The Finance for Biodiversity (FfB) Foundation has launched a beta version of its nature target-setting framework for asset managers and asset owners.
Developed with FfB members, Thursday’s guidance seeks to help investors align financial flows with the Kunming-Montreal Global Biodiversity Framework to halt and reverse biodiversity loss by 2030.
The Finance for Biodiversity Pledge was launched in 2020 and boasts 153 signatories, including Amundi, Fidelity International, LGIM and Federated Hermes. Signatories commit to collaborate, engage, set targets and report on biodiversity before 2025.
In 2021, the FfB Foundation was set up to “support a call to action and collaboration between financial institutions via working groups as a connecting body for contributing signatories and partner organisations”.
Financial institutions that have signed the pledge can become a member of the foundation if they want to be active in the working groups. There are currently 67 members.
Commenting on Thursday’s update, Charlotte Apps, ESG analyst at Fidelity International and co-chair of the foundation’s target-setting working group, said: “Setting targets provides a critical mechanism of accountability for investors to address nature loss in their stewardship activities and capital allocation decisions.
“Time is not on our side, so we can’t wait for perfect data or the development of science-based pathways on nature to set targets. We need to start and act now.”
The beta version of the target-setting framework will be iterated, expanded and updated to align with science-based pathways as and when they emerge, Apps said.
For instance, the framework currently covers only listed equity and corporate bonds. Additional asset classes, including sovereign debt, will be integrated into the guidance in future iterations.
The foundation outlines four types of targets that investors should set.
“Initiation targets”, to be achieved by 2026 or earlier, would see investors assess and disclose their exposure to nature-related impacts, dependencies, risks and opportunities in line with the Taskforce on Nature-related Financial Disclosures recommendations.
Investors are also recommended to embed nature considerations into the governance, strategy and capabilities of their organisation.
Suggested examples of “initial elements” for setting targets in these areas include integrating nature into the incentive structure for board members, executives and staff, or including the drivers of biodiversity loss in ESG policy and transition action plans.
Next, investors are encouraged to set sectoral, engagement and portfolio coverage targets, to be achieved by 2030 or earlier.
The aim of sectoral targets is to ensure that the assets in investment portfolios are on “a suitable trajectory to align with the goal of halting and reversing biodiversity loss by 2030”, according to the framework.
“Ideally, asset managers and asset owners will cover the impacts and dependencies on nature of all sectors in their total portfolio,” it adds, but notes that this is not feasible in the short to mid-term.
Instead, the foundation suggests that investors start with targets for 10 identified priority sectors – including chemicals, metals and mining, and food products – and a selection of key drivers of biodiversity loss.
When it comes to the drivers, the framework focuses on pollution, resource use and land, water and sea use change.
The report says climate change will not be considered as “net-zero investment frameworks and targets already cover this pressure”. Invasive species are also not currently covered due to “the lack of consensus on appropriate metrics and actions for the finance sector to address this driver”.
Work on sectoral targets is still underway. The foundation said it aims to publish them as part of a “full version” of the guidance slated for the first leg of 2024. However, Thursday’s release does provide an indicative example for the food products industry.
For instance, an investor could commit that by a given year, a certain percentage of companies from the industry in its portfolio will have “set a robust water quantity target for all hot spots in their direct operations, in line with guidance from the Science Based Targets for Nature method for freshwater”.
On engagement, the guide also gives examples of potential targets. For instance, an investor could commit to having a given number of investee companies that have introduced a nature or biodiversity policy, set specific targets, and/or disclosed their policy and nature transition plan.
Similarly, investors could aim to have a given number of portfolio companies that have disclosed on a specified number of TNFD recommendations by a certain year.
The foundation plans to publish guidance for sectoral engagement targets in early 2024, along with guidance on how to “aggregate the sectoral and engagement targets into portfolio coverage targets”.
Further updates incorporating positive impact targets, providing guidance on target-setting for sovereign issuers, and bringing in additional asset classes will be released “in the second half of 2024 and beyond”.