“Climate and nature are two sides of the same coin. The planet is an integrated system. We have to think about them as one joined up planetary system.”
That’s a statement from the Taskforce on Nature-related Financial Disclosures (TNFD) global framework at Climate Week in New York last month.
In Sydney this week the Australasian TNFD framework launch was attended by around 200 representatives from a wide range of sectors – business, conservation, investment and government – reflecting widespread support for that concept that climate is a part of a much broader nature agenda.
Estelle Parker, the newly appointed co-chief executive of the Responsible Investment Association of Australia (RIAA), convenors of the Australian and New Zealand taskforce, said interest in understanding nature related risks, opportunities, dependencies and impacts in Australia and New Zealand started in the investor community two years ago.
“RIAA represents 75 per cent of managed funds in Australia, and we’ve seen investors more and more demanding consistent information to inform decision making,” Parker said.
She said the mining and agriculture sectors were the next to show interest, followed by construction, infrastructure, manufacturing, and retail, as well as governments.
“[TNFD] will situate Australia and New Zealand at the forefront in the global economic race to attract capital increasingly cognisant of the impacts that sustainability issues have on returns. We’ve also seen the release of legal opinions in both Australia and New Zealand highlighting that the consideration of nature risk is part of company director’s fiduciary duty.
“Let’s not kid ourselves. Measuring nature is hard, and disclosing impacts will reveal some uncomfortable truths about the effects of company’s operations on our unique and very fragile biodiversity. But understanding risks, dependencies and opportunities and impacts will strengthen company’s ability to address the risks and to harness the opportunities.”
Australian Minister for the Environment and Water, Tanya Plibersek sent a video to the launch and said the framework marks a significant milestone towards building a nature positive financial system.
“Nature loss poses a real risk to business with roughly half of global GDP directly depending on it. We need to incorporate these considerations in our decision making. And we need to have consistent information to do that effectively. That’s why our Australian government has supported RIAA as a strategic funding partner and a member of its Stewardship Council. We will continue to work with business to support nature based reporting.” she said.
Executive director of TNFD, Tony Goldner, believes Australian organisations have extra incentive to start working with the framework, noting that while globally six of the nine planetary boundaries have been exceeded, in Australia we’ve exceeded eight of the nine.
“So if there’s ever a place in which there’s a case for urgent action or getting on with this work, it’s got to be Australia.”
He said that Australia was both an OECD country – “meaning we’re rich, we’re developed, we’ve got amazing data platforms, we’ve got incredible science capabilities, we’ve got a very sophisticated finance sector.”
And that Australia was also one of the world’s 17 megadiverse countries.
“If you do a Venn diagram, and you look at the countries that are both OECD and mega diverse, there’s only two: the United States and Australia and we know how hard it is to make progress on these issues right now in the US.”
This leaves a unique opportunity for Australia to lead. Both as an imperative and an opportunity.
This was especially so with finance and the “incredible scientific talent we have” to be at the forefront of scaling solutions to the global challenges.
Goldner said we could not focus solely on climate though that was tempting.
“The whole global economy is dependent on nature. So our expectations as investors, as superfund holders, pension and investment managers, investment owners – it all depends on the valuation of cash flows, and those cash flows sit on top of these flows that we haven’t been valuing into business.” But the science tells us that the fragility of nature and declining resilience of ecosystems was heading in the opposite direction to investor expectations and super funds.
This was fundamentally an untenable situation that was now capturing the attention of investors and regulators around the world.
“It’s very clear now that nature risk is financial risk.”
Three new disclosures: engagement (particularly with Indigenous peoples and local communities), sensitive locations and value chains
To minimise the extra work involved in nature-based disclosure, all of the 11 Taskforce on Climate-related Financial Disclosures (TCFD) are incorporated into TNFD. Plus there are three new disclosures: engagement (particularly with Indigenous peoples and local communities), sensitive locations and value chains.
While TNFD are not standards, Goldner said it was likely that some governments may mandate reporting requirements in the future.
Some might move quickly, like they did with TCFD. Others might wait for the ISSD standards to be developed on nature, which is likely to be at least two or three years away, Goldner suggested
“Either way, business and finance should be moving now on a voluntary basis to start managing the nature-based issues.
“We shouldn’t sit back and wait for the standards to be developed.”
A recent survey on when respondents felt they would be ready for disclosure revealed 70 per cent said by financial year 2025 and 90 per cent said by financial year 2026.
“So that really tells us that people are quite comfortable with this approach. We’ve heard that those who pilot tested TNFD have the confidence to move forward. It’s a lot less daunting once you take that first step and actually look at the data that you have and start doing some internal assessment work. Like anything, it’s really just deciding that you’re going to get started and have a look at this internally.”
It does not have to be all at once
Not all 14 discloses needed to be made in year one.
In year one of TCFD the average number of disclosures was 1.4 out of 11, he said.
“So it’s not about trying to go for a home run or a six at the Sydney Cricket Ground and do 14 disclosures in year one. It’s about getting started. Even now, after seven years of TCFD, the average is 5.6. There’s only 4 per cent of companies around the world at a disclose against all 11 TCFD disclosures and they tend to be the biggest companies to be global companies with more capacity and or expectation around disclosure. It’s very, very possible to get moving.”
Next steps
The next steps for the taskforce are to get feedback on their eight sector-specific guidance documents: oil & gas, metals & mining, forestry & paper, food & agriculture, electric utilities & power generators, chemicals, biotechnology & pharmaceuticals, and aquaculture.
It is also working on a global nature data facility to connect datasets and provide an open-access platform, and a range of capacity building initiatives.
Overall however, it is a shift in perspective that is most needed.
“Nature as a corporate risk and opportunity issue is very new domain,
Goldner said.
Companies that ask how their business is dependent on nature will create a position of competitive advantage and be more resilient in the face of the science that the frequency and severity of nature-related events is increasing.
“Those who are slow to move are likely to be caught out by shifting perceptions and information needs of their capital and insurance providers which could convert into costs to their business.
“Discloser is just one tool. The bigger priority is to shift the mindset around the relationship between nature and business.”