Data Remains Thorny Issue for Nature
Investors show they’re ready for action by supporting the Finance for Biodiversity Foundation and the TNFD.
Investors’ nature toolkit was recently augmented through further guidance from the Finance for Biodiversity (FfB) Foundation and the Taskforce on Nature-related Financial Disclosures (TNFD), but data issues persist and continue to stand in the way of meaningful progress.
The latest version of the FfB guidance builds on a beta version published in November 2023, enhancing the original framework and introducing new elements to help financial institutions align their investments with nature targets, and reiterating the urgent need to halt and reverse biodiversity loss by 2030.
It also responds to Target 14 (to integrate biodiversity in decision-making at every level) and Target 15 (to assess, disclose and reduce biodiversity-related risks and negative impacts) of the Global Biodiversity Framework, highlighting the need for financial institutions to align financial flows with the goals of the Kunming-Montreal agreement.
“The reason why we have started to work on this nature target-setting framework for asset managers and asset owners, is to create a shared understanding and a common language for investors on nature,” said Diane Rossiard, Head of Data and Corporate Engagement at the FfB, speaking at a webinar that launched the guidance. “Nature is a multifaceted topic, [and it] is quite complicated to know where to start when we want to set targets on it.”
The FfB guidance focuses on ten sectors – oil, gas and consumable fuels, chemicals, metals and mining, paper and forest products, automobiles, consumer staples distribution and retail, beverages, food products, pharmaceuticals, and electric utilities – collectively accounting for approximately 70% of the estimated total biodiversity impact attributed to companies listed on the MSCI World Index. It also captures three key drivers of nature loss: land use, water use, and pollution.
“With this focus we can make a meaningful difference in terms of integrating nature risk nature impact into investment decision-making,” said Lucian Peppelenbos, Climate Strategist at Robeco. “By focusing on these priority sectors, we can capture a large part of the impact that investee companies are having on nature change.”
However, the focuses picked by the FfB were also influenced by lack of sufficient data to identify key performance indicators to manage and monitor drivers of nature loss. This has been widely identified as a problem.
“The structure of the framework is about pragmatism and prioritisation,” said Charlotte Apps, Sustainable Investing (ESG) Analyst at Fidelity International. “The reason we’ve identified these key drivers is because we did a review of the data that’s available, and it was very clear that we’re working with an incomplete picture. Company-level data on nature is poor, which requires a pragmatic approach.”
Strong signals from investors
Launched in 2020, the FfB pledge calls on global leaders to protect and restore nature through their finance activities and investments by collaborating and sharing knowledge, engaging with companies, assessing impact, setting targets, and reporting publicly.
Initiated by a group of 26 financial institutions, the initiative counted a total 177 signatories as of May, representing 28 countries and more than €22.1 trillion (US$23.9 trillion) in assets.
“I think this is a strong signal that the financial sector is ready, and that there are institutions who want to take action,” said Roissard. “All the work we are undertaking is made by investors for investors.”
Roissard also stressed the importance of engaging with data providers to show that investors want information on nature to be available. The FfB intends to integrate additional asset classes, including sovereign debt, into its guidance in future iterations.
While FfB stated its guidance focuses on asset owners and managers and is not for banks, in parallel the Network for Greening the Financial System (NGFS) launched the final version of its framework for nature-related financial risks – aiming to guide policies and action by central banks and financial supervisors. The finalised framework follows a beta version released last September.
Steps forward for data
One initiative underway aiming to stimulate data is the TNFD’s blueprint for a Nature Data Public Facility, which is due to be submitted to consultation in October.
The facility builds on a scoping study published by the TNFD last summer. The taskforce has assembled a global group of experts to help develop the blueprint, due to be released at COP16 later this year. The TNFD also reviewed the FfB guidance.
The additional guidance from the taskforce is aimed for banks, re/insurance companies, asset managers and owners, and development finance institutions – to help them understand and disclose their material nature-related issues.
It complements the TNFD recommendations published in September 2023, with specific tips for eight of the 14 recommended disclosures. It also complements the taskforce’s LEAP approach, offering further guidance on engagement and developing new strategies.
“After identifying and assessing nature-related issues in their portfolios using LEAP, institutional investors and asset owners will have a clear view of how nature loss may challenge their organisation and the business of their investees and clients, as well as opportunities to improve outcomes,” said Emily McKenzie, Technical Director at the TNFD. “This understanding can help lay the foundation for meaningful engagement, including with asset managers and investees.”
In parallel, the TNFD has launched the first set of its additional sector guidance, which includes sector-specific metrics for disclosure in line with its recommendations. Covered sectors so far include: aquaculture, biotechnology and pharmaceuticals, chemicals, electric utilities and power generators, food and agriculture, forestry and paper, metals and mining, and oil and gas. Five further sets of additional sector guidance are currently under consultation.
McKenzie hopes that both the FfB’s financial institution-specific and TNFD’s sector-specific guidance will help to make strides in delivering more nature data.
“As financial institutions begin to make TNFD-aligned disclosures against these metrics and engage with their clients and investees to encourage them [to do the same], this will increase the quantity and quality of reported data,” she said.
Last week, the TNFD announced the next batch of adopters of its voluntary recommendations, taking the total to 416.
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