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The risks posed by the loss of nature and biodiversity to businesses and financial institutions are coming under mounting scrutiny, with the release of a raft of new recommendations that are likely to become mandatory in future.

The Taskforce on Nature-Related Financial Disclosures (TNFD) launched its final recommendations in Europe this week, after an initial release in New York last month, with suggestions aimed at capturing the effect of nature-related impacts, risks and opportunities on a firm’s business model, value chain, strategy and financial planning.

Businesses are urged to pay attention to the location of their direct operations, as well as upstream and downstream value chains, determining whether they are affecting water or land use, and disclosing the locations of assets and activities.

Companies are also encouraged to disclose the goals and metrics they use to assess and manage nature-related risk.

Though the framework is voluntary, the idea is that the rules will follow the path of the Taskforce on Climate-related Financial Disclosures (TCFD) and form the basis of mandatory requirements in future.

The TCFD is already being used by large corporations such as Tesco and Unilever, and is the foundation of UK legislation due to come into force next year that will introduce legally binding climate-related disclosure rules.

“For many years, globally the focus has been on climate change. Businesses are very familiar with reporting and disclosing on climate change,” Elizabeth Maruma Mrema, the assistant secretary-general of the UN and co-chair of the TNFD, said at a conference in Geneva this week.

Business and financial institutions have only recently begun to “realise that climate change and nature loss are intrinsically connected, and that solutions to climate change will not happen if they are taken in isolation”, Mrema told the audience at the Building Bridges event, organised by a coalition of Swiss authorities, financial bodies, the UN and other international partners.

“The connection between climate change and nature loss is what TNFD had in mind from the beginning,” Mrema said.

She added that the rationale behind the TNFD was not to add extra obligations for businesses or financial institutions, but to use the mechanism of the TCFD, which was first set up in 2015.

Likewise, the TNFD and the TCFD should not be viewed as two separate frameworks, Mrema said, but instead as a means of addressing the interconnected issues of climate change and biodiversity loss.

“Nature is more complex than climate. For nature, we don’t have the 1.5 degrees,” Mrema said, referring to the acceptable global temperature increase stipulated in the 2015 Paris Agreement.

The framework is designed to underline the fact that human society, economies and financial systems “are embedded in nature, not external to it”, the TNFD says.

But critics of the TNFD have accused it of “facilitating corporate greenwashing”, according to non-profit BankTrack, and failing to engage with indigenous peoples and local communities.

“Nothing in the TNFD framework challenges a corporation’s right to keep 100% of the profits it may make off environmental or human rights abuses,” says Shona Hawkes, an advisor at Rainforest Action Network.

“It is full of loopholes that can allow for rampant greenwashing, and its reporting takes a generalised form that means that company claims cannot be checked against realities on the ground,” Hawkes adds.

Another criticism is that there is no evidence to suggest these kinds of guidelines will achieve their goals.

“We don’t disagree with TNFD that the financial system and corporate behaviour is a key part of the biodiversity and extinction crisis. However, fixing that problem requires an evidence-led approach and regulation,” says Lim Li Ching, coordinator of the biodiversity programme at Third World Network, a Malaysia-based environmental non-profit.

A TNFD spokesperson tells GTR in a written statement that the taskforce is market-led and has “run an open innovation process to design and develop its recommendations and suite of additional guidance”, including “working with a diverse range of 19 knowledge partners and the transparent publication of four draft prototypes of the framework”.

“Throughout this process, the taskforce also ran dedicated dialogue sessions with a group of indigenous leaders from around the world and with a network of civil society organisations. Their views and feedback were the source of valuable input into the work of the taskforce and has helped to shape the final recommendations and implementation guidance,” they say.

 

New goals

There have also been a number of other initiatives and organisations set up to enable financial institutions to manage nature and biodiversity-related risks, including the Nature Positive Initiative, a group of nature conservation organisations and finance coalitions that was launched last month.

And the Network for Greening the Financial System released its own framework for nature-related financial risks in early September, aimed at central banks and financial supervisors.

These initiatives build on the Kunming-Montreal Global Biodiversity Framework (GBF), which was adopted at last year’s Cop 15 – the UN’s biodiversity conference – by 188 governments, and has been dubbed the biodiversity equivalent of the Paris Agreement.

The GBF makes significant demands on financiers, including the mobilisation of US$200bn annually through public and private funds for biodiversity-related projects, and an increase in financial flows from developed to developing countries to at least US$30bn per year by 2030.

Other targets include phasing out or reforming at least US$500bn per year in subsidies that are harmful to biodiversity, in addition to scaling up positive incentives for biodiversity conservation, and reducing to “near zero the loss of areas of high biodiversity importance”.

Transnational companies and financial institutions should also monitor and disclose risks and impacts on biodiversity through their operations, portfolios and value chains.

Though the GBF is not legally binding, financial institutions will likely have to deal with mandatory nature-related disclosure as a result of its adoption.

The TNFD’s announcement comes after a study found the Earth is beyond six of nine planetary boundaries – such as climate change, land system changes like deforestation and the availability of freshwater – that are deemed the safe limits for the world’s stability and resilience.

The research, published in the Science Advances journal by a team of 29 academics, suggests that the Earth “is now well outside of the safe operating space for humanity”.