Nature is rising on the corporate ESG agenda
Companies have become increasingly nature-focused in their ESG agenda as regulations evolve to curtail biodiversity loss and nature risk becomes an integral factor for investors. Key takeaways from the recent launch of the Taskforce on Nature-related Financial Disclosures (TNFD) underscore the challenges and opportunities relating to reporting and risk in this area.
With mounting evidence linking global warming and nature loss, and research by the World Economic Forum indicating that more than half the global GDP (ca. USD 44 trillion) relies moderately or significantly on nature, policymakers and investors are increasingly committed to addressing biodiversity decline.
Policy momentum is building to mitigate biodiversity loss
A number of significant policy developments have been driving momentum to mitigate biodiversity loss:
- A pivotal milestone was the signing of the Global Biodiversity Framework at COP15 in December 2022, which included a target for corporate disclosure on biodiversity risks, dependencies and impacts.
- The EU’s European Sustainability Reporting Standards (ESRS) includes a biodiversity and ecosystems standard, compelling companies to disclose their nature-related impacts, risks and opportunities, subject to a materiality assessment.
- The Sustainable Finance Disclosure Regulation (SFDR) mandates financial market participants to disclose activities that have negative impacts on biodiversity-sensitive areas.
- On 18 September 2023, the Taskforce on Nature-related Financial Disclosures (TNFD) released its final set of disclosure recommendations, providing a comprehensive framework for disclosing nature-related risks and opportunities.
Investors are mobilising on nature and biodiversity
Investors recognise that nature risk is now a fundamental consideration for investment risks and returns. Notably, investor coalitions such as the Nature Action 100 have emerged and large investment managers such as Norges Bank Investment Management and BlackRock have incorporated considerations into their engagement strategies with companies that have material exposure to nature.
Nature is now clearly on the corporate ESG agenda
The ESG100 – Position Green’s 2023 analysis of the ESG reporting of the 100 largest listed companies in Norway, Sweden and Denmark respectively – reveals that 46% of companies in the ESG100 already disclose a policy or commitment to biodiversity or nature. By comparison, 69% of ESG100 companies report having a climate change policy.
However, the scope and ambition of company nature-based pledges vary significantly, with only 29% reporting on their impacts on nature or biodiversity, 19% reporting nature-related targets and just 1% disclosing the financial impacts from nature-related or biodiversity risks and opportunities.
5 key points from the TNFD launch
TNFD is a global market-led initiative that has developed a risk management and disclosure framework to report and act on evolving nature-related risks and opportunities. It aims to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes. The September launch event for the finalised framework highlighted some key considerations:
- No more alphabet soup – TNFD takes an integrated approach
With the world facing a ticking clock, the framework draws from and feeds into relevant standards, including those of the International Sustainability Standards Board (ISSB), the Global Reporting Initiative (GRI) and the European Financial Reporting Advisory Group (EFRAG). The framework is also based on the same four pillars as the Task Force on Climate-related Financial Disclosures (TCFD) system in climate – governance, strategy, risk and impact management, and metrics and targets. Proactive alignment with TNFD will help integrate nature in your organisation and streamline reporting of nature-related factors.
- Get started and progress over time
TNFD acknowledges that each organisation is unique and will have their own pathways to adopting the recommendations. The amount of information available can be overwhelming, so take it step by step. Start familiarising yourself with the terminology of nature-related issues. Although the framework is voluntary, it is good to prepare your company for eventual TNFD disclosures. Make the business case to senior management and stakeholders and become action oriented on related risks and opportunities.
- Take a LEAP (Locate, Evaluate, Assess, Prepare)
TNFD’s LEAP is an assessment process for nature-related risk and opportunity management, where scoping is a crucial phase that helps identify focus areas for further assessment. As nature is a multifaceted area with varying geolocation-specific issues, LEAP helps your oganisation look beneath the surface and understand the key risk and impact drivers, the key datasets you use to measure nature, so you can focus efforts on what moves the needle for your company goals.
- Leverage the work you’ve already done
Many companies have already done extensive work in collecting similar data, for example, on Scope 3 emissions in their supply chain or human rights due diligence throughout the value chain. TNFD recommends utilising any of the lessons learned or processes from this experience, or existing questionnaire methodologies, to obtain nature data. Moving forward, the recommendation is to align these different data collection and analysis processes to achieve more accurate, comparable and actionable data.
- Measuring nature-related metrics is a challenge
Identifying over 3,000 nature-related metrics from standards when drafting their recommendations, TNFD acknowledged the difficulties companies face in targeting and measuring the relevant data. As transparent sustainability reporting becomes critical in stakeholder decisions and nature-related financial disclosures are on the rise, implementing an efficient ESG data management system to collect, analysis and report relevant data has essentially become a license to operate.
How can Position Green help?
Position Green provides software and advisory expertise to support companies throughout the process. Our new ESRS solution includes the E4 Biodiversity and ecosystems standard to help with identifying and disclosing a company’s material biodiversity impacts, risks and opportunities, through to setting targets and metrics. As a trusted partner, Position Green helps companies streamline the collection, analysis and reporting of high-quality data while making sense of the standard for their specific industry and business structure.
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