Meeting the moment on nature disclosures: The new double bottom line
Simon Zadek, Executive Director at NatureFinance and senior advisor to the Taskforce on Nature Markets, outlines how the momentous creation of Taskforce on Nature related Financial Disclosure (TNFD) recommendations will shape business actions.
Peter Drucker’s famous adage that “if you can’t measure it, you can’t manage it” has never been truer as businesses face an avalanche of risks and opportunities that need to be understood, prioritised and actioned. But counting is not enough – to get this right means you must measure what counts, measure it the right way, and then have the capabilities to respond effectively. This is especially true for the place of nature in shifting business landscapes.
Nature has always been a critical ingredient to business success, from its more visible contribution to food production and other soft commodities to its less visible presence in global supply chains as diverse as pharmaceuticals and new technology sectors. But it is only recently that nature’s contribution to the bottom line has begun to be subjected to disciplined scrutiny and measurement.
This month’s release of the disclosure recommendations of the Taskforce on Nature related Financial Disclosure (TNFD) is the most recent, and to date most important part of this development. Building a science-based framework tuned to the needs of risk assessment and management, the TNFD provides businesses with a clear basis for communicating internally and to the market, especially investors, about their dependency on nature, and associated risks and impacts.
Its 14 disclosure recommendations are of course at this stage part of an entirely voluntary framework, tried and tested over two years through hundreds of pilots undertaken across the world by financial institutions and companies across many sectors, especially those most visibly dependent on nature such as food and infrastructure businesses. And they are unlikely to remain voluntary for long. The G7 has endorsed the TNFD and some of its members are likely to incorporate them into statutory requirements. The same may be true of some other major economies represented in the G20.
Central banks and supervisors, already moving beyond the consideration of climate aspects of financial stability risks and turning to nature risks, will place additional pressure on the financial community to demand relevant information from their investees, increasing the use of the TNFD approach. Moreover, as the International Sustainability Standards Board advances a so-called ‘global baseline’ for sustainability reporting, it will embrace the TNFD approach as the only meaningful nature game in town.
So much for compliance-based widespread adoption of TNFD, which is a virtual certainty. More debatable is whether it will be useful for financial institutions in assessing investment options, and indeed relevant to the wider corporate community for designing and executing products and enterprise platforms.
The answer is almost certainly yes. Nature risks and opportunities will become increasingly important across growing parts of the global economy. This will in part be driven by the decline and growing fragility of nature – consider a world beset with few if any pollinators, the erosion of mangroves that protect major delta economies, and the collapse of ecosystems that have supported rivers that sustain entire nations.
Remove critical intact landscapes and major parts of our world become not only unproductive but unliveable, from California to Bangladesh and from Egypt to the Netherlands. Nature related risks cross over into climate risk, in both directions. They are in many respects indivisible.
And then are the business risks associated with nature and climate related policies and regulations themselves, such as the EU’s zero deforestation due diligence requirement which will impact the prospects of commodity producers and cross border trade. The financial crimes community is increasingly focused on the link between nature crimes and money laundering – there is no future for global supply chains and investments made more profitable courtesy of ecosystem services cheapened through criminal activity.
And on the upside, the crystallisation of nature risks makes nature positive investments increasingly attractive. Regenerative agriculture is perhaps the poster child of such opportunities, but this is only the beginning. In food and soft commodities, capital intensive production that decouples from nature – such as lab grown cotton to vertical farming – will become increasingly attractive. Urban infrastructure will uphold nature preservation as well as low carbon impacts, from water absorptive walkways to gardened roofs of circular economy homes.
And alongside these developments will be business opportunities to help implement them, from burgeoning biodata markets to the more extensive use of blockchain and other digital technologies for overseeing the state of nature, to a new generation of financial instruments from biocredits to nature-linked sovereign bonds.
There is no one silver bullet for businesses to navigate this complex, dynamic nature economy landscape. However, TNFD will provide one keystone to enable businesses to understand, communicate and act in figuring out how to avoid or mitigate risks and avail themselves of emerging opportunities.
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