March 27, 2024 • 37 mins
About 50% of global GDP is at least moderately dependent on nature, according to the World Bank. Increasing recognition of this dependency has fueled new biodiversity-related disclosure frameworks, regulations, and investor action. In this episode of ESG Currents, Bloomberg Intelligence’s Eric Kane and Melanie Rua are joined by David Craig, co-chair of the Task Force on Nature-related Financial Disclosures (TNFD) to discuss how climate and biodiversity are interrelated, how the TNFD framework fits in with other disclosure guidelines, hopes for COP 16 in Colombia, why nature risk is financial risk, and much more.
This episode was recorded on Mar. 18.
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Episode Transcript
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Speaker 1 (00:09):
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords
(00:29):
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, brought to you by
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I'm Eric Kine, director of
ESG Research.
Speaker 2 (00:46):
And i am Melanie rua senior ESG associate, and we
are your hosts for today's episode.
Speaker 1 (00:52):
Twenty twenty three was a historic year for nature markets,
as mandatory and voluntary biodiversity related frameworks made significant advances,
including progress on the Nature Restoration Law, the establishment of
the EU's new Deforestation Law, and the final recommendations from
the Task Force on Nature Related Financial Disclosures also known
(01:13):
as TNFD. Today we're talking about biodiversity and the value
of nature with David Craig, co chair of TNFD, who
is also leading the measurement stream for the International Panel
of Biodiversity Credits and is an advisory board member of
the SMI, or Sustainable Markets Initiative, founded and co chaired
by King Charles the Third. David was also the founder
(01:36):
and CEO of Refinitive. David, thanks so much for joining
us today.
Speaker 3 (01:41):
Thanks very much, Eric, It's a real pleasure to be here.
Speaker 2 (01:44):
So, David, we've seen major global developments since the adoption
of the Kunming Montreal Global Biodiversity Framework in December of
twenty twenty two, including the release of the Task Force
for Nature Related Financial Disclosures reporting framework. For the listeners
who may not know, can you touch on what TNFD is,
it's mandate, and perhaps touch on the final recommendations that
(02:05):
we're released this September.
Speaker 3 (02:07):
Sure? Well, what is TNFD The Task Force for Nature
Related Financial Disclosures. It's a voluntary group. We have just
over fourteen hundred members, asset managers, ASCID, owners, banks, corporations
around the world, conservatory groups and others. And the goal
is to create a global framework and approach so that
(02:28):
companies and investors can assess manage nature related financial risks
and opportunities. Ultimately, not so they can just assess and disclosures,
but also to redirect investment to nature positive outcomes. So
what are the takeaways of the recommendations so far? And
what's been fantastic about the work is that we've not
(02:51):
just created these recommendations with the market that the market
will be using, but also we've tested them, We've pilot
tested them, and we actually have companies and financial investors
actually going through the process of assessing their risks using
the framework. So the question is what are they learning
about nature related financial risk and this assessment. There's a
(03:12):
few things that are really coming out that I think
are very important. Firstly, that companies and investors are more
and more recognizing that nature risk is financial risk. These
are not things that are out in the far distant future.
It's happening now. We're seeing temperature changes impact harvests. We're
seeing overuse of fertilizer impact the ability for soil to produce.
(03:35):
We're seeing water usage around the world being a real issue.
And these are issues that are affecting across industries. It's
not just textiles and farming and resources, it's industrial companies
as well. So the first big takeaway is nature risk
is here, and it's financial risk, and they're recognizing that
we need to address it. They're also recognizing that climate
(03:55):
and nature risk are not just two sides of the
same coin, but really closely into integrated issues. In fact,
climate risk both drives the impact on nature and is
also accelerated by degrading nature as well. So these are
closely interrelated issues, and many of the firms that are
addressing TNFD are actually finding that they need to address
(04:17):
climate and nature risk together. They're also finding that a
comprehensive approach is really important. When we think about the
natural system, and when we apply the recommendations of TNFD,
we think about a holistic four realms of nature atmosphere, water, land,
and oceans. So a comprehensive approach as you start is
(04:39):
really important. We don't want to just focus on water
use or just focus on forest deforestation, but actually look
at our investment portfolios and look at our business change
and understand everywhere where they could be dependent on or
impacting nature. And that's a really important learning here. And
one of the ways that people are doing that is
they're using the approach that been developed by TNFD called leap, Locate, evaluate, assess, prepare.
(05:05):
It's a methodology that's been developed by the industry experts
that are on our task force, the corporates and the investors.
That allows you to step through your business chain and
where you're located and where you operate or your investment
portfolio and understand where are the key locations, where are
the key activities that have the most material and substantive
(05:26):
either dependencies on nature or impacts on nature, and how
those translate into risks and opportunities. So having a methodology
and an approach to do this because nature is complicated,
is really important and that's been a key learning from
the work. And what's important that we've established is it's
not just about disclosures. It's about that risk assessment of
(05:48):
process and not just leaping to disclosures as well. So
our recommendation is, don't just jump to disclosure. Actually go
through the leap approach, understand your portfolio, understand your business
and where the face to nature is, and then your
disclosures become much more relevant, much more meaningful, and you
have frankly a narrative around your relationship with nature. And
(06:10):
I think the last learning that we've got was the
benefits of building TENFD off its close cousin TCFD. So
right from the start, we took the same four pillars
of TCFD, we took a lot of the same language,
we transposed across all of the disclosure recommendations for TCFD,
put them into the TNFD, and then added the nature
(06:31):
context specifics for that. And why is that important. There's
a couple of reasons. One is it helps you naturally
integrate climate and nature when you use TCFD and TNFD together.
It also creates efficiencies with your teams and your approach
on things like governance and strategy because you can start
thinking about climate and nature together. In fact, every single
(06:51):
one of our companies and investors who's now going through
the TNFD approach is more or less combining their TCFD, TNFD,
climate and nature assessment with the same approach and the
same teams.
Speaker 1 (07:05):
Super interesting. There's a lot to follow up on there.
I think the idea, of course that nature risk is
financial risk is certainly one of the things to follow
up on. But perhaps before we get there, you mentioned,
you know, the leap approach and the idea of doing
an assessment to understand, you know, where there might be
material risk, and then of course you mentioned the idea
(07:26):
that TNFD was largely built off its cousin, as you
called it, TCFD, and that companies are starting to think
about these things together. I think, you know, one of
the things that we often hear in the ESG space,
of course, is that there are so many frameworks out there,
so many different reporting standards. You mentioned how this kind
(07:46):
of relates to TCFD. I'm curious to hear ultimately how
TNFD is planning or already relates to the other frameworks
that are out there ISSB. And also, you know where
the framework ultimately falls out on the concept of materiality
is that of financially based materiality is what is often
(08:08):
called double materiality. So a couple different questions.
Speaker 3 (08:11):
Yeah, I think these really important questions. Right from the start,
we said that we don't want to just contribute to
the alphabet soup of standards and regulations. And it's also
important to remember that we're not a regatary body, We're
not a standard setter. We're a voluntary market group that
is trying to create an approach that is designed by
the market and tested by the market that then feeds
(08:34):
into the standards bodies. So ultimately, like TCFD, the TNFD
will be incorporated into the regatory standards, and ideally that
they're incorporated when they be market tested and developed and
proven that they're practical, they work, they're implementable. The really
good news is we've already seen that happen with the CSRD.
(08:55):
They've incorporated much of the t and f D approach,
so they've even called out the leap methodology is a
great way of getting to that CSRD, and we've also
done the same with the GRI, the Global Resource Group
as well, so integrating TNFD into that, our goal would
be to have the ISSB incorporate TNFD. We don't yet
(09:16):
know what their next priority will be after issuing S
one and S two, we look forward. I think it's
literally a couple of months away when they start to
announce that they've welcomed the TNFD recommendation. So we would
hope too that there's a very good glidepath for us
into the ISSB, which will be that global baseline of
standards as well. And you know, the ISSB is only
(09:37):
a couple of years in existence and has collapsed a
lot of the existing ESG and standards groups as well,
so it's fantastic that we've got that global body and
that global baseline along with the CSRD and the Europeans
as well. Other points to mention as there's platforms like
the CDP, the Common Disclosure Project which have an enormous
reach that support a lot of the climate disclosures. We're
(09:59):
working with to ensure they include now TNFD disclosures as well.
So our goal is to try and not reinvent new areas.
We're not a standard's body. We want to be incorporated
into the existing standards bodies and the existent platforms and
tools as they emerge. You asked the question about materiality.
What's important for us is we don't define whether a
(10:21):
company or a jurisdiction should look at just the dependencies
on nature or the impacts on nature as well. Some
people call it single or double materiality, but what it
really boils down to is am I just looking at
dependencies and the risks that they may have on my
business or investment portfolio? Am I also looking at the
impacts as well? Now interestingly, of course, impacts on nature
(10:45):
and a natural system can become dependencies. So if you
are over using fertilizer, you could say, well that's just
an impact on the environment, but actually if the soil
gets degraded because of that, it becomes a dependencies as well.
So I think it's important not to be too black
and white out where the line is on double or
single materiality, because they can merge quite quickly. What we
(11:05):
do is we our framework allows both. It's not our
job to tell regatory bodies or standard setters, or in
fact companies which approach they should follow, but the framework
absolutely supports both, so they can look at both dependencies
and impacts and how those translate to risks and opportunities.
Speaker 1 (11:23):
Very interesting. I'm glad you mentioned what you did about,
you know, the difference between single and double materiality, because
we've actually done a fair amount of research on the topic,
and I think it's kind of our opinion that they're
really not as different as a lot of people in
the marketplace would lead you to believe.
Speaker 2 (11:39):
It's really great to hear about how TNFD is tackling
reporting fatigue and its efforts to harmonize with existing frameworks
and kind of like using the former TCFD, you know,
for environmental or climate related performance. It can be quite
easy to identify a north Star company, so we might
look at and its zero alignment, aggressive greenhouse gas emission
(12:01):
reductions of reduction goals, but with property and of d
aligned disclosure. I'm curious to hear what would be the
characteristics of a north star company for biodiversity and how
would investors be able to measure such performance.
Speaker 3 (12:15):
Yeah, it's a great question. So what does perfect look like?
The north star of where people are trying to get to.
I think a lot of the investors and companies that
are striving for that north star, they're starting now. One
of the recommendations we make is don't wait. This is
a journey. It is complicated, and there's learning involve the
perceived complexity sometimes not as higher than the real complexity.
(12:39):
But getting going now and actually helping work with us
to shape industry guidance is really important when they get
to that north star? What does it mean? And I
think companies that have a really good understanding not just
of their own operations, but their value chain upstream and downstream,
where those located are, What are some of the sensitivities
(13:02):
in their locations, and what we call ecosystem services like
provision of water or pollination services or resource extraction, what
ecosystem services are they most dependent on and where are
the most material and high impacts. If they have a
good understanding of that, and they've built that into their
knowledge of the business, their forward thinking strategy, that is
(13:25):
a very good sign that the north star is happening.
And it may sound obvious, but actually a lot of
companies don't actually know where they're really located or where
their supplies are, so there's a place you've got to start.
The second part is that, as I've mentioned earlier, we're
not thinking about climate and nature is separate. We have
an integrated approach. We're thinking about a combined assessment and
(13:47):
disclosures around the natural system, which includes those four realms
that I mentioned and includes climate as well, because otherwise
we're being far too siloed approach, and many companies who've
worked with us have found that actually doing it that
way a is more efficient but actually creates a much
better answer. How do I think about my industries and
my investments looking at not just a climate lens, but
(14:09):
also a natural system lens as well, making sure I
understand the trade offs between the two, and I've optimized
the two for where I'm touching the natural footprint. They
also have aligned their business models and have gone through
some transition of moving away from areas where they've got
massive dependencies that they can't manage or they've got large
(14:30):
impacts and transitioning to say, for example, lower use of
water systems, different packaging, lower resource extraction or recycling, what
people call the circular economy, and that they've aligned those
areas to the GBF agreement. So the agreement that we
(14:50):
have in place, the equivalent of the Paris Agreement of
one point five is the coming Montreal Global Biodiversity Framework Agreement,
for example, the agreement that we will achieve thirty by thirty,
that thirty percent of natural land is put aside for preservation,
and the other targets in there that they've aligned themselves
to that. And so the north Star really is starting
(15:12):
now getting the learning underway, having a great understanding of
where I'm based, where my supply chain is based, and
the sensitivities around that, adopting a combined climate and nature model,
and demonstrating how you're transitioning towards a GBF agreement. That
to me is what great would look like for this
adoption of nature related risks.
Speaker 2 (15:34):
Thanks and when we talk about the north Star company,
it is forwardlooking something that they can strive for. So
it does kind of reflect that companies need a place
to star in its nature disclosure journey. So there's a
current challenge of nature related data scarcity. So do you
believe that nature related data scarcity tends to overshadow the
(15:56):
equally important challenge of having internal capacity and resources need
it to ingest, analyze and understand nature of related data.
Speaker 3 (16:06):
Yes, it's a really important question this and something that
we find a lot people say, well, there's not enough
data on nature, and it's a curious statement because there's
petabytes of data on nature. We have lower but satellites,
we have new light our technology, we have sampling methods
like EDNA, We have decades of environmental information that is available.
(16:31):
Is it perfect No? Does it have perfect time series
and sequencing nos? Has it got gaps? Absolutely? But there's
a lot of data available and it's also not hard
to point new data collection methods into those areas where
there are gaps. I think you said it in your question,
which is the challenge is not the availability of data,
it's the horsepower and capability to interpret it and put
(16:54):
it into the context of the business or the portfolio
that we have, and that at the moment does take effort.
It's human capital, it's people who understand both business and ecology, biodiversity.
There are more skills being developed, there is more talent
coming through, but it is human effort to do that.
So I think a lot of people maybe expect the
(17:16):
data just to tell them the answer. We're not there
yet and a long way from that. But the other
good news is, as well as the century and the
other data collection technologies are evolving, there are a lot
of new companies and existing companies now investing in nature analytics,
nature data platforms. These might be small startups, they might
(17:37):
be some of the traditional firms. We're seeing financial firms
like Moody's, SMP, Bloomberg and others all stepping into the
nature space as well. So this evolving very very quickly.
There is manual effort required. It does take work, but
it's not an issue around lack of data. It's the
analytics and the horsepower to interpret it and put it
in the context of the business or the portfolio that
(17:58):
you have.
Speaker 1 (18:00):
It's a really interesting point and just curious to hear
your thoughts. I think you know, obviously, everything you said
makes great sense in terms of, you know, the horsepower
required to ultimately ingest and analyze some of this information.
But to me, one of the other challenges is it's
a little bit or maybe not a little bit, but
quite different than climate. There aren't global units necessarily, right,
(18:22):
So if we think about climate change, there's you know,
a unit of CO two a metric ton is the
same in one location versus another, ultimately has global impacts
in terms of climate change. For nature, it's much different, right.
You can have different levels of water scarcity, water stress
in different regions, different impacts on species, et cetera. So
(18:46):
in your mind, is that another piece of you know,
the puzzle and ultimately why we haven't done a good
job of taking all the data that's available and kind
of building analytics off of it.
Speaker 3 (18:56):
Yeah, I mean, you're absolutely right that there isn't a
fungible unit like CO two equivalents that's agnostic to where
you are in the world. In fact, you know, climate
when you're looking at your emissions doesn't actually matter where
you make the emissions. When you're looking at nature, your
dependencies and your impacts are very, very location specific. They're
(19:18):
specific to where you are the type of ecosystem or
biome as we call it, so you have to be
more contextualized in the location that you are, which is
why there is more lifting required to do a nature
assessment than there is for a climate assessment. That said,
what the TNFD does is use scientific classification of ecosystems
(19:40):
or biomes. So we've categorized thirty four so you can
understand and categorize where you are based on specific common
traits of ecosystem services, state of ecosystems using scientific knowledge.
So there's a if you like, a dictionary of how
to break that down. It's not like it's completely open,
and that's really helpful. That's had great feedback. And then
(20:00):
the other thing that we've done is the recommendations include
nine standard metrics or indicators for dependencies and impacts on
land use change, one group, resource use pollution CO, two
emissions reusing what's in TNFD, and invasive species, so all
linked around the main drives of harm. And that's been
(20:23):
published in September and the recommendations and been really well received.
Has been very clear and specific about the types of
metrics that companies and investors should be using. So we're
trying to take something that is complicated and put you know,
common approaches and standards around it. Yeah, it's going to
take some time to bed this down. There is, as
you say, still scientific debate on the state of nature
(20:46):
in certain areas, so it does take a bit more work.
But you know, I think it's work that is rewarding
because if you've gone through this process and you actually
do understand that interface with nature, you are, like Clee
to be able to at least start to see where
you can invest to change the business model to put
a more harmonious relationship with nature in those places and
(21:07):
make this more viable in the long term. So it's
a case of managing through the complexity, getting going, and
really starting to understand where those interfaces are.
Speaker 1 (21:16):
Absolutely, so you mentioned a couple times in particular just
now about how certain elements of the framework have been
well received, in particular the idea you mentioned earlier of
having nature and climate thought of together right that creates
obvious efficiencies. The metrics that you've laid out that kind
(21:38):
of allow reporters to potentially overcome the challenge that I raise.
So to me, it sounds like you know, generally a
lot of positive feedback from companies curious to hear if
there are any areas of pushback or perhaps you know,
opportunities that you see going forward for the framework to
potentially improve.
Speaker 3 (21:58):
Yeah, I mean you mentioned a lot of the positives
and the things have been well received. There are still
clearly gaps and challenges for companies that are addressing this.
You know, the data processing and putting that in the
context of your company. Some of that's in external data,
some of that's internal data. I mean, many companies actually
don't know their own locations, let alone their supply chain locations,
(22:20):
and so that's work that has to be done and
to do it. I think what we have found through
the pilots. We've run over one hundred pilots around the
world Southern hemisphere, Northern hemisphere, and from the companies that
are starting the adoption process now, so we've now up
to around three hundred and sixty companies financial institutions around
(22:41):
the world committing to adoption, many of them starting using LEAP.
What they have found is once you get going, it's
more intuitive than they thought. So the perceived complexity versus
the reality is different. So that's why we say getting going.
I think there's value in the methodology. They like the
flexibility of deciding what's material and what's not. We're not
(23:04):
prescriptive on that, and I think that's incredibly helpful. And
also the guides that we've published on where to start,
how to start, how to get going in case examples,
as well as the specificity on the metrics, I think
has been very useful. I think having regimes that say
that just choose what metrics you want gives you lots
of flexibility is not particularly helpful with your portfolio manager
(23:26):
trying to digest all this information. But the challenges you know,
data gaps, yes they exist, but data processing. Many teams
are still getting their head around climate and they've made
a lot of commitments around climate, and the bandwidth has
gone to look at nature. So I think as people
manage those two things will find that situations better. But
(23:47):
it's a truth that exists, and the regatory requirements that
are coming, you know, are taking up band with CSRD
is a big focus for European and non European entities
operating in Europe. The good news is that TNFD and
LEAP helped them get there. But they still require to
do now mandatory work. So you know, those are the
things that we're getting, which is help us more on CSRD,
(24:10):
help us more on the bandwidth, help us more on
the data gaps, and also the tools and analytics providers
and where they are and who we can use and
how to do them. And that's our approach to overcoming
some of these real tangible challenges that are out there.
Speaker 2 (24:24):
Absolutely following up on the companies who committed to adopting
the framework, in January, TNFD announce the inaugural cohort of
three hundred and twenty early adopters, which is a great milestone.
And taking a regional look at the early adopters, we
saw that European companies took the largest slice of the pie,
(24:46):
representing forty three percent of total companies, followed by Asia
Pacific at forty two percent. I'm curious to know what
the possible reasons are for the lack of representation from
emerging and developing countries as well well as US and Canada.
Speaker 3 (25:03):
Yes, so we did the Early Adopters program only six
months after to really just get us going and had
amazing companies and financial institutions sign up we had a
culture of the world's jesups sign on to adopting, so
we shouldn't read too much into what is a relatively
low set of numbers, particularly when you break it down
(25:23):
by country, because they quickly come quite small. We've had
i think over forty seven countries represented, so actually the
breadth of countries that were signing on to TNFD was
really encouraging. But yes, you do point out some things
which you know are trends, not necessarily surprising. Clearly, the
regatory environment and the focus in Europe has been traditionally
(25:46):
stronger in this area. Asia was strong, but actually swayed
a lot by Japan. Japan was our highest country of adoption,
and you think, well, why is that well? Countrally, Japanese
companies have traditionally being quite astute and focused on their
relationship with nature. We also saw TCFD had very high
(26:07):
adoption with nature as well in Japan, so there's a
number of reasons behind that, as well as state government
signaling as well. And then the US and Canada. We
didn't expect it to be the first or ahead. We
know it's traditionally further behind on these areas, but we've
got some fantastic companies that have signed up, an institutions,
(26:28):
Bank of America, Dow just to name a couple, and
it will continue to grow, and it is growing. So
I think it's very early days for the initial one.
We are still seeing now and adopters are still signing up.
Our next milestone is for Columbia COP sixteen in November,
and I think we'll see a lot more sign up
to voluntarily adopt TNFD as well.
Speaker 1 (26:51):
So at the beginning, you mentioned, of course that you
know one of the goals of TNFD is to help
investors make decisions and mobilize cap towards companies that are
potentially having a nature positive impact. We of course know
that the Global Biodiversity Framework estimates that about two hundred
(27:11):
billion needs to be raised from public and private sources
by twenty thirty to finance some of the goals that
you mentioned. Curious to hear kind of how TNFD ultimately
plays into that further.
Speaker 3 (27:25):
Yeah, it's a really good question, and actually something that
is the ultimate goal is to not just manage risk,
but also manage the opportunity side, but redirect finance into
those what is called nature positives here, the things that
contribute to a nature positive world where we're stopping the
depletion of the natural system and helping and supporting it
(27:46):
to go back to a state where it can support
our economies and humanity. I think firstly, companies who are
performing this assessment approach, they're going to give a lot
more attention to the areas of their supply chains, both
the direct and the indirect activities that are either very
highly dependent on ecosystem services, water pollination, fertile land, resource availability,
(28:13):
those things that they depend on. They're going to have
a lot more focus on where are those areas that
provide risk, and they're going to try and manage that
risk down. So we're seeing a lot more investment, for example,
in just water efficiency, water recycling, water usage methods. You
simple things that you can do just to halve the
amount of water that you use have an enormous impact.
(28:35):
Just as an example for doing that, we're also going
to see companies looking at their chemical pollutant footprint and thinking, well,
that's harming the environment. It has an impact. How do
I manage that down and how do I do that
before regulators say well, I can't use those harmful substances anymore.
Very topical, of course is the use the amount of
(28:57):
use of pesticides and fertilizer. As we all know, our
agricultural systems are highly dependent on this, and many parts
of the world are trying to limit it down and
help people transition to a different area. So the companies
that move ahead on that first will be redirecting then
their own investment into those areas, and the investors who
then find those companies will direct investment into those companies
(29:20):
that are finding ways to change their business models, and
they'll be investing to help them make the transition. We're
having a lot of conversations at the moment with banks
about how do they help fund the transition to nature
positive as well, So you know, some people call that
in setting. So where I'm reducing harm in my value chain,
(29:40):
I think the other interesting question is how much will
we see biodiversity credits being used for offsets where in
setting is no longer possible. All areas of harm have
been reduced as much as I can, But how do
I then invest so I can offset the resulting harm?
And I think TNFD with its transparency on metrics, particularly
as people have to disclose you know, land use change,
(30:05):
and these kind of areas will be then looking at
how can I offset that land use change, and you'll
see that either on a voluntary basis through so T
and FD, you're also seeing regulation and compliance play a
role in that as well. We've just seen the launch
of the Biodiversity net gain regime in the UK where
companies who develop land have to demonstrate a ten percent
(30:29):
net uplift in land that is adjacent or next to
before they're allowed to do the development. So I think
through transparency, both voluntary and compliance, this increased focus on
dependencies and drivers as harm will result to finance being
then redirected into these nature positive areas. The increased transparency
for investors helps, but of course if you increase transparency
(30:51):
for investors, you're also increasing transparency for other stakeholders employees,
local communities and others. So I think that's a good
way of forcing change to do it. And then of
course as companies see this change happening, you're seeing, as
we are, new innovation startups in technology, new production methods
(31:15):
and new methods for nature positive activity. So this becomes
quite circular. As they see the shift, then they can
make an investment case for the new technologies and products
that are required so that our footprints are less dependent
on using nature in the way that we have, and
we're working on transition guidance and planning. At the moment,
(31:35):
we're working on combined nature and climate transition planning. So
as companies think about transition, they're going to have to
think about how they fund it, and that will encourage
funding and investment into these nature positives. So I see
this as like a circle. Companies pay more attention, they
make more disclosures, investors have a lot more attention and
information on the area. They help fund into those positive
(31:59):
business models, help fund the transition using the banks as well,
and as a result of this shift, you then see
more investors coming into the space with new technologies and
models as well. So you know, sometimes this sort of
two hundred three hundred four hundred billion, whatever the number is,
is seen as like a big check arrives. I think
it's a lot of incremental steps or across businesses to
(32:19):
do that. It's not necessarily suddenly a big check arise.
It's thousands of steps across thousands of value chains and
thousands of investors that start to make a large incremental
change on all of.
Speaker 1 (32:33):
Those absolutely, and I think that's a really good way to.
Speaker 3 (32:35):
Look at it.
Speaker 2 (32:36):
And continuing with evidence we see of capital being channeled
towards nature positivity. That's kind of the things we highlight
in our biodiversity topic primer. We did see that jump
in the number of biodiversity related funds going to in
twenty twenty three from just seven in twenty twenty one,
and then assets of course increasing to one point or
(32:56):
five billion, that big number we mentioned, from just two
hundred and twenty six million during the same period. And
you do touch on this or a little bit already,
but so it seems in your view that you do
believe greater reporting on nature could in fact increase flows
towards biodiversity related funds, projects and activities. Yeah.
Speaker 3 (33:16):
Absolutely, And the numbers that you reported on demonstrate, you know,
it's gone from you know, it's doubling in the space
of just what two years, and I think that will continue.
And of course the investments at scale might not come
from the small startups, but they actually may come from
the big companies that are market making the shifts as well.
(33:39):
I mean, the example they often use is TetraPak that
has invested in plant based recyclable packaging. I think they
produced two hundred billion items a year, a massive producer
of packaging, and they've taken a decision to invest in
a whole new set of packaging components and products and technologies,
and so they would become a candidate for a for
(34:00):
a nature fund, whereas before the nature funds were looking
at where the investment opportunities are and only finding the small,
tiny little firms wasn't big enough to scale. So I
think hopefully we're starting to see this comet scale now excellent.
Speaker 1 (34:14):
And I guess just one final question. You mentioned the
upcoming Cup sixteen in Columbia later this year. You mentioned
one of the goals for TNFT, of course, will be
to have more companies sign up and start reporting to
the framework. Curious to hear any other expectations or goals
that you have for the upcoming Cup.
Speaker 3 (34:33):
Yeah, I think it's going to be a great cop
It's fantastic Columbia is hosting. It has one of the
most intact biodiversity regions in the world, a lot of
history and culture behind that. Having spoken to many of
the people that are leading the conference, there a few
things I would hope happen and for see happening. One
is there'll be great business presence as there was in
(34:55):
Montreal back what two years ago, and a lot of
focus from business coming up and having a voice and
contributing and participating in the discussion. And I think that
was a really positive thing. It was the first time
it had happened at a Nature Biodiversity cop Some specifics
are also going to happen. The signatory countries all have
(35:17):
to come back to the COP and provide what's called
an eNB SAP, a national biodiversity sustainable Action plan, So
all of the countries have to come back and explain
how they're going to achieve the targets and the goals
laid out in the Global Biodiversity Framework, land use change, pesticides, fertilizers, pollutants,
(35:38):
all of the things that were laid out there number fifteen,
which is around disclosures on nature related risks. So each
country comes back, and I think companies will be looking
at what each country is coming back with and figuring
out how they then integrate to these national plans, many
of which will be supported by policy, subsidy and other areas.
(35:59):
So I think there's a very interesting moment where we
look at a country level the GBF. Because the GBF
was a global framework. As we said before, nature and
biodiversity is location specific. So now countries are coming back
and saying how are they going to contribute to that plan?
And I think companies will be looking very closely at
what those plans said. So from our point of view,
(36:19):
it's an important milestone for the next set of adopters
and also all of the things that we're working on
around transition. I think for countries and companies as a whole,
it's a really important moment where we start to see
what these specific plans look like to achieve the Global
Biodiversity Framework targets.
Speaker 1 (36:38):
Absolutely certainly a lot to look forward to with COUP
sixteen and just so much I think great information here. David,
want to thank you so much for taking the time
to chat with us today.
Speaker 3 (36:51):
Thank you very much. It's been a real pleasure to
talk to you and engage on this really important topic.
Speaker 1 (36:56):
Absolutely definitely a very very important topic. Can actually find
more information on biodiversity and other key ESG topics by
going to the Primer's tab on the ESG team dashboard.
Bispace ESG go on the Bloomberg terminal. If you have
an ESG quandary or burning questions you would like to
ask bi's expert analysts, send us an email at ESG
(37:18):
Currents at bloomberg dot net. Thank you, and we look
forward to the next episode.
ESG has become established as a key business theme as
companies and investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords
(00:29):
and lingo, and we aim to break these down with
industry experts. Welcome to ESG Currents, brought to you by
Bloomberg Intelligence, your guide to navigating the evolving ESG space,
one topic at a time. I'm Eric Kine, director of
ESG Research.
Speaker 2 (00:46):
And i am Melanie rua senior ESG associate, and we
are your hosts for today's episode.
Speaker 1 (00:52):
Twenty twenty three was a historic year for nature markets,
as mandatory and voluntary biodiversity related frameworks made significant advances,
including progress on the Nature Restoration Law, the establishment of
the EU's new Deforestation Law, and the final recommendations from
the Task Force on Nature Related Financial Disclosures also known
(01:13):
as TNFD. Today we're talking about biodiversity and the value
of nature with David Craig, co chair of TNFD, who
is also leading the measurement stream for the International Panel
of Biodiversity Credits and is an advisory board member of
the SMI, or Sustainable Markets Initiative, founded and co chaired
by King Charles the Third. David was also the founder
(01:36):
and CEO of Refinitive. David, thanks so much for joining
us today.
Speaker 3 (01:41):
Thanks very much, Eric, It's a real pleasure to be here.
Speaker 2 (01:44):
So, David, we've seen major global developments since the adoption
of the Kunming Montreal Global Biodiversity Framework in December of
twenty twenty two, including the release of the Task Force
for Nature Related Financial Disclosures reporting framework. For the listeners
who may not know, can you touch on what TNFD is,
it's mandate, and perhaps touch on the final recommendations that
(02:05):
we're released this September.
Speaker 3 (02:07):
Sure? Well, what is TNFD The Task Force for Nature
Related Financial Disclosures. It's a voluntary group. We have just
over fourteen hundred members, asset managers, ASCID, owners, banks, corporations
around the world, conservatory groups and others. And the goal
is to create a global framework and approach so that
(02:28):
companies and investors can assess manage nature related financial risks
and opportunities. Ultimately, not so they can just assess and disclosures,
but also to redirect investment to nature positive outcomes. So
what are the takeaways of the recommendations so far? And
what's been fantastic about the work is that we've not
(02:51):
just created these recommendations with the market that the market
will be using, but also we've tested them, We've pilot
tested them, and we actually have companies and financial investors
actually going through the process of assessing their risks using
the framework. So the question is what are they learning
about nature related financial risk and this assessment. There's a
(03:12):
few things that are really coming out that I think
are very important. Firstly, that companies and investors are more
and more recognizing that nature risk is financial risk. These
are not things that are out in the far distant future.
It's happening now. We're seeing temperature changes impact harvests. We're
seeing overuse of fertilizer impact the ability for soil to produce.
(03:35):
We're seeing water usage around the world being a real issue.
And these are issues that are affecting across industries. It's
not just textiles and farming and resources, it's industrial companies
as well. So the first big takeaway is nature risk
is here, and it's financial risk, and they're recognizing that
we need to address it. They're also recognizing that climate
(03:55):
and nature risk are not just two sides of the
same coin, but really closely into integrated issues. In fact,
climate risk both drives the impact on nature and is
also accelerated by degrading nature as well. So these are
closely interrelated issues, and many of the firms that are
addressing TNFD are actually finding that they need to address
(04:17):
climate and nature risk together. They're also finding that a
comprehensive approach is really important. When we think about the
natural system, and when we apply the recommendations of TNFD,
we think about a holistic four realms of nature atmosphere, water, land,
and oceans. So a comprehensive approach as you start is
(04:39):
really important. We don't want to just focus on water
use or just focus on forest deforestation, but actually look
at our investment portfolios and look at our business change
and understand everywhere where they could be dependent on or
impacting nature. And that's a really important learning here. And
one of the ways that people are doing that is
they're using the approach that been developed by TNFD called leap, Locate, evaluate, assess, prepare.
(05:05):
It's a methodology that's been developed by the industry experts
that are on our task force, the corporates and the investors.
That allows you to step through your business chain and
where you're located and where you operate or your investment
portfolio and understand where are the key locations, where are
the key activities that have the most material and substantive
(05:26):
either dependencies on nature or impacts on nature, and how
those translate into risks and opportunities. So having a methodology
and an approach to do this because nature is complicated,
is really important and that's been a key learning from
the work. And what's important that we've established is it's
not just about disclosures. It's about that risk assessment of
(05:48):
process and not just leaping to disclosures as well. So
our recommendation is, don't just jump to disclosure. Actually go
through the leap approach, understand your portfolio, understand your business
and where the face to nature is, and then your
disclosures become much more relevant, much more meaningful, and you
have frankly a narrative around your relationship with nature. And
(06:10):
I think the last learning that we've got was the
benefits of building TENFD off its close cousin TCFD. So
right from the start, we took the same four pillars
of TCFD, we took a lot of the same language,
we transposed across all of the disclosure recommendations for TCFD,
put them into the TNFD, and then added the nature
(06:31):
context specifics for that. And why is that important. There's
a couple of reasons. One is it helps you naturally
integrate climate and nature when you use TCFD and TNFD together.
It also creates efficiencies with your teams and your approach
on things like governance and strategy because you can start
thinking about climate and nature together. In fact, every single
(06:51):
one of our companies and investors who's now going through
the TNFD approach is more or less combining their TCFD, TNFD,
climate and nature assessment with the same approach and the
same teams.
Speaker 1 (07:05):
Super interesting. There's a lot to follow up on there.
I think the idea, of course that nature risk is
financial risk is certainly one of the things to follow
up on. But perhaps before we get there, you mentioned,
you know, the leap approach and the idea of doing
an assessment to understand, you know, where there might be
material risk, and then of course you mentioned the idea
(07:26):
that TNFD was largely built off its cousin, as you
called it, TCFD, and that companies are starting to think
about these things together. I think, you know, one of
the things that we often hear in the ESG space,
of course, is that there are so many frameworks out there,
so many different reporting standards. You mentioned how this kind
(07:46):
of relates to TCFD. I'm curious to hear ultimately how
TNFD is planning or already relates to the other frameworks
that are out there ISSB. And also, you know where
the framework ultimately falls out on the concept of materiality
is that of financially based materiality is what is often
(08:08):
called double materiality. So a couple different questions.
Speaker 3 (08:11):
Yeah, I think these really important questions. Right from the start,
we said that we don't want to just contribute to
the alphabet soup of standards and regulations. And it's also
important to remember that we're not a regatary body, We're
not a standard setter. We're a voluntary market group that
is trying to create an approach that is designed by
the market and tested by the market that then feeds
(08:34):
into the standards bodies. So ultimately, like TCFD, the TNFD
will be incorporated into the regatory standards, and ideally that
they're incorporated when they be market tested and developed and
proven that they're practical, they work, they're implementable. The really
good news is we've already seen that happen with the CSRD.
(08:55):
They've incorporated much of the t and f D approach,
so they've even called out the leap methodology is a
great way of getting to that CSRD, and we've also
done the same with the GRI, the Global Resource Group
as well, so integrating TNFD into that, our goal would
be to have the ISSB incorporate TNFD. We don't yet
(09:16):
know what their next priority will be after issuing S
one and S two, we look forward. I think it's
literally a couple of months away when they start to
announce that they've welcomed the TNFD recommendation. So we would
hope too that there's a very good glidepath for us
into the ISSB, which will be that global baseline of
standards as well. And you know, the ISSB is only
(09:37):
a couple of years in existence and has collapsed a
lot of the existing ESG and standards groups as well,
so it's fantastic that we've got that global body and
that global baseline along with the CSRD and the Europeans
as well. Other points to mention as there's platforms like
the CDP, the Common Disclosure Project which have an enormous
reach that support a lot of the climate disclosures. We're
(09:59):
working with to ensure they include now TNFD disclosures as well.
So our goal is to try and not reinvent new areas.
We're not a standard's body. We want to be incorporated
into the existing standards bodies and the existent platforms and
tools as they emerge. You asked the question about materiality.
What's important for us is we don't define whether a
(10:21):
company or a jurisdiction should look at just the dependencies
on nature or the impacts on nature as well. Some
people call it single or double materiality, but what it
really boils down to is am I just looking at
dependencies and the risks that they may have on my
business or investment portfolio? Am I also looking at the
impacts as well? Now interestingly, of course, impacts on nature
(10:45):
and a natural system can become dependencies. So if you
are over using fertilizer, you could say, well that's just
an impact on the environment, but actually if the soil
gets degraded because of that, it becomes a dependencies as well.
So I think it's important not to be too black
and white out where the line is on double or
single materiality, because they can merge quite quickly. What we
(11:05):
do is we our framework allows both. It's not our
job to tell regatory bodies or standard setters, or in
fact companies which approach they should follow, but the framework
absolutely supports both, so they can look at both dependencies
and impacts and how those translate to risks and opportunities.
Speaker 1 (11:23):
Very interesting. I'm glad you mentioned what you did about,
you know, the difference between single and double materiality, because
we've actually done a fair amount of research on the topic,
and I think it's kind of our opinion that they're
really not as different as a lot of people in
the marketplace would lead you to believe.
Speaker 2 (11:39):
It's really great to hear about how TNFD is tackling
reporting fatigue and its efforts to harmonize with existing frameworks
and kind of like using the former TCFD, you know,
for environmental or climate related performance. It can be quite
easy to identify a north Star company, so we might
look at and its zero alignment, aggressive greenhouse gas emission
(12:01):
reductions of reduction goals, but with property and of d
aligned disclosure. I'm curious to hear what would be the
characteristics of a north star company for biodiversity and how
would investors be able to measure such performance.
Speaker 3 (12:15):
Yeah, it's a great question. So what does perfect look like?
The north star of where people are trying to get to.
I think a lot of the investors and companies that
are striving for that north star, they're starting now. One
of the recommendations we make is don't wait. This is
a journey. It is complicated, and there's learning involve the
perceived complexity sometimes not as higher than the real complexity.
(12:39):
But getting going now and actually helping work with us
to shape industry guidance is really important when they get
to that north star? What does it mean? And I
think companies that have a really good understanding not just
of their own operations, but their value chain upstream and downstream,
where those located are, What are some of the sensitivities
(13:02):
in their locations, and what we call ecosystem services like
provision of water or pollination services or resource extraction, what
ecosystem services are they most dependent on and where are
the most material and high impacts. If they have a
good understanding of that, and they've built that into their
knowledge of the business, their forward thinking strategy, that is
(13:25):
a very good sign that the north star is happening.
And it may sound obvious, but actually a lot of
companies don't actually know where they're really located or where
their supplies are, so there's a place you've got to start.
The second part is that, as I've mentioned earlier, we're
not thinking about climate and nature is separate. We have
an integrated approach. We're thinking about a combined assessment and
(13:47):
disclosures around the natural system, which includes those four realms
that I mentioned and includes climate as well, because otherwise
we're being far too siloed approach, and many companies who've
worked with us have found that actually doing it that
way a is more efficient but actually creates a much
better answer. How do I think about my industries and
my investments looking at not just a climate lens, but
(14:09):
also a natural system lens as well, making sure I
understand the trade offs between the two, and I've optimized
the two for where I'm touching the natural footprint. They
also have aligned their business models and have gone through
some transition of moving away from areas where they've got
massive dependencies that they can't manage or they've got large
(14:30):
impacts and transitioning to say, for example, lower use of
water systems, different packaging, lower resource extraction or recycling, what
people call the circular economy, and that they've aligned those
areas to the GBF agreement. So the agreement that we
(14:50):
have in place, the equivalent of the Paris Agreement of
one point five is the coming Montreal Global Biodiversity Framework Agreement,
for example, the agreement that we will achieve thirty by thirty,
that thirty percent of natural land is put aside for preservation,
and the other targets in there that they've aligned themselves
to that. And so the north Star really is starting
(15:12):
now getting the learning underway, having a great understanding of
where I'm based, where my supply chain is based, and
the sensitivities around that, adopting a combined climate and nature model,
and demonstrating how you're transitioning towards a GBF agreement. That
to me is what great would look like for this
adoption of nature related risks.
Speaker 2 (15:34):
Thanks and when we talk about the north Star company,
it is forwardlooking something that they can strive for. So
it does kind of reflect that companies need a place
to star in its nature disclosure journey. So there's a
current challenge of nature related data scarcity. So do you
believe that nature related data scarcity tends to overshadow the
(15:56):
equally important challenge of having internal capacity and resources need
it to ingest, analyze and understand nature of related data.
Speaker 3 (16:06):
Yes, it's a really important question this and something that
we find a lot people say, well, there's not enough
data on nature, and it's a curious statement because there's
petabytes of data on nature. We have lower but satellites,
we have new light our technology, we have sampling methods
like EDNA, We have decades of environmental information that is available.
(16:31):
Is it perfect No? Does it have perfect time series
and sequencing nos? Has it got gaps? Absolutely? But there's
a lot of data available and it's also not hard
to point new data collection methods into those areas where
there are gaps. I think you said it in your question,
which is the challenge is not the availability of data,
it's the horsepower and capability to interpret it and put
(16:54):
it into the context of the business or the portfolio
that we have, and that at the moment does take effort.
It's human capital, it's people who understand both business and ecology, biodiversity.
There are more skills being developed, there is more talent
coming through, but it is human effort to do that.
So I think a lot of people maybe expect the
(17:16):
data just to tell them the answer. We're not there
yet and a long way from that. But the other
good news is, as well as the century and the
other data collection technologies are evolving, there are a lot
of new companies and existing companies now investing in nature analytics,
nature data platforms. These might be small startups, they might
(17:37):
be some of the traditional firms. We're seeing financial firms
like Moody's, SMP, Bloomberg and others all stepping into the
nature space as well. So this evolving very very quickly.
There is manual effort required. It does take work, but
it's not an issue around lack of data. It's the
analytics and the horsepower to interpret it and put it
in the context of the business or the portfolio that
(17:58):
you have.
Speaker 1 (18:00):
It's a really interesting point and just curious to hear
your thoughts. I think you know, obviously, everything you said
makes great sense in terms of, you know, the horsepower
required to ultimately ingest and analyze some of this information.
But to me, one of the other challenges is it's
a little bit or maybe not a little bit, but
quite different than climate. There aren't global units necessarily, right,
(18:22):
So if we think about climate change, there's you know,
a unit of CO two a metric ton is the
same in one location versus another, ultimately has global impacts
in terms of climate change. For nature, it's much different, right.
You can have different levels of water scarcity, water stress
in different regions, different impacts on species, et cetera. So
(18:46):
in your mind, is that another piece of you know,
the puzzle and ultimately why we haven't done a good
job of taking all the data that's available and kind
of building analytics off of it.
Speaker 3 (18:56):
Yeah, I mean, you're absolutely right that there isn't a
fungible unit like CO two equivalents that's agnostic to where
you are in the world. In fact, you know, climate
when you're looking at your emissions doesn't actually matter where
you make the emissions. When you're looking at nature, your
dependencies and your impacts are very, very location specific. They're
(19:18):
specific to where you are the type of ecosystem or
biome as we call it, so you have to be
more contextualized in the location that you are, which is
why there is more lifting required to do a nature
assessment than there is for a climate assessment. That said,
what the TNFD does is use scientific classification of ecosystems
(19:40):
or biomes. So we've categorized thirty four so you can
understand and categorize where you are based on specific common
traits of ecosystem services, state of ecosystems using scientific knowledge.
So there's a if you like, a dictionary of how
to break that down. It's not like it's completely open,
and that's really helpful. That's had great feedback. And then
(20:00):
the other thing that we've done is the recommendations include
nine standard metrics or indicators for dependencies and impacts on
land use change, one group, resource use pollution CO, two
emissions reusing what's in TNFD, and invasive species, so all
linked around the main drives of harm. And that's been
(20:23):
published in September and the recommendations and been really well received.
Has been very clear and specific about the types of
metrics that companies and investors should be using. So we're
trying to take something that is complicated and put you know,
common approaches and standards around it. Yeah, it's going to
take some time to bed this down. There is, as
you say, still scientific debate on the state of nature
(20:46):
in certain areas, so it does take a bit more work.
But you know, I think it's work that is rewarding
because if you've gone through this process and you actually
do understand that interface with nature, you are, like Clee
to be able to at least start to see where
you can invest to change the business model to put
a more harmonious relationship with nature in those places and
(21:07):
make this more viable in the long term. So it's
a case of managing through the complexity, getting going, and
really starting to understand where those interfaces are.
Speaker 1 (21:16):
Absolutely, so you mentioned a couple times in particular just
now about how certain elements of the framework have been
well received, in particular the idea you mentioned earlier of
having nature and climate thought of together right that creates
obvious efficiencies. The metrics that you've laid out that kind
(21:38):
of allow reporters to potentially overcome the challenge that I raise.
So to me, it sounds like you know, generally a
lot of positive feedback from companies curious to hear if
there are any areas of pushback or perhaps you know,
opportunities that you see going forward for the framework to
potentially improve.
Speaker 3 (21:58):
Yeah, I mean you mentioned a lot of the positives
and the things have been well received. There are still
clearly gaps and challenges for companies that are addressing this.
You know, the data processing and putting that in the
context of your company. Some of that's in external data,
some of that's internal data. I mean, many companies actually
don't know their own locations, let alone their supply chain locations,
(22:20):
and so that's work that has to be done and
to do it. I think what we have found through
the pilots. We've run over one hundred pilots around the
world Southern hemisphere, Northern hemisphere, and from the companies that
are starting the adoption process now, so we've now up
to around three hundred and sixty companies financial institutions around
(22:41):
the world committing to adoption, many of them starting using LEAP.
What they have found is once you get going, it's
more intuitive than they thought. So the perceived complexity versus
the reality is different. So that's why we say getting going.
I think there's value in the methodology. They like the
flexibility of deciding what's material and what's not. We're not
(23:04):
prescriptive on that, and I think that's incredibly helpful. And
also the guides that we've published on where to start,
how to start, how to get going in case examples,
as well as the specificity on the metrics, I think
has been very useful. I think having regimes that say
that just choose what metrics you want gives you lots
of flexibility is not particularly helpful with your portfolio manager
(23:26):
trying to digest all this information. But the challenges you know,
data gaps, yes they exist, but data processing. Many teams
are still getting their head around climate and they've made
a lot of commitments around climate, and the bandwidth has
gone to look at nature. So I think as people
manage those two things will find that situations better. But
(23:47):
it's a truth that exists, and the regatory requirements that
are coming, you know, are taking up band with CSRD
is a big focus for European and non European entities
operating in Europe. The good news is that TNFD and
LEAP helped them get there. But they still require to
do now mandatory work. So you know, those are the
things that we're getting, which is help us more on CSRD,
(24:10):
help us more on the bandwidth, help us more on
the data gaps, and also the tools and analytics providers
and where they are and who we can use and
how to do them. And that's our approach to overcoming
some of these real tangible challenges that are out there.
Speaker 2 (24:24):
Absolutely following up on the companies who committed to adopting
the framework, in January, TNFD announce the inaugural cohort of
three hundred and twenty early adopters, which is a great milestone.
And taking a regional look at the early adopters, we
saw that European companies took the largest slice of the pie,
(24:46):
representing forty three percent of total companies, followed by Asia
Pacific at forty two percent. I'm curious to know what
the possible reasons are for the lack of representation from
emerging and developing countries as well well as US and Canada.
Speaker 3 (25:03):
Yes, so we did the Early Adopters program only six
months after to really just get us going and had
amazing companies and financial institutions sign up we had a
culture of the world's jesups sign on to adopting, so
we shouldn't read too much into what is a relatively
low set of numbers, particularly when you break it down
(25:23):
by country, because they quickly come quite small. We've had
i think over forty seven countries represented, so actually the
breadth of countries that were signing on to TNFD was
really encouraging. But yes, you do point out some things
which you know are trends, not necessarily surprising. Clearly, the
regatory environment and the focus in Europe has been traditionally
(25:46):
stronger in this area. Asia was strong, but actually swayed
a lot by Japan. Japan was our highest country of adoption,
and you think, well, why is that well? Countrally, Japanese
companies have traditionally being quite astute and focused on their
relationship with nature. We also saw TCFD had very high
(26:07):
adoption with nature as well in Japan, so there's a
number of reasons behind that, as well as state government
signaling as well. And then the US and Canada. We
didn't expect it to be the first or ahead. We
know it's traditionally further behind on these areas, but we've
got some fantastic companies that have signed up, an institutions,
(26:28):
Bank of America, Dow just to name a couple, and
it will continue to grow, and it is growing. So
I think it's very early days for the initial one.
We are still seeing now and adopters are still signing up.
Our next milestone is for Columbia COP sixteen in November,
and I think we'll see a lot more sign up
to voluntarily adopt TNFD as well.
Speaker 1 (26:51):
So at the beginning, you mentioned, of course that you
know one of the goals of TNFD is to help
investors make decisions and mobilize cap towards companies that are
potentially having a nature positive impact. We of course know
that the Global Biodiversity Framework estimates that about two hundred
(27:11):
billion needs to be raised from public and private sources
by twenty thirty to finance some of the goals that
you mentioned. Curious to hear kind of how TNFD ultimately
plays into that further.
Speaker 3 (27:25):
Yeah, it's a really good question, and actually something that
is the ultimate goal is to not just manage risk,
but also manage the opportunity side, but redirect finance into
those what is called nature positives here, the things that
contribute to a nature positive world where we're stopping the
depletion of the natural system and helping and supporting it
(27:46):
to go back to a state where it can support
our economies and humanity. I think firstly, companies who are
performing this assessment approach, they're going to give a lot
more attention to the areas of their supply chains, both
the direct and the indirect activities that are either very
highly dependent on ecosystem services, water pollination, fertile land, resource availability,
(28:13):
those things that they depend on. They're going to have
a lot more focus on where are those areas that
provide risk, and they're going to try and manage that
risk down. So we're seeing a lot more investment, for example,
in just water efficiency, water recycling, water usage methods. You
simple things that you can do just to halve the
amount of water that you use have an enormous impact.
(28:35):
Just as an example for doing that, we're also going
to see companies looking at their chemical pollutant footprint and thinking, well,
that's harming the environment. It has an impact. How do
I manage that down and how do I do that
before regulators say well, I can't use those harmful substances anymore.
Very topical, of course is the use the amount of
(28:57):
use of pesticides and fertilizer. As we all know, our
agricultural systems are highly dependent on this, and many parts
of the world are trying to limit it down and
help people transition to a different area. So the companies
that move ahead on that first will be redirecting then
their own investment into those areas, and the investors who
then find those companies will direct investment into those companies
(29:20):
that are finding ways to change their business models, and
they'll be investing to help them make the transition. We're
having a lot of conversations at the moment with banks
about how do they help fund the transition to nature
positive as well, So you know, some people call that
in setting. So where I'm reducing harm in my value chain,
(29:40):
I think the other interesting question is how much will
we see biodiversity credits being used for offsets where in
setting is no longer possible. All areas of harm have
been reduced as much as I can, But how do
I then invest so I can offset the resulting harm?
And I think TNFD with its transparency on metrics, particularly
as people have to disclose you know, land use change,
(30:05):
and these kind of areas will be then looking at
how can I offset that land use change, and you'll
see that either on a voluntary basis through so T
and FD, you're also seeing regulation and compliance play a
role in that as well. We've just seen the launch
of the Biodiversity net gain regime in the UK where
companies who develop land have to demonstrate a ten percent
(30:29):
net uplift in land that is adjacent or next to
before they're allowed to do the development. So I think
through transparency, both voluntary and compliance, this increased focus on
dependencies and drivers as harm will result to finance being
then redirected into these nature positive areas. The increased transparency
for investors helps, but of course if you increase transparency
(30:51):
for investors, you're also increasing transparency for other stakeholders employees,
local communities and others. So I think that's a good
way of forcing change to do it. And then of
course as companies see this change happening, you're seeing, as
we are, new innovation startups in technology, new production methods
(31:15):
and new methods for nature positive activity. So this becomes
quite circular. As they see the shift, then they can
make an investment case for the new technologies and products
that are required so that our footprints are less dependent
on using nature in the way that we have, and
we're working on transition guidance and planning. At the moment,
(31:35):
we're working on combined nature and climate transition planning. So
as companies think about transition, they're going to have to
think about how they fund it, and that will encourage
funding and investment into these nature positives. So I see
this as like a circle. Companies pay more attention, they
make more disclosures, investors have a lot more attention and
information on the area. They help fund into those positive
(31:59):
business models, help fund the transition using the banks as well,
and as a result of this shift, you then see
more investors coming into the space with new technologies and
models as well. So you know, sometimes this sort of
two hundred three hundred four hundred billion, whatever the number is,
is seen as like a big check arrives. I think
it's a lot of incremental steps or across businesses to
(32:19):
do that. It's not necessarily suddenly a big check arise.
It's thousands of steps across thousands of value chains and
thousands of investors that start to make a large incremental
change on all of.
Speaker 1 (32:33):
Those absolutely, and I think that's a really good way to.
Speaker 3 (32:35):
Look at it.
Speaker 2 (32:36):
And continuing with evidence we see of capital being channeled
towards nature positivity. That's kind of the things we highlight
in our biodiversity topic primer. We did see that jump
in the number of biodiversity related funds going to in
twenty twenty three from just seven in twenty twenty one,
and then assets of course increasing to one point or
(32:56):
five billion, that big number we mentioned, from just two
hundred and twenty six million during the same period. And
you do touch on this or a little bit already,
but so it seems in your view that you do
believe greater reporting on nature could in fact increase flows
towards biodiversity related funds, projects and activities. Yeah.
Speaker 3 (33:16):
Absolutely, And the numbers that you reported on demonstrate, you know,
it's gone from you know, it's doubling in the space
of just what two years, and I think that will continue.
And of course the investments at scale might not come
from the small startups, but they actually may come from
the big companies that are market making the shifts as well.
(33:39):
I mean, the example they often use is TetraPak that
has invested in plant based recyclable packaging. I think they
produced two hundred billion items a year, a massive producer
of packaging, and they've taken a decision to invest in
a whole new set of packaging components and products and technologies,
and so they would become a candidate for a for
(34:00):
a nature fund, whereas before the nature funds were looking
at where the investment opportunities are and only finding the small,
tiny little firms wasn't big enough to scale. So I
think hopefully we're starting to see this comet scale now excellent.
Speaker 1 (34:14):
And I guess just one final question. You mentioned the
upcoming Cup sixteen in Columbia later this year. You mentioned
one of the goals for TNFT, of course, will be
to have more companies sign up and start reporting to
the framework. Curious to hear any other expectations or goals
that you have for the upcoming Cup.
Speaker 3 (34:33):
Yeah, I think it's going to be a great cop
It's fantastic Columbia is hosting. It has one of the
most intact biodiversity regions in the world, a lot of
history and culture behind that. Having spoken to many of
the people that are leading the conference, there a few
things I would hope happen and for see happening. One
is there'll be great business presence as there was in
(34:55):
Montreal back what two years ago, and a lot of
focus from business coming up and having a voice and
contributing and participating in the discussion. And I think that
was a really positive thing. It was the first time
it had happened at a Nature Biodiversity cop Some specifics
are also going to happen. The signatory countries all have
(35:17):
to come back to the COP and provide what's called
an eNB SAP, a national biodiversity sustainable Action plan, So
all of the countries have to come back and explain
how they're going to achieve the targets and the goals
laid out in the Global Biodiversity Framework, land use change, pesticides, fertilizers, pollutants,
(35:38):
all of the things that were laid out there number fifteen,
which is around disclosures on nature related risks. So each
country comes back, and I think companies will be looking
at what each country is coming back with and figuring
out how they then integrate to these national plans, many
of which will be supported by policy, subsidy and other areas.
(35:59):
So I think there's a very interesting moment where we
look at a country level the GBF. Because the GBF
was a global framework. As we said before, nature and
biodiversity is location specific. So now countries are coming back
and saying how are they going to contribute to that plan?
And I think companies will be looking very closely at
what those plans said. So from our point of view,
(36:19):
it's an important milestone for the next set of adopters
and also all of the things that we're working on
around transition. I think for countries and companies as a whole,
it's a really important moment where we start to see
what these specific plans look like to achieve the Global
Biodiversity Framework targets.
Speaker 1 (36:38):
Absolutely certainly a lot to look forward to with COUP
sixteen and just so much I think great information here. David,
want to thank you so much for taking the time
to chat with us today.
Speaker 3 (36:51):
Thank you very much. It's been a real pleasure to
talk to you and engage on this really important topic.
Speaker 1 (36:56):
Absolutely definitely a very very important topic. Can actually find
more information on biodiversity and other key ESG topics by
going to the Primer's tab on the ESG team dashboard.
Bispace ESG go on the Bloomberg terminal. If you have
an ESG quandary or burning questions you would like to
ask bi's expert analysts, send us an email at ESG
(37:18):
Currents at bloomberg dot net. Thank you, and we look
forward to the next episode.
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