Over the past two years, nature has jumped up the agenda for both investors and regulators.
This in turn has prompted the development of a plethora of tools and methodologies to help financial institutions understand their impact on the natural world and help address the biodiversity crisis.
Here are some of the key themes that emerged in 2023 and areas to watch for 2024.
Engagement on biodiversity came to the forefront this year, led by two high-profile investor initiatives.
Responsible Investor understands that the process of assigning investors to target firms is close to completion. At the time of publication, NA100 had not responded to a request for confirmation.
We will be watching closely for further details early next year. In the meantime, here is a link to the results of our October survey, in which we asked all 190 investor participants about their engagement ambitions.
Also this autumn, the Principles for Responsible Investment (PRI) threw its hat into the nature engagement ring.
Officially launched at PRI in Person in Tokyo, the network’s nature initiative – titled Spring – will initially focus on responsible corporate political engagement and likely expand to engagement with policymakers.
Tim Steinweg, head of nature stewardship at PRI, told RI: “The next goal for the initiative is to open applications for its investor working group, as well as establishing the list of focus companies. Engagements with companies under Spring are expected to commence after these deliverables have been produced.”
Another engagement trend to watch for next year is the rise of nature-specific and nature-related shareholder resolutions.
To date, the topic has been relatively underrepresented at AGMs. In July, we published a deep dive feature exploring why this has been the case and why it may be about to change.
There are already signs that this shift is underway.
Green Century Capital Management tells RI that it has already started filing resolutions at food companies for the 2024 proxy season, calling on them to start reporting in line with the recommendations of Taskforce on Nature-related Financial Disclosures (TNFD).
“We’re targeting firms that you could consider leaders,” said Annie Sanders, director of shareholder advocacy at Green Century. “It’s such an emerging space that it makes sense to push the envelope with those who already are trying to tackle the topic.”
Will Green Century also push companies to use the Science Based Targets Network (SBTN) framework for nature? Sanders says the manager has decided it is “not quite there yet” given the developing nature of SBTN’s targets (see below).
“But next it will likely be an engagement focus for us,” she added.
“We’re seeing more interest in the issue of water management. Issues of water are seen as biodiversity-related and I expect there may be more water-related proposals in the coming year”
Vancity Investment Management
Vancity Investment Management (VCIM) has also filed a nature-related proposal at a “large multinational company”, the Canadian investor’s head of ESG Kelly Hirsch told RI.
The proposal is similar to one filed by VCIM at Costco in 2022, which called on the retail giant to complete a material biodiversity dependency and impact assessment and prepare a report to identify the extent to which the company’s supply chains and operations are vulnerable to risks associated with biodiversity and nature loss.
VCIM withdrew the proposal when Costco promised to start evaluating biodiversity impacts, pilot the TNFD and report on progress in 2024.
Green Century is also filing proposals on plastic pollution as well as continuing its long-running work on deforestation.
Perhaps surprisingly, Hirsch does not expect to see increases in deforestation and pesticide-related proposals. “We’re seeing more interest in the issue of water management,” she said. “Issues of water are seen as biodiversity-related and I expect there may be more water-related proposals in this coming year.”
Standards and disclosure
A pivotal moment in 2023 came during Climate Week NYC with the long-awaited launch of the TNFD.
A range of corporates and financial institutions – including pharmaceutical firm GSK, Japanese insurer MS&AD and French asset manager Mirova – have already committed to implementing its recommendations.
The full list of early adopters is due to be announced by the TNFD at the World Economic Forum in Davos in January. RI will be closely following how organisations grapple with making disclosures aligned with the recommendations throughout 2024 and beyond.
Of course, all eyes will also be on the International Sustainability Standards Board, which is due to make a statement in early 2024 about its priorities for the next two years.
In response to a consultation this summer, key stakeholders – including the UK’s Financial Conduct Authority, ESMA, Sustainalytics and GFANZ – urged the standard setter to start work on “biodiversity, ecosystems and ecosystem services.” Respondents also stressed the importance of leveraging and aligning with the TNFD.
To complete the picture, the GRI is set to release its updated biodiversity standard early next year, while the TNFD and EFRAG will release the results of interoperability mapping on how the taskforce’s disclosure recommendations and metrics align with the ESRS.
The metrics debate
Meanwhile, the search for a definitive biodiversity metric remains as elusive as ever.
In November, Bloomberg announced plans to use the Natural History Museum’s Biodiversity Intactness Index (BII) to create a biodiversity tool for users of its terminal and data offerings.
At the time, Nadia Humphreys, manager of global regulatory and climate solutions at Bloomberg LP, told RI: “When we did our exploration of what was missing in the space and what would give a complete offering to our clients, we thought BII would be the best.”
BII is far from the only metric being touted by scientists and eyed by financial institutions, however.
Others leading contenders include MSA (mean species abundance), a metric popular with French market participants, PDF (potentially disappeared fraction), EII (ecosystem integrity index) and STAR.
The TNFD has so far declined to endorse a specific metric, citing the lack of consensus on the subject as a reason for including “state of nature” – along with invasive species – in its core global disclosure indicators as “placeholder indicators”.
During an RI webinar after the launch, TNFD executive director Tony Goldner said the initiative “didn’t feel it was our role to pick one [metric] over the other” and wanted to see “further innovation in this space”.
In 2024, the TNFD has also promised to establish a data and measurement working group to look at how to make progress on the “placeholder indicators”.
Next year will also see corporates and financial institutions wrestle with setting nature targets.
For companies, SBTN is due to roll out its target validation process and version one of its land science-based targets at the end of the first half of the year following a corporate pilot.
The targets are due to focus on “halting the conversion of natural ecosystems, freeing up agricultural land for natural ecosystem restoration and improving the ecological integrity of landscapes, including working lands, to enhance ecosystem structure, composition and function”.
The Finance for Biodiversity Foundation also plans to expand its nature target-setting framework for asset managers and asset owners, following the launch of a beta version in December.
Signatories of the foundation’s pledge – which include Amundi, Fidelity International, LGIM and Federated Hermes – commit to collaborate, engage, set targets and report on biodiversity before 2025.
Nature in transition plans
Interest in nature’s place in climate transition plans has also been growing in 2023.
In November, the UK’s Transition Plan Taskforce published its final disclosure framework for climate transition plans, which included advice on incorporating nature.
Later that month, RI revealed that GFANZ was set announce plans to start work on how nature could be incorporated into financial institutions’ transition to net zero.
And just last week, we also revealed that the TNFD is forming a working group that will explore incorporating nature into corporate and financial institution transition plans.
Next year will likely see this conversation move deeper into the technical realities of such integrations.
Last week brought good news for biodiversity advocates looking to finalise travel plans for 2024. Four months after Turkey backed out of hosting COP16, Colombia agreed to take on the responsibility.
The exact location has yet to be confirmed, but at least nature advocates now know which continent they will need to be in for the second half of November next year.
Whether the private sector will turn out in the same force as for COP15 in Montreal remains to be seen. Policymakers will certainly have plenty to do reviewing the state of implementation of the Kunming-Montreal Global Biodiversity Framework.