By Tim King
“If we take care of nature, nature will take care of us”.1
Companies are inherently reliant on nature for resources and ecosystems to produce their products and services. For example, nature loss can negatively affect producers of food staples through the decline of pollinators or the collapse of agricultural yields. Despite the interdependence between nature and climate, nature has received far less attention and is much less understood than the emissions reduction challenge.
Unfortunately, although healthy nature2 is clearly essential to economic prosperity, food and human health, the natural world is disappearing at an unprecedented rate. The 2022 WWF Living Plant Report3 provides unequivocal evidence of the decline in nature. The report shows an average 69% fall in monitored populations of mammals, birds, amphibians, reptiles and fish between 1970 and 20184.
Source: Living Planet 2022
The Inextricable Linkages between Nature Loss, Climate Change and Land and Ocean Degradation
The 6th Assessment Report on Impacts, Vulnerability and Adaptation by the Intergovernmental Panel on Climate Change (IPCC)5 clearly recognises the interdependence of climate, ecosystems, biodiversity and human societies:
Source: IPCC, Climate change 2022, Impacts, adaptation and Vulnerability
The IPCC report states that “safeguarding biodiversity and ecosystems is fundamental to climate resilient development, in light of the threats climate change poses to them and their roles in adaptation and mitigation”6. The loss of nature is therefore inextricably linked to the challenges of climate change as well as land and ocean degradation and these challenges cannot be solved separately – they need to be tackled together.
The complex interplay between climate change and nature offers an opportunity to maximise the synergies between them and design mutually supportive policies to drive action from the global to the local scale. For example, by conserving and restoring nature that sequesters high volumes of carbon, we can lower risk to species and ecosystems and help avoid the worst impacts of climate change.
Evidence shows that conserving at least 30% of the land and ocean globally would not only help to reverse harmful ecological impacts and help reduce species extinction risk, but will also increase resilience and adaptation to climate change7.
Australia's State of Environment Report
Australia has produced a national state of environment report every five years since 1995. These reports assess every aspect of Australia’s environment and heritage, covering rivers, oceans, air, ice, land and urban areas.
The most recent report8 was released by the Federal Government in July 2022. This report goes further than previous reports by describing how our environment is affecting the health and well-being of Australians and it is also the first to include Indigenous co-authors.
The report finds that Australia’s environment is generally deteriorating with the number of Australia’s threatened species rising 8% since 2016 and climate change increasing pressure on every ecosystem. Climate change is compounding ongoing and past damage from land clearing, invasive species, pollution and urban expansion; environmental decline and destruction is harming our well-being and environmental management isn’t well coordinated.
The Convention on Biodiversity
The Convention on Biological Diversity (CBD)9 was originally signed at the Rio Earth Summit in 1992 and entered into force in December 199310. It is designed to protect diversity of plant and animal species and ensure natural resources are used sustainably and has three main objectives:
- The conservation of biological diversity;
- The sustainable use of the components of biological diversity;
- The fair and equitable sharing of the benefits arising out of the utilisation of genetic resources.
Previous global targets to halt biodiversity loss, set in 2002 and 2010 (Aichi Biodiversity Targets), were largely missed. The reasons for failures are attributed to the commitments at the global level too seldom transposed into national law, insufficient financial resources and major gaps in knowledge on how to record and effectively combat biodiversity loss.
COP11 15 First Session
Whilst not as well-known as the parallel climate COP (the most recent being the COP 27 climate conference just held in Egypt), the United Nations Convention on Biological Diversity (CBD) is holding its fifteenth meeting of the Conference of the Parties (COP 15) in two phases.
At the first meeting of COP15, the Kunming Declaration was adopted by over 100 countries – including Australia12 – on October 13, 2021.
The Kunming Declaration outlines general targets for the restoration and protection of biodiversity including the “30 by 30” goal, a proposed commitment to conserve 30% of land and sea areas by 2030. The Declaration does not however hold members to any tangible or measurable biodiversity targets.
COP 15 Second Session
The second session of COP 15 (Fifteenth meeting of the Conference of the Parties to the Convention on Biological Diversity) will take place in Montreal, Canada on 7-19 December, 2022.
At the second meeting of COP 15 world leaders are expected to agree on a new post-2020 Global Biodiversity Framework. The framework is intended to provide “a strategic vision and a global roadmap for the conservation, protection, restoration and sustainable management of biodiversity and ecosystems for the next decade”13. The intention of this Framework is for the world to achieve the 2050 vision of living in harmony with nature, achieving transformative change across our societies and putting nature on a path to recovery by 2030.
The TNFD14 Framework - measuring the risks
The three pervasive features of nature – mobility, silence and invisibility – make it impossible for markets to internalise the use we make of nature’s goods and services.
Similar to climate change, nature risk is potentially a material financial risk for companies, which could also manifest itself in reputational, regulatory, litigation and policy risks. Indeed, the World Economic Forum16 ranks biodiversity loss as the third largest global risk over the next ten years.
However, nature risk is a more difficult problem to address than climate change: measurement tools are nascent, there is no single unit of comparison unlike GHG emissions and there is currently no single goal (unlike the goal of limiting global warming to 1.5 degrees Celsius).
Because of the nascent state of data tools and methodologies, nature is a risk which is largely not being appropriately identified, assessed, measured or managed by companies. This situation is set to change as the Taskforce for Nature Related Financial Disclosures (TNFD) is in the process of developing a risk management and disclosure framework for organisations to report and act on evolving nature-related risks. This aims to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
The TNFD framework will broadly seek to align with the two global targets – no net nature loss by 2030 and net gain by 2050 – using the LEAP approach:
- Locate the interface with nature;
- Evaluate dependencies and impacts;
- Assess risks and opportunities; and
- Prepare to respond to nature-related risks and opportunities, and report to investors.
TNFD is similar in structure to the Taskforce for Climate Related Financial Disclosures framework and will provide a platform for improved and increased reporting of nature-related financial information. It will similarly adopt a four-pillar approach, structured around governance, strategy, risk management (physical and transition), metrics and targets.
Source: The Economics of Biodiversity: The Dasgupta Review15
Source: The Economics of Biodiversity: The Dasgupta Review15
Similar to climate change, nature risk is potentially a material financial risk for companies, which could also manifest itself in reputational, regulatory, litigation and policy risks. Indeed, the World Economic Forum16 ranks biodiversity loss as the third largest global risk over the next ten years.
However, nature risk is a more difficult problem to address than climate change: measurement tools are nascent, there is no single unit of comparison unlike GHG emissions and there is currently no single goal (unlike the goal of limiting global warming to 1.5 degrees Celsius).
Because of the nascent state of data tools and methodologies, nature is a risk which is largely not being appropriately identified, assessed, measured or managed by companies. This situation is set to change as the Taskforce for Nature Related Financial Disclosures (TNFD) is in the process of developing a risk management and disclosure framework for organisations to report and act on evolving nature-related risks. This aims to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
The TNFD framework will broadly seek to align with the two global targets – no net nature loss by 2030 and net gain by 2050 – using the LEAP approach:
- Locate the interface with nature;
- Evaluate dependencies and impacts;
- Assess risks and opportunities; and
- Prepare to respond to nature-related risks and opportunities, and report to investors.
TNFD is similar in structure to the Taskforce for Climate Related Financial Disclosures framework and will provide a platform for improved and increased reporting of nature-related financial information. It will similarly adopt a four-pillar approach, structured around governance, strategy, risk management (physical and transition), metrics and targets.
Melior's response
We expect that companies will start to report under the TNFD framework voluntarily, but we think that mandatory reporting is a likelihood as the International Sustainability Standards Board (ISSB) moves to establish a comprehensive global baseline of sustainability disclosures.
Melior is actively involved in the pilot phase of the TNFD beta framework through co-chairing RIAA’s Nature Risk and Exposures Working Group. Pilot testing the TNFD Beta framework is a valuable opportunity for companies to explore the implications of the TNFD’s proposed approach and prepare for the future market adoption of the TNFD framework in 2023.
Melior considers nature risk in its company ESG assessment tool, but this is very difficult given limited disclosure. As part of Melior’s active corporate stewardship program we advocate for companies to become members of the TNFD forum and we track progress on TNFD reporting in our impact pathway KPIs. As of 30th September 2022, 19% of our portfolio companies are TNFD forum members, compared to 4% of the ASX300.
Sources
1 Sir David Attenborough
2 Nature is all life on Earth (i.e. biodiversity), together with the geology, water, climate and all other inanimate components that comprise our planet.
3 https://livingplanet.panda.org/
4 The Global Living Planet Index (LPI) tracks changes in the relative abundance of wild species populations over time.
5 https://www.ipcc.ch/report/ar6/wg2/
6 https://www.ipcc.ch/report/ar6/wg2/
7 https://environment.ec.europa.eu/news/bridging-cop26-and-cop15-2021-10-29_en
10 Only four member states of the United Nations are not Parties to the CBD, namely: Andorra, South Sudan, United States of America and the Holy See (the Vatican).
11 Conference of the Parties
13 https://www.cbd.int/conferences/2021-2022
14 Task Force on Climate-related Financial Disclosures
16 https://www3.weforum.org/docs/WEF_The_Global_Risks_Report_2022.pdf
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