Romie Goedicke, Associate Lead of the Nature Programme at the UNEP Finance Initiative, outlines how a recent pilot project has helped financial institutions to better align with the goals of the Global Biodiversity Framework.
Over three decades, the UN Environment Programme Finance Initiative (UNEP FI) has worked to align the financial system with sustainable economic growth.
Balancing the needs of the natural world and human populations has always been central to its mission. But never more so than today, with the passing of the Kunming-Montreal Global Biodiversity Framework (GBF), and the development of finance-sector initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD).
Following the v0.4 release of the TNFD draft framework in March 2023, the UNEP FI published a report on the results of its global pilot testing programme with the private finance sector to test the draft risk management and disclosure framework for nature-related risks.
The pilot programme brought together 42 financial institutions from 19 countries in seven sectoral and geographical groups and key technical piloting partners to “step into the unknown”. The aim was to support the banks, insurers and investors in starting their journey to unboxing nature-related dependencies, impacts, risks and opportunities – and supporting the ultimate goal of shifting global financial flows away from nature-negative outcomes and toward nature-positive ones.
According to Romie Goedicke, Associate Lead of the Nature Programme at the UNEP FI, the piloting process showed an “attitude of readiness and willingness” among financial institutions to apply the programme within their organisations.
Testing the TNFD framework requires a lot of experimentation as developing new methodologies to manage nature-related risk that can be shared and learned from is vital, she says.
“The financial institutions that were most effective in their approach invested into building awareness and capacity within their own organisations,” she told ESG Investor. “TNFD is its own task force, but financial institutions that were most successful in the pilot process built their own internal task forces.”
Goedicke notes that there was a cultural context to how financial institutions viewed experimentation, with organisations based in Europe finding the process easier and being more comfortable admitting that they did not have all the answers.
One conclusion of the pilot process was that the TNFD’s LEAP approach for financial institutions, which offers voluntary guidance intended to support internal nature-related risk and opportunity assessments, is “iterative, rather than linear”, she says.
“Financial institutions found it challenging to start with the ‘Locate’ phase, with some finding its easier to move towards the ‘Evaluate’ phase first, then work backwards.”
Goedicke says the process also highlighted a clear demand from financial institutions for sector-specific guidance in the TNFD. In addition, the pilot programme identified the need for target-setting guidance, which the UNEP FI is developing in collaboration with the UN Principles for Responsible Banking and the TNFD.
“The UNEP FI will also continue to pilot new topics, including nature scenarios with the Taskforce for Climate-related Financial Disclosures (TCFD) to examine the nature-climate Nexus,” she says.
Triangulating tools
Financial institutions involved in the pilot programme also expressed the need for greater consistency when it comes to data and tools, such as Natural Capital Finance Alliance’s Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE), the Integrated Biodiversity Assessment Tool (IBAT) and the Partnership for Biodiversity Accounting Officials (PBAF) due to the sheer variety and complexity of financial products offered by banks, asset managers and insurers.
However, assessing impacts and dependencies on nature and how it translates into risk and opportunities using a single metric is a tall order, not least because of the need to consider context, notably location.
“Comparing this to accounting standards, which have been developed over 150 years and where we still have no single framework, highlights how difficult it is to come up with a single metric for measuring our impact on nature,” she says.
According to Goedicke, financial institutions must “triangulate” between different tools and approaches, such as using the ENCORE tool to create a portfolio heat map, then using IBAT and the Species Threat Abatement and Recovery (STAR) metric to measure the contribution that investment can make to reducing species’ extinction risk.
However, she admits that better and more contextualised data is needed, including data from municipalities and innovative data sources like environmental DNA (eDNA) and Citizen Science, as well as having people within financial institutions who can understand and compare the data and translate it into financial risk, strategy or actions.
In a pilot group established in Australia, where the future prosperity of the country is intrinsically linked to health and survival of natural ecosystems, it became clear there was a lack of primary sources for water-related data, with banks currently relying on client-sourced year-on-year data which is often not standardised.
“Financial institutions rely on client data to make informed decisions. However, incomplete data can lead to them making incorrect decisions,” says Goedicke. “The piloting process highlighted that financial institutions often wait for the right corporate data before making decisions, while corporations depend on data from suppliers which are not reporting.”
But with nature disappearing at a faster pace than ever, Goedicke stresses that organisations cannot afford to “point fingers” at each other for data disclosure, recommending further experimentation and collaborate to create a fuller picture of nature-related risks and opportunities.
Last year, the UNEP FI released a report on the financial market’s readiness for TNFD adoption, with only four out of the 22 participating financial institutions confirming that they had already taken steps to identify, assess, and report on the materiality of nature-related risks and opportunities in their investment portfolios.
Most appeared to take a “wait and see” approach and rarely asking nature-related questions to investee firms, highlighting a strong need for capacity building, according to Goedicke.
Filling the gap
The financial institutions in the pilot process found the exercise useful and are eager to continue piloting the TNFD framework to pioneer reporting on nature-related risks and opportunities, with the organisations keen to address internal gaps uncovered during the exercise, says Goedicke.
According to the report, immediate improvements became visible during the pilots, with several financial institutions implementing internal task forces, hiring in new expert positions or better understanding the landscape of actors and institutions in the natural capital space. The pilot programme also provided financial institutions with a roadmap on how to address these gaps moving forward.
“What most organisations involved in the pilot process found is that for most of the TNFD’s proposed disclosure recommendations, they’re already gathering about two-thirds of that data as part of their TCFD reporting,” she says. Now, the task is to take steps to add to what they have. “It’s not like they’re starting at zero.”
During the pilot process, it became clear that board members at financial institutions required greater support. Goedicke says there is a need for the board-level guidance to help explain the relevance of the TNFD framework and what the next steps senior executives should take to understand nature-related risks and opportunities.
The UNEP FI will continue piloting the TNFD framework until the TNFD closes its public consultation on the framework on 1 June. The TNFD remains on track to publish its final recommendations in September.
Small steps, big strides
During COP15 in Montreal, Goedicke says she observed a different level of ambition to previous years, due to the presence of around 100 financial institutions in attendance. GBF negotiators upstairs at Palais de Congres had a vastly different experience than the financial institutions and other actors downstairs, she says, where there a lot of enthusiasm, a “different vibe”.
Together with the UN Principles for Responsible Investment (PRI) and the Finance for Biodiversity Foundation, the UNEP FI worked on a commitment from the financial sector for an ambitious GBF, and for a commitment to assess their own impacts, which was crucial, she says.
Another vital development that took place in Montreal, she says, was the steps taken by the International Sustainability Standards Board (ISSB) to move beyond climate.
In the face of unprecedented reductions in biodiversity, the GBF provides a framework to halt and reverse nature loss by mobilising investors to allocate US$200 billion per year to innovative financial and nature-based solutions by 2030.
In April, the UNEP FI published a report that provides guidance and advice for investors looking to align their activities with the goals of the GBF, identifying three key recommendations, namely: to integrate biodiversity into decision-making, invest in innovative solutions, and disclose impacts and dependencies.
“The GBF calls for whole-of-society approach, with financial institutions and investors stepping up their action on nature,” she says.
She notes that while the GBF and the TNFD are two distinct initiatives, with the former being an international agreement agreed upon by 196 nations and the latter being a market-led task force, the two work in tandem to drive meaningful action necessary to address the nature crisis and halt biodiversity loss.
Target 15 of the GBF is often referred to as the ‘TNFD target’, which is where the initiatives come together, she says, noting that the leadership of the UN, particularly Elizabeth Mrema as one of the TNFD Co-chairs and her former role as Executive Secretary of the Convention on Biological Diversity (CBD), has been crucial in bringing these two worlds together.
“The GBF identified a US$700 billion funding gap for nature, which is huge, equivalent to the GDP of the Netherlands, where I was born, but it represents a small step for the financial sector and a huge step for the world we all depend on,” she says.
Goedicke acknowledges that initiatives like the TNFD are a “means to an end”, as disclosing more information will provide more detail, but ultimately, changing our mindset and actions towards nature and biodiversity is the key component to success.
“The ultimate aim of the TNFD is not only to develop a disclosure framework but also to shift financial flows, which is the path that we all must take together.”
