Towards a Task Force for Nature-related Financial Disclosures and investors’ appetite for science-based targets on natural capital

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On September 25, 2020, sixty-two Financial institutions, corporates, governments and regulatory bodies as well as think-tanks created an “Informal Working Group” (IWG) to work on a Task Force for Nature-related Financial Disclosures (TNFD). Unlike the Task Force on Climate-related Financial Disclosures (TCFD), it is not backed by the G20, but is rather an initiative of two NGOs, Global Canopy and WWF, as well as the UN Development Program and the UN Environment Program Finance Initiative, that has been backed by investors. 

The Task Force is to be launched in early 2021 and will deliver a framework and guidelines for nature and biodiversity related disclosures by the end of 2022.

 

A growing interest for natural capital

According to the Living Planet 2020 Report[1], nature underpins all economic activities; yet while the demand for natural resources rises causing losses in biodiversity and natural capital, the capacity of geological and ecological systems (biocapacity) to regenerate is limited and has decreased.

Much like climate change, loss in biodiversity and natural capital are deemed to cause financial and economic costs. As a lot of industrial processes and economic activities rely heavily on the use of natural resources, some are more exposed to others like food production, water, energy, and materials. Measuring the impacts of natural capital losses on industries offers a risk management perspective both for the financial sector and for corporates who are subject to a systemic risk.

Indeed, biodiversity losses are deemed irretrievable. This was vigorously highlighted following the publication of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) Global Assessment Report on Biodiversity and Nature Services in May 2019[2]. Furthermore, IPBES will follow Regional Assessments across four regions (Africa, Americas, Asia and the Pacific & Europe & Central Asia) to help foster and frame better policy decision making at Governments levels so as to achieve and deliver UN Sustainable Development Goals and Climate commitments at national levels[3]. 

Aware of those risks and the benefits that come from natural capital conservation, the European Commission released a strategy for biodiversity for 2030 whereby the commitments are to unlock €20 bn every year for biodiversity[4] through EU, national and private funding. Although, the recent agreement on the Common Agricultural Policy the European Parliament last Friday 23 Oct. gave rise to debates related to its ambition – was it green enough? – it will now lead to some discussion between the EU Commission and National Governments in the coming 2 years for its implementation, particularly for mandatory climate and environmentally friendly practices[5].  

 

Modelling the Task Force for Nature-related Financial Disclosures

The Task Force for Nature-related Financial Disclosures (TNFD), that is to be launched in 2021, is aimed at creating reporting standards for biodiversity and natural capital, much like the one for climate, in order to “steer finance towards outcomes that are nature-positive”[6]. To thrive, this TNFD needs the support from financial supervisors and regulators to give it political and hard-law impetus.

A worldwide panel comprising the UK, French, Swiss and Peruvian governments, the Mexican National Banking and Securities Commission, the Argentinian Federal Council for the Environment, the OECD, World Bank and World Economic Forum compose the Informal Working Group along with 39 financial institutions and corporates.

The framework of the TNFD will build out from the TCFD as well as from the report of the Biodiversity Working Group of the Sustainable Finance Platform[7]. Complementary to physical risk and transition risk, if we assume the TNFD will synthesize the works of the Sustainable Finance Platform and of one of its founders the Global Canopy, then a systemic risk category might be added[8] and would represent how the combination of physical risk and societies’ response to it (which is linked with transition risk) will have a cross-sectorial impact on society. The establishment of a TNFD will help the financial sector to map the materiality of natural capital on different sectors, but it will also help to build capacity in terms of data and methodology according to the interim website of the TNFD[9].


Biodiversity and natural capital: disclosing on a complex and broad concept

Out of the 26 investors (representing more than €3 tn of AUM) that are signatories of the Finance for Biodiversity Pledge[10] whose objective is to report on biodiversity impacts by 2024; Mirova, Axa IM, BNP Paribas AM and Sycomore mandated environmental advisory firm I Care & Consult (IC&C) and data provider Iceberg Data Lab to develop a biodiversity assessment methodology and tool[11].

Such a tool will aim at assessing how much negative impact on ecosystems and biodiversity an asset will generate over its life-time (granular geographic data is thus particularly important here), but also to map nature dependencies, exposure to physical and transition risks, and potential future impacts on economic activity (systemic risk) resulting from future natural capital losses using forward-looking scenarii.

According to the 2020 Living Planet Report, climate change has not been the most important driver of the loss of biodiversity to date, yet in coming decades it is projected to become as, or more, important as the other drivers of natural capital losses : genetic variability, species richness and populations, and ecosystems are negatively impacted by climate change and losses in biodiversity in turn have a negative impact on climate change resilience and mitigation. We can thus expect carbon data to be included in the methodology as global warming is a catalyzer for biodiversity losses and changes in ecosystems.

We hope these considerations will rank high in the next agenda of the UN-led conference COP 15 dedicated to Biodiversity which was supposed to take place this October and was postponed due to the Covid-19 situation (likely to take place in 2021 in China, Kunming) so as to help firming up concrete 2030 global roadmaps to safe protect Biodiversity & Ecosystems.

 

[1] WWF, « Living Planet Report », 2020 – available here

[2] IPBES, « Global Assessment Report on Biodiversity and Ecosystem Services”, 2019 – available here & IPBES, Media Release “Media Release: Nature’s Dangerous Decline ‘Unprecedented’; Species Extinction Rates ‘Accelerating’” - available here.

[3] IPBES, Methodological assessment of scenarios and models of biodiversity and ecosystem services - available here

[4] The objectives for 2030 consist in creating 30% of protected areas both over land and sea through a tougher legal framework for nature restoration. Other objectives touch upon a wide scope of natural systems including agricultural land, pollinators, rivers, pesticide use and forest conservation.  More information here.

In its “National Biodiversity Conservation Strategy and Action” (2011-2030), China identified 35 priority zones of biodiversity conservation (including 3 coastal or marine zones). One of the main features of the strategy is to improve the policy and legal system of biodiversity conservation as well as incorporating it into sectorial and regional planning. More information here.

[5] MEPs want stronger climate and environmentally-friendly agricultural practices to condition direct support for farmers as well as the allocation of at least 30% of EU-sponsored funding to help farmers fight climate change, manage natural resources sustainably and protect biodiversity. More information here.

[6] TNFD Website available here.

[7] Sustainable Finance Platform – Working Group Biodiversity, “ Biodiversity Opportunities and Risks for the Financial Sector”, June 2020 – available here

[8] Global Canopy & Vivid Economics, “The Case for a Task Force on Nature-related Financial Disclosures”, 2020 – available here.

[9] TNFD Website, objectives of the TNFD, available here.

[10] Finance for Biodiversity Pledge website, available here

[11] Mirova, press release on the biodiversity impact measurement tool, available here

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