The UK Government is working with market participants on a Task Force on Nature-related Financial Disclosures (TNFD), to give investors, lenders and insurers “a more honest and complete picture of the environmental risks that they’re exposed to”.
At an online event hosted by the UN today, UK Minister of State Zac Goldsmith and BNP Paribas Asset Management discussed the initiative, which is set to launch next year and release recommendations in 2022.
BNP Paribas is part of a six-month working group of global financial institutions, governments and regulators that will launch in the autumn and will mandate a TNFD to deliver a standardised reporting framework by 2022.
AXA, BNP Paribas, DBS Bank, Rabobank, Standard Chartered, Storebrand, Yes Bank and World Bank are among ten financial institutions to join the informal working group, alongside the UK and Swiss governments and the World Business Council For Sustainable Development
The initiative is funded by the UK government and driven by the Department for Environment, Food and Rural Affairs (Defra), and a newly launched website for the initiative can be accessed here.
The TNFD secretariat will comprise of UNDP, WWF France and the Natural Capital Finance Alliance.
Goldsmith said: “There’s virtually no understanding about how nature-related risks are connected to our pension funds, our banks and insurers; and the same could have been said for climate risk only a few years ago, but that has been addressed through the creation of the TCFD. We need the same global effort for nature.”
The Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) made a series of recommendations to companies back in 2017 that, although largely voluntary at present, are hoped to become a de facto standard for how corporates think about and disclose climate risk.
2020 was set up to be a key year for biodiversity, with the UN Biodiversity Conference in Kunming billed for October and the IUCN World Conservation Congress in Marseille in June – both events which were postponed as a result of the Coronavirus crisis. Some organisations had hoped any TNFD would release recommendations before the year was out.
Goldsmith told the online event: “So much of what nature provides us is simply not valued, and so much of the destruction of nature is simply not counted as a cost. The Amazon is critically important on so many levels…but nevertheless, it’s worth more dead than alive. Financial incentives that destroy forests outstrip those in favour of their protection by around 40 to 1.”
The UK Government said in 2019 in its Green Finance Strategy that it would work to convene a coalition to explore nature-related risk initiatives, tools and reporting.
The TNFD initiative is part of wider ambitions to put nature alongside climate change at COP26, which the UK is co-hosting next year, Goldsmith said. “These two crises are inextricably linked – they are in effect one crisis.”
He said the conference would focus on increasing the amount of climate finance that is invested in nature-based solutions – currently 3% of total climate finance – building back “greener and better” in covid recovery programmes, tackling “perverse incentives that destroy the natural world” and transitioning the private sector from “being part of the problem to part of the solution”.
During the same event, Adam Kanzer, Head of Stewardship for the Americas at BNP Paribas Asset Management, outlined his thoughts on what the nascent group would need to consider.
“Impacts to nature and dependencies on ecosystem services will vary from industry to industry, so we’ll need different indicators to address different challenges in each industry.”
He said the disclosures and KPIs would also need to be relevant to a wide range of uses, including portfolio management and stewardship, and be appropriate to each asset class.
“The key risk to measure and manage is not how biodiversity loss affects our portfolios, but the collapse of nature itself, which is underway. This is an unhedgeable risk of unprecedented size. Risk reporting that focuses solely on risks to issuers or portfolios may not translate to reduction of systemic risk. In a sense, it misses the forest for the trees. You cannot preserve shareholder value without protecting biodiversity.”