Standards Interoperability can Streamline Nature Data Flood
ISSB expects SASB enhancements to reflect location-specific nature risks, acknowledges role for standard setters in data consistency.
Standard setters’ efforts to align nature-related disclosure requirements will help investors to select from a growing plethora of metrics and data, according to panellists at ESG Investor’s Nature Data for Institutional Investors event.
Until interoperability is achieved, investors and their portfolio companies will continue to struggle to strike the right balance between data quantity and quality, they added, speaking on a panel focused on use of data to manage nature risks and impacts.
Following on from its climate and sustainability reporting standards, a pledge by the International Sustainability Standards Board (ISSB) to develop nature-focused reporting requirements will take time to bear fruit, said Nicolaj Sebrell, the ISSB’s Director of Investor Relationships, EMEA.
In the nearer term, the ISSB’s work on nature-related disclosures will be reflected through updates to the standards of the Sustainability Accounting Standards Board (SASB).
“Standard-setting takes time when done well, so we want to manage expectations – we are in the early stages of work [on nature],” Sebrell said.
“However, with nature – more so than climate – data is location and industry specific, so I would not be surprised if we first see a manifestation of significant [nature-related] enhancements to the industry-focused SASB standards that aim to address these issues.”
The ISSB took over governance of the SASB standards after the consolidation of the Value Reporting Foundation into the IFRS Foundation in 2022, making the ISSB responsible for maintaining and enhancing the standards. It is in the process of reworking SASB guidance to improve international applicability. Finalised changes are expected H1 2025.
SASB rules play a role in the ISSB’s S1 standard by enabling companies to identify sustainability-related risks and opportunities and provide appropriate disclosures beyond climate, which is more specifically addressed by S2.
Work in progress
Sebrell said the ISSB aims to leverage existing nature-focused frameworks and standards to avoid duplication.
“Although there is a lot of data out there, once you start digging into it, you find out it’s not necessarily consistent, and there are challenges cleaning it,” he said, acknowledging that standard setters have a role to play by ensuring their definitions and ‘tagging’ of nature-related information and data is consistent.
“That means working closely with our fellow SASB standard setters, as well as the Global Reporting Initiative (GRI), Taskforce on Nature-related Financial Disclosures (TNFD), and CDP,” Sebrell said.
The TNFD issued its recommendations on nature-related disclosures for corporates and financial institutions in September 2023, in response to the Target 15 of the Global Biodiversity Framework, which calls for private sector disclosures. Similarly to the Task Force on Climate-related Financial Disclosures, the TNFD is expected to be eventually subsumed by the ISSB.
The development of nature-focused reporting standards forms part of the ISSB’s current two-year work plan, following market input on its evolved strategy.
The ISSB is currently digesting feedback following roundtables with investors and other stakeholders, Sebrell revealed.
Investors remain “overly dependent” on voluntary disclosure, said Sudip Hazra, Director of the First Sentier MUFG Sustainable Investment Institute.
“Any movement by [governments on] TNFD and ISSB to make some of this nature-focused reporting more obligatory would help,” he said.
The EU has mandated companies to include nature-related risks within their disclosures on environmental and social impacts via the Corporate Sustainability Reporting Directive.
Spoiled for choice
Panellists acknowledged that challenges would remain for companies and investors attempting to sift through nature-related data to understand and manage risks, as standard setters develop nature-focused disclosure frameworks.
“Entities are finding that there’s a degree of complexity in terms of what they should prioritise and embed when it comes to measuring nature-related risks,” said James d’Ath, the TNFD’s Technical Lead for Data and Analytics.
In October, Nature Action 100 published its first benchmark, noting that most of its focus companies are not yet quantifying their nature-related impacts and dependencies, or identifying the locations where these are occurring.
The World Benchmarking Alliance’s 2022 and 2023 nature benchmarks assessed nearly 800 firms, with less than 1% having disclosed their dependencies on nature. Less than 5% disclosed their impacts on nature.
“Those of us who have worked at the coalface to knit together all the raw, messy and unstructured information out there would say the data is available,” said James Phare, CEO of sustainable fintech software and data consultancy Neural Alpha.
“A lot of it is useful – but getting it into a decision-ready state is another issue entirely.”
A core issue for investors is the sheer volume of models and metrics to choose from, he said.
“There are many different data models with very subtle differences – multi-region input, environmentally extended input, lifecycle assessments – that have a powerful role to play, but their nuances can often be lost,” Phare said, noting the risks of data aggregation and consolidation.
A company or portfolio’s overall impact on nature cannot be boiled down into a single metric, said d’Ath. Instead, both companies and investors need to “understand precisely” where and why they would use a certain metric within their assessment processes, he noted.
Both Mean Species Abundance (MSA) and Potentially Disappeared Fraction (PDF) have been used widely to indicate manmade pressures on ecosystems.
In its guidance, the TNFD has recommended that entities use multiple metrics to complement each other and address their limitations.
“Headline metrics like MSA are only as good as the understanding of the methodologies and data gaps within them,” said Phare.
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