Every Business Should Assess Its Nature Risks – BRINK – Conversations and Insights on Global Business

More than half of the world’s GDP depends on nature. The potential collapse of ecosystem services such as pollination and water-based foods threatens to cause a $2.7 trillion annual decline in global GDP by 2030.

Unsurprisingly, regulators and investors are urgently demanding more transparency regarding exposure to these nature-related financial risks. The Taskforce on Nature-Related Financial Disclosures (TNFD) is a market-driven initiative (of which WWF is a co-founder and knowledge partner) that seeks to integrate nature into financial and business decision-making and direct global financial flows towards positive outcomes for nature.

Nature loss and climate change are two sides of the same coin

In good news, the TNFD has released its first beta framework to manage and disclose nature-related risks, offering highly practical guidance for analyzing nature-related risks and opportunities.

Nature loss and climate change are two sides of the same coin, and TNFD’s recommendations align with the now well-established Working Group on Climate-Related Financial Disclosures (TCFD).

Climate action organizations can align with the Paris Agreement’s 1.5 degree Celsius threshold for global warming, but there is no similar benchmark for nature.

The framework encourages businesses and financial institutions to start with a location-focused approach. A compass as vital as a global nature target similar to the Paris Agreement’s 1.5 degree Celsius target would be to act on nature, dependencies and impacts on nature are inherently local, and custody ultimately relies on local delivery – including through operations, value chains and wallets.

Reflecting the guidance of the TCFD, the TNFD expects organizations to disclose material nature risks and opportunities related to the impacts and dependencies of assets and direct operations and upstream and downstream value chains.

Location is a critical factor

For financial institutions, for example, this means disclosing nature-related risks in financing activities such as loans, investments and insurance, as well as all other advisory activities – a task that is likely to be extremely complex. While carbon dioxide emissions contribute to the global impact, regardless of where they occur, dependencies and impacts on nature, such as land or water use, can be benign or calamitous depending on the context.

This is why TNFD’s emphasis on Locate, Assess, Assess, Prepare (LEAP) on a science-based, location-focused approach to integrating nature into enterprise and portfolio risk management is so important. Invite organizations to first carefully consider which “biomes” their operations and value chains are located in before assessing how they affect environmental assets and ecosystem services, such as water supply and disaster mitigation. floods, will ensure that risks and opportunities are properly identified and quantified.

Nature can be understood through a construction of four domains: Earth, Ocean, Freshwater and Atmosphere. They are major components of the natural world that differ fundamentally in their organization and function.

Where possible, the TNFD has adopted the same language and structures as the TCFD, covering governance, strategy, risk management, metrics and objectives.

Whether or not the two frameworks will merge in the future is an open question, but strong alignment will make it easier for companies and investors who already disclose climate risks to adopt the new approach. It would also encourage integrated reporting and alignment with ESG reporting standards from the International Sustainability Standards Council (ISSB). If the governments represented in the TNFD-Forum choose to manufacture TNFD and TCFD reports mandatory, integration will only accelerate.

Measure what matters

Despite the progress that the beta version of the TNFD framework marks, one of the main challenges is deciding what to measure and how. The TNFD has not yet clarified what nature-related information organizations should use and also identified the limitations of current data and measurement.

While many companies involved in the TNFD already gather relevant dataand financial institutions use models that aggregate location data, gaps remain, and data quality and consistency vary widely across regions, biomes, and ecosystems, with a particular dearth of data in marine and biome biomes. fresh water.

Additionally, where data is available, there is often a lack of understanding on how to interpret and use it. To compound the problem, there are no globally agreed targets and actions for the protection and restoration of nature.

Climate action organizations can align with the Paris Agreement’s 1.5 degree Celsius threshold for global warming, but there is no similar benchmark for nature. Many are hoping for a a historic agreement will see the light of day at COP15 in Kunming, China later this year and also that major investor support for TNFD will encourage ambition. This would help fill in the gaps and better define positive outcomes for nature.

Disclosure reports could be elusive

Meanwhile, other related initiatives, such as the Network of Science-Based Goals (SBTN) and tools like the WWF Water Risk Filter, offer detailed guidance on risk assessment and develop approaches for companies to set targets. But without clarity of purpose, consistent disclosure reporting will be elusive, and as the popular saying goes, you can’t manage what you can’t measure.

Regardless of what comes out of COP15, the challenge now for TNFD is to secure decision-useful data with the necessary granularity and identify a consistent and comprehensive set of metrics and indicators to test and strengthen its frame. Later betas promise additional guidance on metrics and goals, including those applicable to any organization and those specific to an industry.

Over time, data gaps will be filled, but organizations should already start using and improving what is available today. And since data about the location of an organization’s assets and operations is arguably the most critical to effectively applying the TNFD framework, it behooves organizations to create and improve their own data sets.

Start investing in nature-based solutions now

What is certain is that companies and financial institutions should not wait – for better definitions, more data, comprehensive metrics or agreement on a global target for nature – before investing in vital resources. . nature-based solutions that contribute to climate resilience and adaptation and in business models, products, services and investments that help restore nature.

Building on TNFD’s existing support, including from 34 investor members collectively responsible for assets worth more than $18.3 trillion, and more than 350 organizations in its forum, businesses and financial institutions should fully commit to its open innovation approach as it iterates, pilots and finalizes a potentially game-changing framework over the next 18 months.

The need to address nature-related risks and pursue positive outcomes for nature could hardly be clearer.