Some of the UK’s largest pension schemes are considering Taskforce for Nature-related Financial Disclosures (TNFD) reporting after the launch of the final framework and are looking for their asset managers to follow suit.
Last week, the TNFD unveiled its final recommendations to enable organisations to report and act on nature-related dependencies, impacts, risks and opportunities. The UK government was one of the funders of the initiative, alongside Australia and a number of other European governments.
Given the relative recency of the final launch, many UK schemes have yet to make a firm decision. However, some of the largest players in the market are weighing the benefits of reporting.
Nest, for instance, said it does not have plans to adopt reporting but might mirror its approach with TCFD, using it as a framework to report on progress. The £32 billion ($39 billion; €37 billion) scheme had been reporting against TCFD for a number of years before it become mandatory.
The scheme is also in the early stages of putting together a nature policy and TNFD reporting provides a useful starting point, it said.
Similarly, Aegon UK’s head of responsible investing Hilkka Komulainen told Responsible Investor that it welcomed the TNFD’s proposed disclosure metrics specifically for financial institutions, which were also published last week.
“The metrics are a positive step towards increasing transparency and accountability around nature-related risks and opportunities,” she said. “Aegon UK are investigating the initial step of locating and evaluating exposure and dependencies within our portfolios.”
Claire Curtin, head of ESG and sustainability at the Pension Protection Fund, said it was “very interested” in ambitions to introduce TNFD reporting requirements in the future and would be watching developments closely.
In March, Scottish Widows called on the UK government to become the first to mandate economy-wide TNFD reporting. A spokesperson for the £170 billion pension and savings provider did not respond when asked about current plans but Katie Leach, group head of nature at parent Lloyds Banking Group, welcomed the launch.
A spokesperson for the Department for Work and Pensions (DWP) said it had nothing further to add on TNFD at this time when asked about future plans.
However, secretary of state for environment, food and rural affairs Therese Coffey, who oversaw the introduction of mandatory TCFD reporting for schemes when at the DWP, said at the UK launch event that she would be lobbying for a repeat for the new framework.
“I will be working to get all our pension funds to do TNFD,” she said.
A spokesperson for the UK’s pensions regulator welcomed the TNFD’s publication and said that “while trustees do not currently have specific governance and reporting duties in this area, we expect they will be encouraged to develop their knowledge and understanding of biodiversity and nature-related risk”.
“We also expect to see trustees increasingly integrate a scheme’s dependencies and impacts on nature and biodiversity into their risk and opportunity governance.”
A number of scheme consultants also said they had seen increased interest from clients in TNFD reporting.
Andrew Lilley, principal and head of sustainability investment for continental Europe at consulting giant Mercer, said that TNFD had attracted a “great amount” of interest from its UK clients. “While some have expressed concern over additional requirements, there is a general consensus that TNFD is the key framework for allowing schemes to move allocations towards more nature positive outcomes,” he said.
Mercer has already assigned specialist roles for nature and implementing TNFD guidance within its sustainable investment team, Lilley added.
Monique Mathys-Graaff, head of sustainability solutions at Willis Towers Watson, said the firm had seen questions on nature and biodiversity from several of its larger clients. “A number of pension funds voluntarily published TCFD reports before the DWP made this mandatory and we’ll encourage this with TNFD too,” she said.
Both Lilley and Mathys-Graaff said that the fact that TNFD disclosures follow a similar structure to TCFD was helpful for speedier adoption.
Mathys-Graaff said the similarity “means we’re already familiar with the language and approach that needs to be taken and we can all use the knowledge and lessons learnt from climate reporting to help us move forward with nature reporting”.
Lilley agreed that TNFD reporting “won’t be overly onerous to produce similar disclosures” for investors already reporting against TCFD.
Keith Guthrie, deputy CIO at Cardano, said the firm’s advisory wing had seen increasing interest TNFD in both the UK and the Netherlands, where it also operates, and that there was a lot of attention on nature as a topic.
He pointed to increases in membership of other nature initiatives such as the Finance for Biodiversity pledge as evidence and said these groups were a “stimulus” to many organisations to make a start.
LGPS looking into it
A number of pools and individual schemes which are part of the Local Government Pension Scheme (LGPS) are also investigating the issue.
An RI figure at one council scheme said it was still developing its thinking and policies around nature, so was definitely not at the point of adopting TNFD reporting. They added that they expect TNFD to be the direction of travel, but given its complexity there will likely be a “wait and see” approach to see how other investors approach the framework.
Jacqueline Amy Jackson, head of responsible investment at London CIV, said she backed introducing regulations for investors and companies to report in line with TNFD.
She added that the pool is in the process of reviewing data availability, quality and coverage, and that finding credible data along with capacity constraints remained the biggest challenge to adoption.
“Adopting the TNFD will help us address the inherent vulnerabilities and opportunities associated with nature-related factors that can significantly impact the financial health of businesses and investments,” she said.
“Given existing nature loss and biodiversity risk, we would actively support the introduction of TNFD regulations for both companies and investors.”
LGPS pool Brunel said it needed to engage with clients and understand their appetite before making any announcements, but flagged that its biodiversity strategy in 2022 had set out a commitment in principle to align reporting with the TNFD.
Institutions are also looking to their asset managers for better support. The £22 billion pension provider People’s Partnership said it had no immediate plans to report but would work with the UK government and other stakeholders to adapt the TNFD to the UK context.
Chief investment officer Dan Mikulskis told RI that asset managers have a “crucial role” to play in nature and said it would be a welcome step “if they were to take a more proactive stance towards reporting that is consistent with TNFD”.
Brunel also flagged that its biodiversity strategy had committed to encourage capacity-building both with asset managers and high-impact firms.
The consultants are also engaging managers on biodiversity.
Mathys-Graaff said WTW was regularly engaging managers it invests in to understand biodiversity policies and where it can push for improvement.
Mercer is also helping its clients map portfolio exposure to TNFD priority sectors to identify holdings most at risk and then explore how managers are engaging and managing this risk, Lilley said.
Mikulskis said that People’s Partnership would be looking at how best to improve the data and analytics available to asset owners on nature-related risk and opportunity, and that nature would be a key responsible investment focus going forward.
Cardano and its pensions wing NOW Pensions have been involved in a number of cutting-edge initiatives looking at biodiversity data including satellite tracking of deforestation and bioacoustics.
Guthrie said the effectiveness of TNFD at improving transparency around nature risk would depend on ISSB and Science-Based Target Network standards also being adopted more broadly.
“Data challenges and communication challenges with nature are more significant because of the local nature of many impacts that need to be monitored, measured and managed,” he said. “We will be working with the TFND’s recommendations to create more standardised metrics around nature into our standard reporting.”