Use Climate Experience for Fast TNFD Adoption, Investors Told

Nature-related framework “an additional building block, according to early adopters.

To quickly grasp the scale of their nature-related exposures, investors and corporates should view new reporting and risk management processes as an extension of existing climate strategies, delegates heard at the PRI in Person 2023 event.

Snorre Gjerde, Lead Investment Stewardship Manager, Norges Bank Investment Management (NBIM), said investors should take advantage of the fact that the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD) had borrowed both language and structure from those of the Task Force on Climate-related Financial Disclosures (TCFD).

“The climate-nature nexus is clearly recognised in the TNFD framework,” he told signatories of the UN Principles for Responsible Investment (PRI). “Building on their climate-related experience would be a good starting point for investors using these processes and practices as a template when considering how to approach nature risk in their portfolios.”

The disclosures included in the final recommendations of the TNFD, which were released last month, use the same four pillars as those of the TCFD, namely governance, strategy, risk management, and metrics and targets.

Eleven of the TNFD’s 14 recommended disclosures replicate the categories used by the TCFD, with the addition of three new ones, including ones related to human rights policies and engagement activities, and the location of assets and activities, including upstream and downstream supply chains where possible.

Ryosuke Mizouchi, Senior Executive Officer, Creating Shared Value at Kirin Holdings, the Japanese food, beverages and healthcare products manufacturer, said firms’ familiarity with climate reporting under TCFD “shouldn’t have big difficulties” handling the TNFD’s recommended disclosure framework.

“Start TNFD as an extension of TCFD, like an additional building block, instead of a separate or independent project,” he said. Japan was one of the first countries to make TCFD-based climate reporting mandatory.

The TNFD’s disclosure and risk management framework was developed to help corporates and financial institutions to align their operations with the goals of the Global Biodiversity Framework (GBF), which aims to preserve and protect nature across 30% of land, freshwater and oceans by 2030. Target 15 of the GBF calls on governments to require reporting of nature-related risks, impacts and dependencies.

Stewardship synergies 

NBIM’s Snorre suggested that investors should look to explore synergies between new nature-related risk and reporting processes and existing sustainable investment activities stemming from climate risks, such as engagement activity with portfolio companies to reduce deforestation.

“If you’re already engaging with a company on their management of climate risk, you can incorporate nature risk into this engagement if you leverage these synergies,” he said.

NBIM, which manages the world’s largest sovereign wealth fund, with US$1.3 trillion in assets under management, has been a TNFD Taskforce member since the initiative’s launch in 2021.

“We’re optimistic that we can use TNFD as a tool to better understand our portfolio, in terms of how it impacts and depends on nature, and associated risks and opportunities,” he said, adding that nature would play a key role in the transition to net zero by 2050.

Snorre noted that investors’ awareness of nature-related risks had in many cases evolved from their efforts to understand and address their climate exposures, acknowledging that there were also circumstances in which climate-positive investments could have negative impacts on nature.

“Sometimes there are climate change mitigation strategies that can also be potential drivers of nature risk,” he said, adding that the extensive feedback exercised conducted by TNFD had created a tool that helps investors to “better understand” and identify such areas.

As well as its disclosure recommendations, the TNFD has also released guidance to corporates and investors, including its LEAP – locate, evaluate, assess and prepare – approach to identifying and assessing nature-related issues.

Kirin was an early adopter of the LEAP approach and has used it to better understand water-related risks in Sri Lankan tea plantations, according to Mizouchi.

“In our experience, the LEAP approach is versatile,” he said. “It can handle high-level analysis across locations from a global perspective, but can also support a ‘deep dive’ analysis of a specific resource in a specific region.”

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