Investors split over future direction of biodiversity standards

Several investors have called for biodiversity standards to ‘go further’ than the TNFD, while others think the current market framework is robust enough.

Fork in the road signs

Investors are divided on how standard setters should develop any future biodiversity standards, with some citing an opportunity for further granularity and others warning against overwhelming companies with potentially misaligned disclosure requirements.

While many consider the current market framework, the Taskforce on Nature-related Financial Disclosures (TNFD), to be robust, investors including Federated Hermes, Columbia Threadneedle and Ninety One have said there could be an opportunity to go further.

It comes as the Global Reporting Initiative (GRI) in December updated its biodiversity standard, having announced revision plans in 2021.

Separately, the International Sustainability Standards Board (ISSB) is expected to announce the next standard topic it will be developing imminently, having launched its first two sustainability standards last year. Biodiversity is one of the options the standard setter has consulted on.

Kate Fowler, associate director for policy and advocacy at Federated Hermes, tells Responsible Investor there is an opportunity for ISSB to “go further” and be “more granular” than the TNFD. It could also “delve deeper” into some of the biodiversity sub-themes, she adds.

For her, the TNFD does not go into a “huge amount of detail” in terms of recommending certain disclosures on sub-themes, such as deforestation, oceans or freshwater.

“It might have the odd metric, but not the level of detail we want to assess a company’s exposure to more specific sub-themes, how they’re managing that risk, what the level of exposure is, and what the strength of their policy is,” she says.

She explains that Federated Hermes is looking for standards to do more than take the TNFD and transpose it into a reporting standard. This is because, for a lot of jurisdictions, implementing ISSB standards “will be the main route they move corporate sustainability reporting forward”.

She adds that the ISSB is the “most obvious” route for introducing corporate disclosures on nature and biodiversity.

Columbia Threadneedle Investments and Ninety One, while acknowledging that the TNFD has set a useful foundation, both agreed there is an opportunity for standard setters to provide further guidance.

Ninety One assistant portfolio manager, Sam Anthony, says standard setters could provide “more granularity and clarity” on areas such as species reporting, as well as better definitions of “nature positive”.

For Joe Horrocks-Taylor, responsible investment senior associate at Columbia Threadneedle, certain metrics are “poorly represented” in the TNFD, including marine ecosystems, invasive species, and downstream value chain impacts.

“These are some of the harder areas of nature impact to measure and manage, so any consistency that the ISSB could bring to these elements would be additive,” he adds.

But not everyone agrees. Senior responsible investment analyst at Abrdn, Ann Meoni, believes the TNFD is “robust” and covers good ground.

“I don’t think deviating from the TNFD would be helpful for anyone – companies or investors,” she says.

“Having different frameworks which ask for different things risks a massive divergence in reporting, and we should be focusing on asking companies to report on material metrics.”

Meoni adds that, as with the Taskforce on Climate-related Financial Disclosures (TCFD), you would expect TNFD metrics to evolve over time, but added that it is already “pretty granular”.

She understands some investors’ aspirations for “end-perfection data”, but warned against asking companies to put a huge amount of resource into reporting, saying this could result in less action being taken to address biodiversity issues.

Thomas Roulland, head of sustainability standards and analytics at Allianz Global Investors, also praises the TNFD framework, saying it is important to acknowledge that biodiversity is still a nascent topic and more complicated than climate change.

He says investors look for “simplicity and transparency” to ensure alignment of their investment processes and targeted outcomes.