The Taskforce on Nature-related Disclosures (TNFD) released 14 recommendations at the UN Climate Week in New York earlier this week. They provide a disclosure framework for companies around the world to measure and track their nature-related risks in a more structured, comparable way.
Megan Motto, CEO of the Governance Institute of Australia, notes that it’s recognised globally that biodiversity and nature loss is an increasing source of systemic risk.
She believes the TNFD is important because it allows for organisations of all sizes and from all sectors to report and act on evolving nature-related risks and opportunities, regardless of whether they are required to disclose to capital providers, regulators and other stakeholders.
“As climate reporting and sustainability targets are set, the TNFD disclosure framework will enable financial institutions to make better decisions and support strategy and risk management with an improved understanding of nature-related risks and opportunities,” says Motto.
On the superannuation side, Suzanne Branton, chief investment officer of CareSuper, says: “We want our members not only to thrive financially but also to live and retire in a healthy, natural environment. As a responsible investor, CareSuper wholeheartedly supports the launch of the TNFD.”
Claire Molinari, head of ESG at CareSuper and co-chair of the Nature Working Group at the Responsible Investment Association of Australia, adds: “Nature’s intricate interaction with investments can be challenging to navigate, but the structured approach of the TNFD is expected to help provide more structured insights into the risks and opportunities within our investment programs. This represents a significant stride towards a more sustainable and responsible investment landscape.”
However, Timothy King, CIO at Melior Investment Management, believes there’s more to come in terms of reporting on nature-related risks from the International Sustainability Standards Board that develops and approves International Financial Reporting Standards.
He notes that in June, the IFRS Foundation issued its inaugural Sustainability Standards in two parts: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures.
“I think that there is a very high chance that one of the forthcoming standards, if not the next one, will be a nature standard,” he says.
“Companies will probably have to report on their nature exposures, their impacts, scenario analysis, baselines and targets as they have had to with the Task Force on Climate-related Financial Disclosures (TCFD).
“I think there is a whole raft of accounting coming down the line that is going to be extremely demanding and onerous for companies. This is very complicated. It will obviously provide a lot more information to investors, but there’s a lot changing here. Companies will obviously have to do a lot more work around this.”
King says there are a small number of companies that are ready for this kind of reporting. “We’ve seen some of those companies embark on pilots but this is very new. There’s a deficiency of people, data and systems. It’s not something they have had to do before. Broadly, there’s a lot of work to be done here.”
Louise Davidson, CEO of the Australian Council of Superannuation Investors, also welcomed the release of the TNFD recommendations. But she also notes that dealing with complicated biodiversity and nature issues will require capacity building, improved data collection and collaboration across sectors, civil society and governments.
“The complexity of the issues means there will be a steep learning curve for all of us when it comes to managing and mitigating nature-related risk, but with so much at stake, we have no choice but to get moving and rapidly build capacity and capability,” says Davidson.
According to Motto, another concern is that information stemming from climate and biodiversity-loss reporting may impact the way insurance premiums are calculated.
“Insurance has already become unaffordable for some businesses and new reporting disclosures may price some industries out of the market,” she says.
“As the primary driver of global biodiversity loss, it’s not yet understood how investments in agriculture and food production will be managed by regulators and financial institutions,” she adds.
“While there is a risk that food production costs and competition in the sector may be impacted, the new framework also provides opportunities for these industries and financial investors to innovate and drive more sustainable and rewarding practices.”
According to the Responsible Investors Association Australasia (RIAA), responsible investors are responding quickly to new sustainability reporting and taxonomy guidance overseas, with many domestic and international fund managers reporting a more conservative number of responsible investment assets for 2022, a sign of an industry and regulatory efforts to tighten standards.
RIAA’s 22nd annual Responsible Investment Benchmark Report released this week found, natural capital is emerging as an increasingly popular positive screening theme, with 46% of survey respondents screening for biodiversity preservation and conservation, while climate change-related issues continue to be a priority.
It also found the impact investment sector nearly doubled from $30 billion in 2021 to $59 billion in 2022.