‘Well-intentioned’ initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD) recommendations often fail to provide stakeholders with decision-useful information, as companies tend to highlight their sustainability successes rather than nature-related risks, found a study published on Monday.
Leveraging an AI-powered tool, researchers examined TNFD-aligned nature-related reports among Nature Action 100 (NA100) companies, who have been identified as key targets for nature stewardship.
The study was carried out by researchers from the University of Zurich and published in the Social Science Research Network.
Researchers assessed whether the company’s disclosed impacts are harmful or beneficial to biodiversity and ecosystems (C2N), and whether nature poses risks or offers opportunities for the company (N2C).
The study showed how corporations predominantly report on their environmental impacts, with the majority of these disclosures characterised by positive company sentiment.
However, this data may not align with the real impacts of their activities, given the observed degradation of nature, the study underlined.
“Sentiment analysis showed that companies predominantly disclose positive impacts on nature, while nature’s impacts on companies are often reported as negative … Disclosures rarely mentioned environmentally-rich regions and critical nature assets.”
“These findings suggest that companies might either not engage in activities in these regions or choose not to disclose them, revealing inadequacies in current practices.”
Less than 9% of the impacts are reported as posing risks or offering opportunities to a company. Out of those that were reported, around 84% were labelled as having negative corporate sentiment.
“This high percentage indicates a tendency to highlight negative impacts or challenges posed by nature on their business,” the authors stressed.
GEOGRAPHY
According to the authors, companies tend not to disclose impacts they have in biodiversity-rich countries.
“For instance, we observe that some environmentally rich countries, such as those in Africa, are never mentioned in the corporate sustainability reports of the companies considered,” the study said.
“Similarly, environmentally rich countries in Central Asia and parts of Southeast Asia exhibit low frequencies of mentions.”
Additionally, researchers noted that the overlap between company activities and critical nature assets appears very limited.
“The lack of mentions could reflect a lack of activities in these regions but could also suggest under-reporting,” the study said.
“This raises critical questions about the comprehensiveness of corporate sustainability disclosures and potential gaps in reporting practices.”
The debate around nature-related disclosures is gaining momentum, with an increasing number of financial institutions and companies committing to report on their impacts, risks, and opportunities in the last few months.
Early this year, 320 corporates and organisations worldwide committed to aligning to TNFD recommendations within two years, the task force announced at the annual World Economic Forum meeting in Davos in January.
However, according to the authors of the study, as long as disclosure remains voluntary, the situation is unlikely to improve, even under the TNFD.
“We advocate for the establishment of a legally binding regulatory framework for disclosures, including supply chains, and the development of a robust system to track and verify the impact of corporate activities on nature,” the study said.
By Giada Ferraglioni – giada@carbon-pulse.com
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