convention on Biological Diversity, said during a technical briefing ahead of the framework’s release. “There are financial risks to nature loss.”

Regulators and investors are increasingly calling for more transparency around the extent to which businesses rely on nature and, in turn, are exposed to the risks associated with nature loss. Britain’s 600-page Dasgupta Review on the Economics of Biodiversity, for example, argued last year that “nature needs to enter economic and financial decision-making in the same way buildings, machines, roads and skills do.”

The prototype framework includes guidance to help market participants understand nature and the risks and opportunities associated with it, as well as disclosure recommendations for nature-related dependencies and effects.

The aim is to compel a shift in global financial flows away from outcomes that are detrimental to nature and toward ones that preserve and protect it. Nature-positive business models, the TNFD says, could generate US$10-trillion in opportunities and support 350 million jobs by the end of the decade.

With funding from governments, the United Nations and philanthropic foundations, the TNFD officially launched last June. It has received broad endorsement by the global finance community, including the G7 finance ministers and the G20 environment ministers. Adoption of the framework is voluntary.

The TNFD’s beta framework is being released amid heightened awareness about the twin crises of climate change and biodiversity loss. Momentum has been growing in the public and private sectors to do a better job of valuing and understanding nature and the services it provides.

Just last fall, the New York Stock Exchange and the Intrinsic Exchange Group, or IEG, which provides advisory services to convert natural asset value into financial capital, announced the development of a new kind of investment vehicle, known as a natural asset company.

Natural assets, also known as eco-assets, refers to the stock of natural resources and ecosystems that provide a multitude of goods and services. They include wetlands, rivers, lakes, forests, fields, coastal marshes, dunes and soils.

With the new investment vehicle, owners of natural assets will be able to create a corporation that holds the rights to the ecosystem services provided by a particular natural resource. IEG has developed an accounting framework to measure the ecological performance of the natural assets and determine the financial value of the flow of services they provide.

At the technical briefing, TNFD executive director Tony Goldner said the task force met with the IEG in New York in December and recently had representatives from the group speak to the TNFD’s 300-member consultative forum. “There was tremendous interest,” Mr. Goldner said. “Ultimately, we’re not trying to put a price on nature. But we are trying to make sure that the value of nature is reflected.”

Increased transparency around a business’ dependency on nature will help lenders better understand and manage the risks associated with the loans they make, said Bas Ruter, the global head of sustainability and climate at Dutch multinational banking and financial services company Rabobank. “If you start valuing stuff, you can start using that value to protect it,” Mr. Ruter said at the briefing. “I think that’s what we’re all striving for.”

The TNFD is taking what it describes as an “iterative, open innovation” approach, in which market participants can choose to pilot-test the beta framework and provide feedback. Over the course of the next 18 months, three more beta versions will be released. The final framework is slated to come out in September, 2023.

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