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Why momentum is building for a Task Force on Nature-related Financial Disclosures

Madagascar estuaries, Nasa

Global Canopy is working with partners, governments and financial institutions around the world to create a new reporting mechanism that will help protect nature and biodiversity

by Beate Triantafilidis

 

Nature-related risk is now firmly on the finance sector’s agenda. Today, 10 financial institutions are throwing their weight behind efforts to create a Task Force for Nature-related Financial Disclosures (TNFD) by early next year. Other backers of the initiative, which Global Canopy is helping to catalyse along with UNDP, UNEP FI and WWF, include the UK and Swiss governments, and the World Business Council for Sustainable Development. 

This group of leading financial institutions, governments and civil society organisations have committed to participate in an Informal Working Group tasked with bringing together a formal Task Force. The Dutch government is also actively engaging in the development of the process and we are in dialogue with the French government. Once established early next year, the Task Force will then develop a standardised reporting framework on nature-related risks.

For the finance sector, bringing together a TNFD is a critical first step towards assessing and addressing nature-related risks.

Huge nature-risks are unaccounted for

Evidence is mounting that the continued rapid loss of nature poses vast financial risks. A landmark study released in June by the Dutch Central Bank found that Dutch financial institutions alone have EUR 510 billion of exposure to nature-related risks, like disruption of water availability or animal pollination. On top of these physical risks, financial institutions are exposed to transition risks, in the form of policy, liability, litigation and reputational risks. The central bank is now calling for individual financial institutions to urgently assess their nature risks across all these dimensions, calling it a question of sound financial risk management.

Like climate risks, nature risks are material. They pose a systemic risk to the financial system. But unlike climate risks, they are often not on the financial institutions’ radar.

Leading financial institutions are increasingly aware that nature risks are a blind spot for them. But it remains tricky for individual institutions to gain robust visibility. Often, the data isn’t there. When relevant data does exist, it’s not available in a format that the finance sector can easily use to assess their portfolios, as company reporting on nature dependencies and impacts is not standardised. For markets to protect nature, data must be gathered and curated.

Complementing climate-related disclosures

Lack of standardised data was a hurdle also for climate risk - until the Financial Stability Board took charge and created the Task Force on Climate-related Financial Disclosures (TCFD) in 2015. The Task Force, championed by Michael Bloomberg and Mark Carney, has now delivered a standardised framework for corporate reporting on climate impacts and dependencies.

Emulating the success of this model, the TNFD will develop a complementary framework for reporting on nature. Climate risks and nature risks are tightly interlinked, but nature-related risks go far beyond climate alone. While much remains unknown about the origins of COVID-19, there is significant evidence that destruction of biodiversity increases the likelihood of pathogens transmitting from wildlife to humans. Last year, the Californian utility company PG&E went bankrupt following catastrophic forest fires. Disclosures of nature risks will sit alongside disclosures of climate risks to give investors, lenders and insurers a complete picture.  

A 10 trillion-dollar opportunity

Data can pinpoint nature-positive investment opportunities. The size of the prize here is vast: nature-positive opportunities could generate up to US$ 10.1 trillion in annual business value by 2030, according to a report released last week by the World Economic Forum.

To grab the opportunities, speed is of the essence. Globally, ecosystems have already declined by 47 percent. More than 85 percent of wetlands are gone. Almost a third of forests have disappeared.

Once recommendations from the TNFD are in place, likely in 2022, the voluntary uptake could be swifter than what we’ve seen on climate. Both companies and financial institutions are now investing extensively in climate risk disclosures. The people and processes put in place for climate will be well placed to also tackle nature more broadly. And if markets don’t act on their own, disclosure may quickly become mandatory. Mark Carney, the UN special envoy for climate action and finance, previously Governor of the Bank of England and a driving force behind the TCFD, is now saying it’s time to make climate risk disclosure mandatory to close remaining data gaps.

As the finance sector now embarks on the journey towards tackling nature-related risks, learning from what has and hasn’t worked for climate risk management is crucial. If we do that, a TNFD can be successful in catalysing rapid investment shifts at scale.

For more details on our efforts to bring together a TNFD, check out the new ‘Bringing Together a TNFD’ website. 

For the latest development of the initiative, follow us on Twitter: @globalcanopy

 

Image: Glass buildings, Brussels | Guillaume Meurice | Pexels