When it comes to data, metrics and methodologies, finance sector players see critical differences between climate and nature
Building on the successful Task Force on Climate-related Financial Disclosures (TCFD), the initiative to bring together a Task Force on Nature-related Financial Disclosures (TNFD) is now well underway. The TNFD is expected to make rapid progress on nature-related risk, data and metrics by learning from an initiative that’s been instrumental in tackling these issues in the climate space. But while applying the same high-level approach has been warmly welcomed, market players and technical experts are stressing that there are critical differences between climate and nature when it comes to data, metrics and methodologies:
1. Lack of a single metric
The greenhouse gases driving the climate crisis can be measured and converted into a single metric of CO2-equivalents. For impacts on nature, there is no such commonly agreed metric in place. In a letter signed earlier this year, a group of 21 investors and companies said the CO2 tonne-equivalent metric “played a key role in mainstreaming climate issues and driving actions mitigating climate change.” To properly address the nature crisis, they called for “comparable metrics for biodiversity.”
Measuring impacts, informing action and tracking improvements are much easier for companies and financial institutions if they have a single indicator to consider. Importantly, as we have seen on climate, having a single metric makes it easier to compare performance across organisations.
2. Nature is more complex
The fact that nature-related metrics are lagging behind those for climate is partially explained by the fact that climate change has been a pressing concern for corporates and the financial sector for a longer period of time. But nature is also a more complex topic.
As Marie De Montlaur, Manager of Forestry Assets and Investments at Caisse des Dépôts, says; “biodiversity is much broader than carbon.” Speaking at UNEP Finance Initiative’s Global Roundtable earlier this month, she said “I’m not sure we can reduce biodiversity to one metric. Probably we will need a set of targets.”
But the urgency of halting nature loss means financial institutions can’t afford to postpone action until metrics are agreed. “If we wait for the perfect KPI, I worry we will slow down efforts,” Sylvain Vanston, Group Head of Climate and Environment at AXA, told participants at the same event.
3. Nature impacts differ by location
Greenhouse gas emissions contribute equally to global heating regardless of where in the world they occur. The same is not true for nature. Biodiversity impacts can vary significantly depending on the location. The impacts differ both across and within countries. Location-specific data is essential to accurately measure impacts and dependencies on nature.
A challenge here is that companies typically do not disclose, or even collect, data on what specific business activity occurs where. When undertaking their pioneering study of biodiversity risk earlier this year, the Dutch Central Bank (DNB) could only find facility-specific data for EUR 71 billion of the EUR 810 billion total of bank loans outstanding.
When data on the location of business activities is available, the emerging field of spatial finance can help identify nature-related risks. Satellite data can increasingly show areas of nature that are under stress or protected. Helped by artificial intelligence and machine learning, financial institutions can then map these areas against a company’s facility coordinates. For example, Dutch asset manager ACTIAM is partnering with Satelligence, a geodata analytics firm, to monitor the deforestation impacts of the companies they invest in by matching geographical environmental data to asset locations.
4. No internationally-agreed targets (yet)
The 2015 Paris Agreement on climate change cemented broad international consensus for limiting the global temperature rise to 2 degrees Celsius above pre-industrial levels, and pursuing efforts to limit it to 1.5 degrees. This global policy target provided the basis for companies and financial institutions to establish science-based targets. For climate, expectations are clearly defined.
Nature does not yet have an equivalent global target to guide efforts. There were hopes that a post-2020 global biodiversity agreement would be negotiated this year at the Convention on Biological Diversity summit, but due to COVID-19, that is now planned for next May. Governments of 196 countries will aim to agree on a new 10-year global policy framework and goals for nature protection. If successful, next year’s agreement could be the biodiversity equivalent of the 2015 Paris Agreement on climate change.
5. Company-specific data remains scarce
For climate risks, corporate data availability has improved. CDP’s data for investors now include emissions data for over 5000 companies. The quality of disclosures is improving further on the back of the recommendations from the Task Force for Climate-related Disclosures (TCFD), which are now supported by over 1000 global organisations.
“When it comes to nature, company-specific data is still scarce,” says Chris Hart, Senior Sustainable Finance Associate at Global Canopy. “To tackle their nature-related risks, financial institutions need to connect nature impacts and dependencies to specific companies, and then determine what this means in terms of financial risks.”
The initiative to bring together a Task Force on Nature-related Financial Disclosures (TNFD) will help make better corporate data available by developing an international reporting framework for nature. But alongside improving corporate disclosures, the TNFD will also consider the role of other sources of nature-related data, particularly satellites, governments and NGOs.
To tackle nature-related risks, the finance sector needs to learn from what’s worked for climate, while understanding how nature requires a unique approach.
Learn more about nature-related risks, data and metrics in The Case for a Task Force on Nature-related Financial Disclosures, published this September by Global Canopy and Vivid Economics.
Image: v2osk, Unsplash