Nature-related disclosures for companies and investors expected to become mandatory as part of proposed Global Biodiversity Framework.
The majority of large companies are willing to disclose their biodiversity risks and impacts, according to data from non-profit environmental disclosure platform CDP. Biodiversity disclosures are currently voluntary, but the UN Convention on Biological Diversity’s COP15 – which begins next week – is due to see the finalisation of a new Global Biodiversity Framework (GBF), which will likely lead to mandatory biodiversity disclosures.
CDP reached out to over 8,850 companies with biodiversity questions as part of its 2022 climate change questionnaire, with 87% (7,700) of the companies responding, indicating their willingness to disclose on biodiversity-related matters to the platform. Target 15 of the GBF requires all large businesses and financial institutions to assess and disclose their impacts and dependencies on biodiversity and nature.
CDP found that nearly half of the 7,700 respondent companies already consider biodiversity in their strategies, having made biodiversity-related commitments and put governance mechanisms in place. More than three in ten of the companies have so far made a public commitment and/or endorsed biodiversity-related initiatives, with a further 25% intending to do so within the next two years and 33% disclosing that they had undertaken action on biodiversity already.
However, the data found 55% of the companies which responded had so far not undertaken any action to progress their biodiversity-related commitments during the past year. Seven in ten respondent companies admitted that they do not currently assess the impact of their value chain on biodiversity. This rises to 74% of companies in the apparel sector and 73% in manufacturing – widely regarded as sectors having the “most damaging impacts on nature – not assessing the impact of their value chain on biodiversity, according to CDP’s data.
According to a report by the Organisation for Economic Co-operation and Development between 1997-2011 biodiversity and associated ecosystem services losses have already cost an estimated US$4–20 trillion per year in ecosystem services owing to land-cover change and US$6-11 trillion per year from land degradation. This number likely to continue to “increase exponentially”, underlining the importance of action on biodiversity.
CDP was founded two decades ago as a platform for reporting climate-related disclosures, but is expanding its operations to cover a wider range of environmental data.
Target 15 at COP15
Negotiations to finalise the GBF are due to take place in Montreal, starting on 7 December. The GBF is a framework to protect and support nature, comprised of 21 targets and 10 ‘milestones’ proposed for 2030, and is often referred to as nature’s Paris Agreement. The final version is expected to include a commitment to protect at least 30% of the planet’s land and oceans by 2030, as well as clauses requiring private sector finance flows to support its goals.
This framework includes Target 15 – a mandatory requirement for all large businesses and financial institutions to assess and disclose their impacts and dependencies on biodiversity and nature.
CDP suggests the introduction of Target 15 has the “potential to underpin an economic transformation”, driving faster and greater action from companies in reducing biodiversity loss and ecosystem degradation. Additionally, CDP says it will aid investors in understanding the biodiversity-related risks and opportunities of their portfolios and assist in “redirect[ing] capital toward sustainable activities”.
Sue Armstrong Brown, CDP’s Global Director for Environmental Standards, said: “Governments must seize this chance and create the enabling environment companies need to drive forward their commitments by agreeing a clear and ambitious GBF. This must include mandatory environmental disclosure through Target 15”.
If approved, Target 15 effectively provides a mandate for the Taskforce on Nature-related Financial Disclosure (TNFD), a market-led initiative established to create universal standards for disclosure and risk management of nature-related risks.
Governments that sign up to the GBF, including Target 15, are expected to incorporate the framework into domestic reporting requirements, similar to how countries including the UK adapted the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), as part of their obligations to the Paris Climate Agreement.
Speaking recently to ESG Investor, Tony Goldner, the TNFD’s Executive Director, underlined the importance of the GBF and Target 15, saying: “The world needs a robust GBF in general, but TNFD would particularly like to see a strong target 15, as we hope TNFD can be the tool the market can utilise in response”.
Armstrong Brown said it was important that COP15 served as a catalyst for further action in the private sector: “Even when some companies are ahead of the curve and recognising these risks, commitments are not turning into action at the pace we need to boost resilience, and to halt and reverse biodiversity loss. COP15 must close the loop and turn interest into action.”
Biodiversity finance demand growing
Ahead of COP15, the Association for Financial Markets in Europe (AFME) and EY have also reported that the investor demand for nature-related finance is increasing. According to their report, the global biodiversity financing gap has recently been estimated to be between US$598 billion and US$824 billion per annum, with banks and other market participants struggling to mainstream and scale nature finance products.
Despite the growth in investor demand creating “new opportunities to develop nature-related financing products”, the lack of available data and common metrics for nature and biodiversity has proven an obstacle for banks in the scaling of biodiversity-related products.
Gill Lofts, EY’s Sustainable Finance Leader, said: “Without sustainable finance we cannot achieve a sustainable future. We need an effective post-2020 biodiversity framework, underpinned by a strong global nature reporting framework, consensus around measurable and meaningful metrics to define biodiversity impact, and the development of a currency for nature.”