17 October 2023
Sophie Hazza, Nature Based Solutions Lead Consultant, Alba Mullen, Senior Policy Analyst
Evolving Regulations on Nature and Biodiversity
Private market players and public regulators are increasingly paying more attention to nature and biodiversity-related risks. This surge in interest is propelled by the rapid escalation of ecosystem degradation and biodiversity loss experienced globally each year. The repercussions of these trends are exacerbating the impacts of climate change, emphasizing the necessity to address these challenges collectively, rather than in isolation.
This shift in perspective amongst regulators has been particularly evident in the macro-prudential policy space as central banks and supervisors begin to take notice of the threat that nature-related risks will pose to financial stability. Policy makers are following suit, with an increased interest in nature-related scenario analysis and increased focus on biodiversity, clearly evident in the recent European Union debate on the monumental Nature Law. In a similar vein, regulators have been driving the trend on climate-related financial disclosures, to ensure that businesses and institutions alike are considering the impact that their operations are having on the environment in which they operate. Biodiversity protection has been an important aspect of these disclosures, with the EU’s Corporate Sustainability Reporting Directive including a separate standard for biodiversity and ecosystems. France has also recently introduced mandatory sustainability reporting on biodiversity. Under Article 29 of the Energy and Climate Law, investors, banks, and insurers are required to comply with the objectives set out in the COP 15 Kunming Montreal Global Biodiversity Framework and refers to the use of a biodiversity footprint indicator in their strategy for reducing negative impacts on biodiversity.
The private market has responded by compiling a set of guidelines to help financial institutions and corporations to disclose their material nature-related impacts, dependencies, risks and opportunities through explaining how their business is managing and mitigating these risks. The introduction of the Task Force on Nature-related Financial Disclosures (TNFD) is an important signal from the markets that this trend is here to stay. With over 800 organizations having contributed to its provision, this new framework is a clear sign that markets are beginning to understand their relationship with the world around them, and they are ready to act by ensuring that nature and biodiversity are considered in investments and strategies. These developments are supported by recent findings from a late 2022 article published by CDP, which reveals that 31% of companies have already made a public commitment and/or supported biodiversity-related initiatives, with AXA serving as notable example. Moreover, an additional 25% are actively planning to follow suit within the next two years. The TNFD has emerged as a crucial and comprehensive framework to guide financial institutions and corporations in comprehending, measuring, and transparently reporting on their nature-related risks and opportunities. The imminent launch of TNFD represents a pivotal milestone in fostering a more sustainable and ecologically responsible approach to business practices. As corporations and financial institutions embrace this guidance, they not only align themselves with global sustainability goals but also position themselves for long-term success in the transition to a nature positive and decarbonised economy.
A LEAP in the right direction
The TNFD is modelled on its better-known predecessor, the Task Force on Climate-related Financial Disclosures and largely adopts a similar structure. Disclosures are to be assessed across the four key pillars of Governance, Strategy, Risk Management and Opportunities, and Metrics and Targets. However, the Task Force understands that isolating the effects that an organizations’ operations have on nature – and greater still, the impact that nature has on the organization – is a pioneering concept. As such, the TNFD includes voluntary guidance on how to approach the nature-related risk management: the LEAP process of “Locate”, “Evaluate”, “Assess” and “Prepare” (table 1).
Table 1. LEAP Approach
|
Locate |
Evaluate |
Assess |
Prepare |
|
Business Footprint |
Identification of Relevant Environmental Assets and Ecosystem Services |
Risk and Opportunities |
Strategy and Resource Allocation |
|
Nature Interface |
Identification of Dependencies and Impacts |
Existing Risks Mitigation and Management |
Performance Measurement |
|
Priority Location and Identification |
Dependency Analysis |
Additional Risk Mitigation Management |
Reporting |
|
Sector Identification |
Impact Analysis |
Opportunity Materiality Assessment |
Presentation |
The LEAP approach allows organizations to assess and classify their relationship with nature-related risks and opportunities in a clear and structured way. This four-tiered system allows institutions to begin to think how nature is integrated into their operations and strategies. A further break down of each tier guides institutions in considering the interactions of assets and operations with nature, to develop a sense of materiality, and develop a strategic response. LEAP identification has also been tailored to a wide audience in order to ensure that small and medium enterprises, as well as larger firms, are able to understand their interaction with biodiversity across their supply chain.
The TNFD also introduces “General Requirements” that are not featured in TCFD reporting. This new section intends to support organizations in understanding how to begin to integrate information into their financial reports. It aims to align expectations on what reports should include and ensure consistency across institutions. This will be essential to ensure comparability of data across organisations and markets.
The TNFD framework provides a robust structure for financial institutions and corporations to disclose their nature-related dependencies, impacts, risks, and opportunities. It aims to assist organizations in making informed decisions and enhancing their resilience by addressing nature-related issues. Our team of experienced sustainability consultants are well-versed in the TNFD guidelines, enabling us to provide comprehensive support tailored to the unique needs of our clients, utilizing our sector specific focus on Real Estate and Infrastructure investment fund management.
Benefits of Reporting to the TNFD Framework:
By embracing the TNFD framework and partnering with Longevity Partners, our clients can unlock numerous benefits. These include:
- Enhanced Risk Management: Understanding and reporting on nature-related risks empowers real estate and infrastructure owners to proactively manage potential impacts, ensuring resilience in the face of environmental changes.
- Quantification of Reliance on Ecosystem Services: Moving beyond qualitative risk assessments by quantifying and placing a monetary value on the impacts caused by acute reliance on ecosystem services, inherent in the taxing material requirements and large land footprints of infrastructure and real estate assets.
- Improved Decision-Making: Access to comprehensive nature-related information allows for better-informed decision-making, facilitating the integration of sustainability considerations into strategic planning processes.
- Investor Confidence: Reporting to the TNFD framework demonstrates your organization’s ability to transparently address nature-related issues, increasing investor confidence, and attracting responsible capital.
- Alignment with Global Frameworks: Incorporating biodiversity into decision making processes and conducting asset level reports on biodiversity management aligns with other global sustainability assessments such as GRESB, BREEAM-in-use / New Construction, Fitwel. TNFD is also consistent with TCFD, the ISSB, Article 29 (France), The Global Biodiversity Framework, and GRI standards.
- Stakeholder Engagement: TNFD reporting enables effective engagement with stakeholders, including investors, regulators, and local communities, by fostering transparency and showcasing your dedication to environmental stewardship.
How can Longevity Partners help with reporting in line with Task Force on Nature-related Financial Disclosures (TNFD)?
TNFD Workshop on Alignment
Longevity Partners offers tailored TNFD workshops to clients by providing a thorough understanding of the TNFD framework and can customize guidance to sector specific needs. We help identify possibilities to mitigate and adapt to nature-related risks while uncovering opportunities for value creation. Our expertise extends to integrating disclosures into financial reporting, engaging stakeholders effectively, and measuring the impact of sustainability efforts. We keep you compliant with regulations and industry best practices, ensuring long-term competitive advantage.
Gap Analysis and Improvement Opportunities:
Identifying what is currently in place and what is required for a successful TNFD report is an essential step to disclosure. Thus, we begin our support by conducting a thorough gap analysis of your current natured related disclosures and actions. Our consultants evaluate your existing environmental management systems, data collection processes, and disclosure methodologies to identify areas where improvements can be made to align with the TNFD framework. This analysis serves as a foundation for understanding the gaps and opportunities for enhancing your nature-related disclosures. The gap analysis will also provide best practice examples from peers, helping to better understand the metrics and frameworks in the market specific to the built environment. The result of the gap analysis will include a prioritization list to assist in gradually integrating nature related disclosures in your organization. Longevity Partners can also assist in the creation of a draft TNFD report.
TNFD Framework: a crucial tool for nature-related risks
As fund managers navigate the evolving sustainability landscape, the TNFD framework emerges as a crucial tool for addressing nature-related risks and dependencies. Longevity Partners is proud to offer this comprehensive support, including workshops, gap analyses and improvement strategies, as well as assistance with writing stand-alone TNFD reports. Longevity is here to support real estate and infrastructure investment funds to enhance their sustainability performance, unlock strategic advantages, and contribute to a more sustainable future for both their organizations and the planet. Please feel free to contact a member of our team for further information.
By Sophie Hazza, Nature Based Solutions Lead Consultant (sh@longevity.co.uk) and Alba Mullen, Senior Policy Analyst (amullen@longevity.co.uk)