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Bridging finance and nature: Insights into the Taskforce on Nature-related Financial Disclosures
Reported by Ming Hong Choi, Chevening Scholar, Cambridge Trust Scholar, and Master of Finance (MFin) Candidate, Cambridge Judge Business School, University of Cambridge
In May 2024, the Cambridge Zero Policy Forum hosted a seminar with David Craig, Co-Chair of the Taskforce on Nature-related Financial Disclosures (TNFD) and Advisory Council Member of the Sustainable Markets Initiative launched by His Majesty King Charles III. Craig discussed how we can bring finance and nature together, and some of the levers that might enable this.
Why does nature matter to the financial markets?
The seminar began with an anecdote about a coral reef succumbing to rising sea temperatures, illustrating the broader issue of biodiversity loss and ecosystem degradation. Coral reefs, like many natural resources, provide invaluable ecosystem services such as water purification, coastal protection, and support for marine biodiversity. However, financial markets often fail to recognise and properly value these services, treating them as if they are of zero worth. This oversight is not just an error but a significant flaw in our economic model, as it ignores the finite nature of vital ecosystem services, which are being depleted at an unsustainable pace.
It is therefore vital to recognise that the long-term viability of financial systems is intricately linked to the health of our planetary ecosystems. In this regard, central banks from various countries have been assessing the impact of nature on financial systems. These countries include Brazil, France, the Netherlands, Switzerland, and Malaysia. Their findings have been strikingly consistent, revealing that approximately 40% to 60% of each of their economies is heavily reliant on nature. Additionally, these analyses have shown that the banking portfolios within these nations are significantly dependent on nature.
The Taskforce on Nature-related Financial Disclosures
TFND is a global market-led, science-based, and government-supported initiative established to provide a comprehensive risk management and disclosure framework for corporations and financial institutions. The voluntary framework enables these entities to identify, assess, manage, and report their material nature-related dependencies, impacts, risks, and opportunities (collectively known as “nature-related issues”). TNFD seeks to foster transparent, consistent, and comparable reporting on nature-related issues by organisations globally, thereby promoting the integration of nature into strategic and capital allocation decision-making processes. Ultimately, TNFD aims to catalyse a shift in global financial flows, moving away from nature-negative outcomes and toward nature-positive outcomes.
The disclosure recommendations of TNFD are aligned with the global baseline for corporate sustainability reporting and the international policy goals set by the Kunming-Montreal Global Biodiversity Framework. Specifically, they align with the same four pillars of the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB), namely Governance; Strategy; Risk and Impact Management; and Metrics and Targets. While the TCFD focuses on disclosure in relation to climate change, the TNFD focuses on the role of nature.
Nature and climate: Two sides of the same coin
“Nature” encompasses the diversity of living organisms, including people, and their interactions with each other and their environment. Nature can be understood through a construct of four realms – land, ocean, freshwater, and atmosphere. On the other hand, “climate,” in a narrow sense, is typically defined as the average weather. More rigorously, it refers to the statistical description of relevant variables’ mean and variability over periods ranging from months to thousands or even millions of years. A common misconception is that climate issues must be prioritised over nature-related issues. However, these two are inextricably linked; neither can be fully addressed in isolation. Effective solutions require a holistic approach that recognises the symbiotic relationship between climate and nature conservation.
From pilot to practice: The adoption of TNFD recommendations
The practicality of the TNFD framework has been thoroughly vetted through over 100 pilot projects spanning diverse geographies and industries. These pilot tests demonstrate the framework’s robustness and flexibility, providing organisations with a clear path to integrate nature-related considerations into their strategic and financial decision-making processes. Today, over 400 companies have committed to adopt and disclose TNFD, representing approximately US$18 trillion in assets under management and US$5 trillion in market capitalisation. Companies include, but are not limited to, Norges Bank Investment Management, Schroders, Fidelity International, Standard Chartered Bank, and City Development Limited. Looking ahead, the upcoming United Nations Biodiversity Conference of the Parties to the UN Convention on Biological Diversity (COP 16) is expected to be a pivotal moment for TNFD to announce the next set of adopters and further integrate TNFD recommendations into global financial practices.
Opportunities and challenges in a digital era: Data analytics, data sharing, and collaborative partnerships
A significant theme that emerged from the discussion was the crucial role of data. In today’s digital age, the availability of large-scale data from sources like Light Detection and Ranging (LiDAR), remote sensing, and satellite imagery, provides unprecedented opportunities to monitor and manage nature-based impacts. There is great potential to transform this slew of data into tangible outcomes by furthering current analytical capabilities. For instance, predictive analytics has been used to model the impacts of land use changes on biodiversity, which in turn informs conservation strategies. In bridging the gap between the availability of data and its practical application, we can more effectively address complex nature-related issues.
The discussion also highlighted the significant hurdle of political and corporate reluctance to share valuable or sensitive data. This challenge is further exacerbated by the privatisation and monopolisation of critical data on global ecosystems by big tech companies. A possible solution is to create a common taxonomy and a global public facility for governments and companies to share nature-related data more effectively. A scoping study for this initiative was conducted by TFND and 12 organisations. This Global Nature-related Public Data Facility would aim to establish protocols for making data more accessible and decision-ready, consider translating scientific data for business applications, address data gaps (notably regarding oceans), and standardise data formats for better interoperability.
Finally, a recurring motif throughout the seminar was the crucial role of collaboration and partnerships across diverse stakeholder groups in addressing nature-related issues. Given the complexity of these issues, a multidisciplinary and multisectoral approach that fosters dialogue across scientific, financial, and policy realms is essential. The TNFD highlights the importance of involving a wide array of stakeholders, including NGOs, community groups, and the private sector, to develop more holistic and effective solutions. Particularly notable of the TNFD is its emphasis on respecting and incorporating the rights of indigenous people and local communities (IPLCs) into nature conservation efforts. Crucially, public engagement and education were highlighted as key factors in ensuring that the TNFD, and the broader sustainability goals it seeks to address, gain political momentum and legitimacy – augmenting its relevance and applicability across diverse geographic and cultural contexts.
Concluding thoughts
This Cambridge Zero Policy Forum seminar emphasised the imperative of having a systemic shift in how we view and interact with nature and finance. The TNFD provides a promising and innovative framework for embedding nature-related considerations into financial practices, enhancing resilience, and unlocking value for organisations. By steering global financial flows away from activities that are detrimental to nature and towards those that enhance it, the TNFD is instrumental in paving the way for a sustainable future that values, prioritises, and safeguards our natural world.
Cambridge Zero Policy Forum
The Cambridge Zero Policy Forum is a multidisciplinary community of senior academics contributing evidence and expertise to public policies for the transition to a sustainable, inclusive, and resilient net zero society. The Cambridge Zero Policy Forum is led by Director Prof Emily Shuckburgh, Dr Rob Doubleday, Executive Director of the Centre for Science and Policy (CSaP), and Emily Farnworth, Director of the Centre for Climate Engagement at Hughes Hall. The secretariat to the Policy Forum is provided by CSaP.
Image by Daria Nepriakhina on Unsplash