26 April 2022
The financial community is getting to grips with its pivotal and expanding role as a key driver of our sustainable future. Realities – such as half of global gross domestic product being dependant on nature and therefore vulnerable to spiralling nature loss – are sinking in and awareness of and action on nature-related financial risks have been growing.
Meanwhile, obligation is also being baked into multilateral agreements. Discussions are ongoing, but draft text of the UN’s new global nature goals – the post-2020 biodiversity framework – now includes clear wording on raising finance for nature, phasing out harmful investment and aligning financial flows towards a make-or-break, nature-positive future for the planet.
With access to a growing nature-focussed toolkit – including resources such as the Integrated Biodiversity Assessment Tool (IBAT), the Exploring Natural Capital Opportunities, Risks and Exposure online platform and the newly released Land Use Finance Impact Hub – investors are repositioning themselves to act for nature, but how well-primed are the businesses that they fuel?
A new report, released today from an expert team from the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC), the UN Environment Programme Finance Initiative (UNEP FI) and the United Nations Development Programme, sets out to provide answers. It investigates how far businesses are interested in and ready for nature-related financial disclosures, and gathers insights from company leaders to help guide and refine the development of disclosure frameworks, including the Taskforce on Nature-related Financial Disclosures (TNFD).
Launched in 2021, the TNFD follows in the footsteps of the Task Force on Climate-Related Financial Disclosures (TCFD) in developing a disclosure framework that enables organisations to report and act on evolving nature-related risks.
By fostering knowledge sharing and collaboration on nature-related risks and opportunities, the TNFD plans to guide financial institutions and companies in putting considerations and positive action for nature at the heart of their risk and asset management and long-term planning.
Testing market mood: are corporates ready for disclosure?
In the Autumn of 2021, the UNEP-WCMC, UNEP FI and UNDP team conducted detailed interviews with the directors and business development and sustainability leads of 19, mostly global, corporates – spanning broad sectors including energy, mining, fashion and cosmetics and food and retail.
The interviewees represented front-runner companies, most of which are involved in initiatives such as the Science Based Targets Network, the World Business Council for Sustainable Development and the TNFD, and were approached because of their ability to give informed feedback around the benefits and challenges of embarking on nature-related business analysis and disclosure.
Today’s report, Are you reading for nature-related disclosure?, reveals that while large corporates are clearly beginning to trial nature-related assessment and monitoring methods, and starting to engage with the nature conservation sector, they are struggling due to knowledge gaps.
The companies interviewed acknowledged that nature-related dependencies made up the bulk of their financial risk, however, dependencies still remain poorly addressed in practice and in corporate reporting, and actions focus primarily on mitigating impacts.
The report found that companies in high-impact sectors – such as energy, mining and infrastructure – are actively finding ways to avoid, minimise, restore and offset impacts throughout their project implementation. Meanwhile, retailers and manufacturers are prioritising engagement with their supply chains to further their impact risk management. However, risk management processes are disparate, and companies are keen for new tools, datasets and guidance.
Charting the path for global disclosure of nature-related risk
Based on the expectations and insights from companies interviewed, the report makes various recommendations to the TNFD to guide its successful ongoing development, including:
- TNFD taking the lead in progressing consistency across nature-related disclosure initiatives, and fostering a culture of collaboration and iterative improvement across finance and business communities
- Strengthening the business case for addressing nature-related risks and opportunities
- Triggering cross-sectoral engagement with supply chain agents to systematically improve transparency
- Making use of ongoing business-focussed research from initiatives such as SBTN, to decide on appropriate indicators for nature-related disclosure.
Last month, the TNFD launched its first “beta” disclosure recommendations. These will now be consulted on, piloted and refined by a broad swathe of finance, business and other interested global stakeholders, with the final version of the inaugural framework due for release in autumn 2023.
UNEP-WCMC Deputy Director Corli Pretorius said: “Today’s report into market readiness highlights the efforts and ambition of companies to manage nature-related risks. These efforts will be crucial to create resilient landscapes and the long-term sustainability of operations, and are anticipating the implementation of the post-2020 global biodiversity framework.
“Early action must be encouraged, supporting more companies to understand and assess their nature-related risks, and to deploy nature positive strategies to seize business opportunities and reverse biodiversity loss.”
What’s next for businesses, financiers and nature-related disclosure?
Today’s report shows that while corporate understanding and activity on nature-related risks, opportunities and disclosure is still at an early stage, businesses are engaged and keen to progress.
As the TNFD works towards the next iterations of its beta disclosure recommendations, enabling stakeholders – including UNEP-WCMC, UNEP-FI and UNDP – will continue to provide businesses and financial institutions with best-available insights and guidance.
Following on from the assessment of corporate readiness on disclosure, sister reports for the benefit of businesses and financial institutions have also been issued: one on the availability and suitability of public nature-related data, and another on sector-specific considerations to help prioritise nature-related disclosure efforts.
Eric Usher, Head of UNEP FI said: “Financial institutions need clear information and market transparency to be able to assess risks and allocate capital at scale towards nature-positive solutions. This report shows the urgency of action still required for corporate disclosure, with the material risk of nature loss continuing to impact balance sheets, despite many companies not yet fully prepared for disclosure.
“UNEP FI looks forward to supporting its membership, bridging the knowledge gap, preparing the financial community for the upcoming global biodiversity framework, and running pilot projects to test and strengthen the TNFD.”