TNFD and CBD set to introduce standardised global nature-related reporting frameworks.
While understanding of investors’ biodiversity-related risks is improving, asset managers have warned that shortcomings in data and competing reporting frameworks will hinder continued progress. This is according to panellists speaking at the Natural Capital Virtual Summit yesterday, hosted by City and Financial Global.
“We are looking at biodiversity from multiple angles, across policy, portfolio construction, active ownership and the implications surrounding data and regulation in this space,” said Martina Macpherson, Head of ESG Strategy at ODDO BHF Asset Management.
Asset managers are increasingly engaging with investee companies to identify their exposure to biodiversity-related risks, how these risks are being measured and what is being done to address them, panellists noted. This is giving asset managers more visibility, both of the overall exposure of portfolios to nature-related risks and of corporate laggards that need to be encouraged to introduce change, through escalated engagement or shareholder voting.
Improved visibility of biodiversity-related performance also helps asset managers to identify and invest in companies offering solutions, said Lisa Beauvilain, Head of Sustainability and ESG at Impax Asset Management.
“The majority of our assets under management are invested in global companies providing solutions, such as water treatments, pollution control or sustainable food production,” she said.
Around 75% of the land surface “significantly altered”, 66% of the ocean area experiencing “cumulative impacts” and over 85% of wetlands now lost, according to a 2020 report by the Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES). All of this has a knock-on effect on companies, countries, economies and, by extension, investors.
Responding to the growing urgency, led by NGO Ceres, 78 financial institutions managing more than US$10 trillion in assets called on world governments this week to stop biodiversity loss and support the creation of the Global Biodiversity Framework.
However, with corporates reporting to a range of voluntary disclosure frameworks on their exposure to diverse nature-related risks, and their own impact on nature, investors struggle to obtain reliable, comparable and decision-useful data.
This could lead to a stagnation of efforts to address biodiversity risks, panellists warned.
“Biodiversity still feels like a new topic that is typically tackled through qualitative data,” said Macpherson.
The true extent of nature-related risks will continue to be “vague and hard to capture” without a standardisation of disclosure requirements from reporting frameworks and improvements in the metrics used to assess these risks, said Beauvilain.
“Harmonisation” would lead to a streamlining of data, allowing an increased focus on improving the quality, she said.
“The multitude of frameworks, methodologies, criteria and data points for biodiversity highlight how complex this sphere is and ultimately how much a dedicated framework – such as the Task Force on Nature-related Financial Disclosures (TNFD) – is needed,” Beauvilain added.
TNFD will be officially launched in 2023, providing investors, companies and policymakers with a framework aggregating the “best tools, materials and initiatives that already exist, in order to promote worldwide consistency for nature-related reporting”, said Elizabeth Maruma Mrema, Co-Chair of TNFD and Executive Secretary of the UN Convention on Biological Diversity (CBD), also speaking at the summit.
It is expected that initial adoption of TNFD will be voluntary, but could serve as the basis for mandatory disclosure requirements, such as has been seen with countries leveraging the Task Force on Climate-related Disclosure (TCFD) guidelines in domestic legislation, said Mrema.
Building on the four-pillar framework of TCFD to ensure alignment between the mitigation of nature and climate-related risks, TNFD will also “adopt a broad definition of nature-related risks” that should be measured by companies and investors to ensure clarity, she explained.
In tandem, the upcoming COP15 CBD convention will see 196 global governments launch and adopt the Global Biodiversity Framework, the draft for which was published in July. COP15 CBD is scheduled to take place in Kunming, China, in two parts, the first in October and the second in April next year.
The draft lists 21 targets and four goals that need to be met by 2030. Some of these targets are specifically aimed at financial institutions and corporates, such as the obligation to assess and report on dependencies and impacts on biodiversity.
This will serve as the “blueprint framework for the next decades”, said Mrema, acknowledging that this will not be an easy task with “extensive resources already required across financial institutions and corporates to deal with climate-related risks”.