Nature and biodiversity: US$44 trillion at risk as new framework nudges global businesses on disclosures and action

A new global framework for companies to report their exposure to nature loss will provide much needed impetus for them to seriously assess and manage their risks, similar to the way they are required to manage climate-change risks.

The Taskforce on Nature-related Financial Disclosures (TNFD) on Monday announced its final recommendation of 14 disclosures aligned with the goals of a framework adopted by more than 190 nations last December.

“The recommendations aim to inform better decision-making by companies and capital providers, and ultimately contribute to a shift in global financial flows toward nature-positive outcomes and the goals of the Kunming-Montreal Global Biodiversity Framework,” the TNFD said in a statement.

28:58

China, climate change and El Nino: an emerging food, water and power crisis

China, climate change and El Nino: an emerging food, water and power crisis

By 2030, the TNFD framework aims to achieve conservation of 30 per cent of all land, sea and inland waters; restoration of 30 per cent of degraded ecosystems; a halving of the introduction of invasive species; and a US$500 billion annual reduction in harmful subsidies.

The release of the final recommendations follows a process in which the organisation received nearly 3,000 feedback submissions from market participants, scientists, policymakers, non-governmental organisations and regulators. It also performed pilot testing with more than 200 companies and financial institutions.

“Nature loss is accelerating, and businesses today are inadequately accounting for nature-related dependencies, impacts, risks and opportunities,” said David Craig, co-chair of the TNFD and founder and former CEO of Refinitiv. “Nature risk is sitting in company cash flows and capital portfolios today. The costs of inaction are mounting quickly.”

The 14 recommended disclosures fall into four categories: governance; strategy; risk and impact management; and metrics and targets.

Companies should describe the governance structure and processes they use to assess, prioritise and monitor their nature-related exposures, set targets and devise action plans, TNFD said. Until securities and financial watchdogs incorporate the recommendations into their regulations, adoption is voluntary.

Time to boost nature conservation efforts with US$44 trillion of value at risk

On climate change, Hong Kong’s financial regulators have already incorporated into their requirements key elements of the Taskforce on Climate-related Financial Disclosures (TCFD) framework. Mandatory alignment is expected by 2025.

Established two years ago and supported by the G20 nations, TNFD’s founding partners include United Nations Development Programme and non-profit conservation groups Global Canopy and WWF.

This includes disclosing how nature-related dependencies, impacts, risks and opportunities affect an organisation’s business model, value chain, strategy, financial planning and transition plans.

The recommended disclosures also include engagements and policies with respect to indigenous and local communities, which is aligned with the global “just transition” sustainability agenda, she said.

‘World won’t hit climate goals without transforming farming’: nature charity

Given that TNFD and TCFD use the same four categories for disclosures, the addition of the TNFD recommendations into the Hong Kong bourse’s environment, social and governance (ESG) reporting guidance should be relatively straightforward, said Lapman Lee, professor of practice (ESG and fintech) at the Hong Kong Polytechnic University.

There is however a fundamental difference.

“While climate change mitigation commitments have largely coalesced around decarbonisation for limiting global warming to well below 2 degrees Celsius, the world has yet to decide on equivalent metrics and targets to measure progress on net-nature positive goals,” he said.

A spokesman for Hong Kong and China Gas (Towngas), which road-tested the TNFD framework, said it has used it to assess its exposure at some 100 business sites and identified 11 priority ones.

The framework allows for an integrated risk management approach that considers both climate and nature-related risks, he said, adding that biodiversity now forms part of Towngas’ environmental impact assessment for new projects.

The TNFD also issued sector-specific disclosure metrics for market consultation on Monday, and it plans to issue guidance specific to certain industries highly exposed to nature loss by December.