Comment: David Craig of the Taskforce on Nature-related Financial Disclosures explains how the TNFD will provide a framework for companies to measure and account for their impacts on biodiversity for the first time
While some may still dismiss it as “blah, blah, blah”, we should acknowledge that a lot was achieved at COP26, even if there are disappointments.
From agreements on methane, the phasing down of coal, and protecting forests, to the U.S. and China agreeing to boost climate cooperation and India setting a date to be carbon-neutral, the world took concerted steps. It remains in doubt whether limiting global warming to 1.5 degrees by the end of the century can be achieved, and when it comes down to it, all that matters is whether commitments and pledges will lead to the emission cuts that are needed. We must keep pushing with relentless determination to keep the 1.5 degree goal alive.
But for all its shortfalls, COP did mark a significant shift in one critical aspect: nature was part of the climate discussions at a greater scale than ever before. The final agreement acknowledges the importance of “protecting, conserving and restoring nature and ecosystems” in delivering on the world’s climate ambitions.
More than half of worldwide economic output, $44tn, is dependent on forests, oceans, soils, water systems and wider ecosystems
The commitments from governments and financial institutions on stopping deforestation tick both nature and climate boxes simultaneously. And nature was a hot topic at side events and panel discussions alongside the formal negotiations. Finance ministers, central banks, supervisors and development banks all committed to scale up nature-related work.
Now, we have to urgently go further and faster in aligning the climate and nature agendas if we are to cap global warming and tackle the direct risks associated with nature loss.
Put simply, the global economy is underpinned by the natural world. More than half of worldwide economic output – some $44 trillion – is moderately or highly dependent on the forests, oceans, soils, water systems and wider ecosystems that surround us. The World Economic Forum’s 2021 global risks report held up biodiversity loss as one of the top risks to the global economy.
Yes, we must act urgently and with ever increasing focus to tackle the climate crisis. But we must also apply ourselves to the nature crisis with equal determination, as it is not only as urgent but also part of the climate crisis and solution.
Whether it’s a semiconductor manufacturer reliant on water for cooling, a furniture maker that depends on a sustainable supply of wood, or an agriculture company that needs pollination for crop production, nature impacts are all around, affecting operations, supply chains, jobs, and markets.
When you stand back, two important points need keeping in mind. First, marine, and terrestrial ecosystems have absorbed 60% of the world’s carbon emissions since the industrial revolution, so protecting nature is essential to reducing emissions and combating climate change – they go hand-in-hand.
Moody’s has warned that companies with $2.1tn in debt have a ‘high or very high’ exposure to nature-risk
Yet nature is rapidly deteriorating – a football field of tropical rainforest disappears every six seconds – and vast amounts of global finance are exposed to that impact: Moody’s has warned that companies with $2.1tn in debt have a “high or very high” exposure to nature-risk.
How do we resolve that? How do we protect nature while reducing businesses’ exposure to it?
Our answer begins with business, finance and a market-led solution. The first goal is to agree how businesses can best understand and measure their exposure, because only what is measured can be managed. Building on the work done by climate finance bodies, the Taskforce on Nature-related Financial Disclosures is working with its 33 core members – including senior executives from BlackRock, Bank of America, AB InBev, S&P and Nestlé – to build a framework that allows companies and financial institutions to report their nature-related risk and act on it.
Early next year, we will release a first draft of that framework, built on existing metrics, that will provide the first meaningful measure of corporates’ exposure to nature-related risk.
Over the course of 2022, we will work with our members, including a wider group of more than 200 companies, financial institutions, and multilateral bodies, to launch a full risk-management and disclosure framework to enable organisations to report and act on those risks. The end goal is to support a shift in global financial flows away from nature-damaging activities and towards nature-positive ones.
In many ways, the battle to tackle the climate crisis is helped by having a fixed, clearly defined goal like a global temperature-rise cap that everyone can work towards.
No one is pretending this is going to be easy. But the rewards will be vast if we get this right
Nature doesn’t yet have such a target. But the framework we’re proposing would at least allow businesses, institutions, regulators and auditors to measure where they are and adjust.
No one is pretending this is going to be easy. But the rewards – for nature, climate and the global economy – will be vast if we get this right. The focus on climate in recent decades has created significant commercial opportunities, not least in renewable industries. Likewise, a clearer assessment of nature-related risk can spur innovation and opportunity. The World Economic Forum estimates up to $10tn in new economic activity can be generated by 2030 with a shift in capital towards nature-positive outcomes.
We’ll only reap those benefits by managing the risks. We know that without changing the way businesses look at and account for nature, we will never see the changes we need. If nothing else, Glasgow is a reminder of just how much hard work and application is required to make progress. When it comes to tackling nature-risk, we need to get to work right away.
David Craig, the former CEO of Refinitiv, is co-chair of the Taskforce on Nature-related Financial Disclosures (TNFD). He will be interviewed by Reuters Events Sustainable Business’s editor in chief Terry Slavin during Sustainable Finance & Reporting Europe 25-26 November.
COP26 TNFD deforestation biodiversity WEF marine ecosystems nature based solutions