Companies and investors are trying to figure out how to assess businesses’ impact on the natural world. A key challenge is deciding what to count.
The Taskforce on Nature-Related Financial Disclosures, or TNFD, a business-backed effort to protect biodiversity, published an early version of a new reporting framework Tuesday, 15 March. It offers guidance for identifying companies’ nature-related risks, following the model of the climate-risk framework devised by the Task Force on Climate-Related Financial Disclosures. The goal is that better information will channel capital to companies that minimise damage to the environment and their exposure to risks.
The TNFD, a network of companies and financial institutions which is funded by the United Nations, national governments and non-profit groups, plans to release further updates of the framework before completing it next year.
Natural habitats such as rainforests and coral reefs are deteriorating rapidly. The World Bank estimated last year that the collapse of “ecosystem services” – natural systems that people rely on, such as pollination by insects – could wipe $2.7tn a year from the global economy by 2030.
“The rate at which we’re destroying natural capital and natural ecosystems is unsustainable,” said David Craig, co-chair of the TNFD and former chief executive of financial-data company Refinitiv Holdings. “We have to act very quickly.”
The TNFD’s draft asks companies to make disclosures about risks and opportunities relating to biodiversity, such as information about any operations they have in fragile ecosystems. But it doesn’t yet specify exactly what biodiversity-related information should be used to assess companies’ progress.
Identifying the most important metrics is more straightforward for climate change reporting. Emissions can be measured in metric tons, and companies use shared carbon-accounting rules. That enables comparison between companies, even if disclosures are patchy and dependent on estimates.
Biodiversity data aren’t as cut and dried. Measurements can vary widely, from the number of species present on a patch of land to the volume of chemicals in a river. And while a ton of carbon dioxide is always a ton, a healthy species count could be much lower in a European forest than in a Brazilian rainforest. Ensuring that disclosures reflect such location-specific factors is a priority for the TNFD.
With climate, “there’s much clearer line of sight between the actions and the disclosures and the goals that you’re trying to get to,” Craig said. “Nature isn’t that far along yet.”
Corporations that worked on the TNFD framework gather all sorts of data on their biodiversity impact. Norway-based salmon farming company Grieg Seafood reports, among other things, the number of birds killed in fish pens, typically by getting caught in nets covering the fish. US agricultural commodities giant Bunge uses satellite imagery to monitor land use at soybean farms in regions of Brazil at high risk of deforestation. London-based Anglo American conducts species surveys at mining sites.
To enable comparisons across sectors, such data must be fed into a broader impact assessment. A survey by a European Union-backed biodiversity project last year identified 20 methodologies for measuring impact.
“Many groups have been collecting data on natural biodiversity and systems for many years,” Craig said. “The bad news is there are gaps. It’s not always consistent. There are parts of the world that are not covered. Oceans are actually not nearly as well covered as forests. But those gaps are being filled.”
Craig said recommended disclosures will cover areas such as soil fertility and the use of land and water.
Another difference between measuring companies’ impact on biodiversity versus climate change is the lack of a simple, globally accepted target for nature preservation. The UN’s goal of limiting global warming to 1.5 degrees Celsius above preindustrial levels has become a yardstick for rating companies’ climate ambitions.
Governments are working on a plan for combating biodiversity loss in negotiations organised by the UN in parallel with its climate talks. Negotiators are meeting in Geneva this week, but a gathering of national leaders scheduled for April has been delayed until the third quarter of this year, according to the website of the Convention on Biological Diversity, the UN body organising the process.
Céline Soubranne, sustainability chief for France-based insurer AXA, said she hopes the initial TNFD framework will pressure countries to be ambitious.
“We can nurture the debate by showing that we are ready to orient some financial flows through the TNFD framework,” she said. Axa is one of several financial institutions that worked on the TNFD; others include BlackRock and Bank of America Corp.
Don’t wait for UN deal
Soubranne said companies shouldn’t wait for a UN deal to assess their impact on the natural world. She said AXA faces nature-related risks across its business: floods that cause insurance losses can be mitigated by natural defences such as coastal mangrove swamps, she said, while the loss of forests threatens the availability of natural medicinal ingredients – a risk for health insurers.
Some experts say the complexity of natural systems means a disclosure-driven approach to biodiversity won’t change the financial system enough to help arrest damage to the planet.
“The multi-dimensionality of environmental threats presents extraordinary challenges for financial modelling, far beyond those posed by climate change,” wrote researchers at University College London in a paper on nature-related risk in 2020.
But Soubranne said companies and investors can’t help without trying to measure impact.
“If we don’t put any figures in our analysis, we will never take into account anything from a biodiversity point of view,” she said.
From WSJ Sustainable Business
To contact the author of this story with feedback or news, email Ed Ballard