Corporates and financial institutions can create sizeable market opportunities by being first-movers in addressing the Taskforce on Nature-related Financial Disclosures framework, said the executive director of a leading consultancy, ahead of the nature disclosure recommendations formal launch in September.
The Taskforce on Nature-Related Financial Disclosures (TNFD) was established in June 2021, and is due to formally launch its first disclosure framework whereby companies can get a grip on their nature-related risks, dependencies and opportunities, on Sep. 18.
Yet, TNFD is just the start of the journey for many companies, despite there being perceived complexity in the detail, said Guy Williams, executive director at Pollination, a climate change investment and advisory firm.
“Nature is wonderfully complex, we’re not going to solve nature, nature is going to continue to bewilder and amaze us,” Williams told Carbon Pulse in an interview.
“If you’re going to go into this as a problem to be solved with a start and an end then we need to do some education and awareness.”
Despite being a primate ecologist by training, Williams hopes the TNFD can help drive action and investment in nature. He was a founding member of the TNFD and has led work on developing the LEAP approach, a nature-based risk and opportunity assessment process, as well as sector- and biome-specific guidance on how to approach nature risk.
Williams has devoted much of his recent career to nailing down the kind of disclosure approaches that companies should be taking, but he also wants companies to see the bigger picture.
“If an organisation goes through the TNFD process and provides a solid set of disclosures or a really shiny sustainability report and that’s a job done, then we’re in a pickle,” said Williams.
“The TNFD disclosure is chapter one.”
FROM THE TOP
The TNFD itself has seen nature-related disclosure edge up the ESG agenda with the group being endorsed by the finance ministers of G7 and G20 countries and found its rhetoric matched in the Kunming-Montreal Global Biodiversity Framework (GBF).
The GBF’s Target 15 directs countries to ensure that multi-national companies and financial institutions disclose their “risks, dependencies and impacts” on nature throughout their operations and value chains.
Leading on from the GBF, governments have been important in driving action through the TNFD, particularly in developing countries, Williams told Carbon Pulse.
“Some of the government leadership on disclosure and reporting is really clear. The conversation around the role of nature in delivering net zero commitments is really dynamic and active in places like Southeast Asia and Latin America.”
In many economies, particularly in Asia, but also in the US, Williams has seen governments already take the lead in providing certainty that disclosure of nature-related risks will become mandatory to avoid allegations of “green-hushing”.
“At a national level, companies that were criticised to be slow to act on climate are using nature-related disclosures to leapfrog and diffuse some of the criticism on climate … we’ve seen that across Asia-Pacific in particular,” he said.
This increasing global prominence has led to an early groundswell for the disclosure group, according to Williams.
“The TNFD has been really successful in growing its number of interested parties, its forum is now over 2,000 members, and companies are interested in starting on the journey or interested on where to go next.”
But many companies are just starting to get to grips with the monumental challenge of understanding nature for their business context.
RISK IT ALL
A commonly quoted statistic in expert circles is that “$44 trillion dollars of global value is dependent on nature, that’s half of global GDP”.
While the quote comes from research conducted by the World Economic Forum, Williams believes it is often misused for organisations so they can say whether they are in the nature-dependent half, and so must act on it, or not.
“Nature is material for every business. This isn’t an issue where it’s material for you versus another company,” underscored the consultancy director.
“Most organisations think that nature is new and it’s not. Most also think they’re starting from scratch and they’re not.”
The TNFD intentionally mirrors the Task Force on Climate-Related Financial Disclosures (TCFD) processes, which has become a mainstay in ESG reporting, since the 2015 Paris Agreement. Much of the work of TCFD is translatable to the TNFD, particularly in the early stages where companies will be taking stock of assets and supply chains, said Williams.
But he was cognisant of the challenge at hand and cautious of the speed of movement.
“Businesses are slowly working on engaging and building awareness. They’re starting to do some initial assessments on impacts and dependencies, but that’s going to take time,” he said, adding: “To go deep to the forest floor or the factory floor is complex and takes time.”
The consultancy director said the TNFD itself expects to see energy from businesses on the agenda, even if full disclosure within 12 months is out of reach for many companies.
“Most businesses are fundamentally nature-negative. The pathway to nature-positive is like turning the titanic away from an iceberg, and shifting it one degree at a time. You need to start turning.”
COURSE CORRECTION
The TNFD Framework through its LEAP assessment outlines how companies fully comprehend that nature loss can be a financial, material and reputational risk to their business. Williams led early work on the LEAP assessment as well as sector- and biome-specific guidance.
“The biggest risk [for many companies] is actually the physical risk to supply and their business model,” Williams told Carbon Pulse.
“For businesses that don’t recognise fundamental reliance upon natural resources for their processes or for their raw ingredients, they’re going hit these really quick and brutal tipping points,” William said, alluding to how climate and biodiversity are inherently linked.
Despite fundamental business risks and significant early groundswell within the membership of the TNFD, tangible actions from companies have been somewhat muted.
For Williams, there are three significant barriers to action: executive bandwidth, the business case for nature, and the perceived complexity of the issue.
“Senior leaders who are making decisions on whether to invest the skills, resources and time to address these issues are really stretched, across a range of both ESG and non-ESG issues. They’re seeing this as something new,” said Williams. “Seeing nature as something that delivers both financial and non-financial value to a business is really important,” he added.
The second significant barrier is whether nature is a “now or a next issue”, according to Williams.
He explained that the business case for senior managers to seriously consider nature investment is not yet strong enough, with recent integrity challenges to the carbon market needing to be fixed before biodiversity credit markets can be acted on.
The third major challenge is the complexity. Williams emphasised there is an inherent complexity with nature-related issues, but that it doesn’t have to be complicated.
“It’s in the business of service providers like consultants to paint a very complex picture and you need a lot of support to tackle this,” said Williams.
“Some elements of this need real robust science and time to engage and assess, but that shouldn’t delay where you also identify quick wins and early action.”
MANAGING TO MEASURE
The well-worn adage – “You can’t manage what you can’t measure” – is pertinent to a space known for its complexity and there is a lively debate on what should actually be measured when it comes to business and nature.
Despite its position, led by well-financed businesses and its proximity to nature experts through knowledge partners such as IUCN and WWF, the TNFD has come under scrutiny for the absence of several metrics that researchers argue could address the issue of biodiversity loss.
Researchers claimed in June that TNFD missed extinction risk as a critical blindspot regarding its failure to include extinction risk, whilst others have argued that mean species abundance should take more of a priority, which are two metrics that can take significant resources to understand at a corporate level.
With limited agreement on what to measure, how to do it, and what good looks like, companies can often struggle to make a start.
“Most of the metrics that have been included [in TNFD’s framework] are around impact drivers, helping organisations to measure and assess things like water quality and land conversion,” said Williams.
Metrics can vary by biome and habitat particularly when looking at the condition, but extent and significance are also critical aspects to consider, according to Williams. The TNFD carried out an early exercise to understand what kind of metrics they should consider, but the activity was impossible to generalise due to thousands of possible combinations and so it was halted.
Williams explains that companies have been somewhat spoiled with greenhouse gas emissions due to its relative simplicity.
“We had all the business leaders asking for one [metric] and the scientists saying there are more than 3,000 possible options. Finding a midway point between one and 3,000 is challenging.”
The solution, Williams told Carbon Pulse, is flexibility and using good proxies and indices, such as the Global Biodiversity Score, which can enable easier comparison between assets. The TNFD has worked with scientific knowledge partners to find a midway point between robustness and pragmatism, and Williams is confident in their approach. Biome-specific guidance for metrics is expected in the framework this September.
“The other part of the metrics piece is the extent, how big your footprint is, and where it is.”
“Most companies that push back on the TNFD say ‘the data burden is ridiculous’ and how am I going to measure it, ultimately the hardest part is them putting pins on a map to show where their footprint is.”
Williams sees this as the largest internal challenge for companies to get a grip of, and a risk to consumers and investors who could take their money elsewhere if companies can’t take this first step, which he says is not an issue for the TNFD but they can help educate board members to understand what they should be asking.
There have been calls from the TNFD for a global nature data facility to help companies back up their assessments, but Williams alluded that the data complexity conversation can be a misdirection.
“I don’t get caught up in conversation on the data challenge. I support the need for good quality data, but it’s used as another excuse for inaction.”
“Financial institutions through other forms of risk have been dealing with complex risk issues with complex data requirements and they’ve got really smart people in those positions who have solved those problems.”
Companies can start with a high-level regional scanning exercise to get those pins on a map and then look to go deeper in their understanding of what risks they are exposed to and opportunities they could benefit from, Williams explained.
OPPORTUNITY KNOCKS
Many companies are already eyeing up the potential opportunities that new markets and economic models could generate, as they step into TNFD.
“The actual exercise of mapping your footprint, your impacts and dependencies, and where you have maximum opportunity to drive a positive change. It seems to me like all of the building blocks of an environmental market, through water trading or carbon trading or whatever else,” says Williams.
“Helping an organisation to understand metrics around the condition of a habitat and what was it like before, what is it now, and what could it be like in the future, that’s essentially the foundations of a more solid carbon market.”
“It’s essential that ecological value is translatable to a financial value.”
Some estimates have carbon markets reaching stratospheric scale in the coming years, and biodiversity and water credit markets are quickly sprouting. Williams argues there is an early mover advantage and companies are already capitalising on it.
“Companies [in Asia and Latin America] have a lot of exposure and wild decarbonisation journeys to go on and nature is going.”
“But they can also be a regional originator of nature-based solutions, not just credit markets but also through resilience and adaptation,” Williams told Carbon Pulse.
“Development finance and private is flowing to places like Indonesia and Vietnam to activate those nature-based solution markets.”
The consultancy director sees the TNFD process as a way to use that outcome to not only baseline their business but also ensure they are well-placed to hire the best talent, as the recruitment markets shift to candidates who care deeply about the state of the planet.
“They’ll miss out on that value creation opportunity, which is a different type of missed opportunity but could be equally as brutal.”
Williams pointed out that a core tenet of the TNFD is to enable companies to discover opportunities that can help fund the transition to a nature-positive economy.
“As we transition out of the economy, we’re in need of a transition strategy and that transition strategy needs to come through markets,” he said.
“Then when these markets start to prove themselves, as investors and capital flows get more organised and have a clearer position on what quality and integrity is, then those businesses who have gone through the TNFD journey should be in a pretty good place.”
CELEBRATE THE START
Williams cautioned about the tension between moving fast and slow, with regard to the need to properly engage local custodians of nature information.
Understanding asset allocation and high-level impacts is a “go fast” activity, according to Williams. However, engaging with local custodians on nature falls into the “go slow” category, as business leaders have not always directly with Indigenous Peoples and local communities, and now they require proper engagement to respond appropriately to nature risks.
“It is really playing out but quite far away from where investors and business decision people sit, which is typically still in air-conditioned boxes,” Williams told Carbon Pulse. “There is a need for a bucket of humility in the business world,” he added.
“There are some really good conversations [in the TNFD] around indigenous enterprises; seeing Indigenous Peoples as shareholders, people who should design and drive these nature projects as opposed to just a box-tick.”
He echoed the rhetoric at the recent Global Environmental Facility, which placed a strong focus on bringing Indigenous Peoples and local communities to the fore of their newly established global biodiversity fund.
The consultancy director was buoyant on the formal launch of TNFD on Sep. 18 in New York and on its ability to engage business leaders alongside other voices.
“It’s a time for celebration, a huge amount of progress has been made but the message is, this is just the start.”
By Tom Woolnough – tom@carbon-pulse.com
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