The Taskforce for Nature-related Financial Disclosures (TNFD) that will launch in summer 2021 will provide a much-needed framework of pragmatic guidance to the finance sector and companies to assist them in understanding how best to measure, disclose and ultimately reduce nature-related risk. Financial institutions are encouraged to be engaged as members or as part of the larger stakeholder group.
However, the TNFD framework will take time to become fully operational. To facilitate progress now, financial institutions are encouraged to use existing tools to integrate risk assessment into decision-making now by:
- taking the Business for Nature steps to become nature positive, through assessing, committing, acting to reduce material impacts and advocating for ambitious government policies to support further change;
- becoming familiar with Science Based Targets for Nature;
- assessing impact by joining the Partnership for Biodiversity Accounting Financials (PBAF);
- using frameworks such as the Natural Capital Protocol from the Capitals Coalition and its Finance Sector Supplement to measure and value natural capital impacts and dependencies across the entities and portfolios that are financed, invested in or underwritten;
- working with clients to apply the CDSB Framework to report on water and other natural capital-related risks in annual reports;
- carrying out nature-related risk assessments by using the methodology for Tropical Commodities from Orbitas;
- applying tools such as Trase and those highlighted in the Finance for Biodiversity Guide;
- screening projects for compliance with the IFC’s Performance Standard 6 using the Integrated Biodiversity Assessment Tool (IBAT) and using IUCN’s STAR metric within the IBAT (launching July 2021) which assesses geospatial impact on species under threat of extinction.
For a pdf of the full report click here.
RECOMMENDATION IN PRACTICE:
Using the Natural Capital Protocol
YES BANK concluded that there is a need to revisit the core elements of current business models to not only include financial risks, but the growing scarcity of natural capital and factor in the actual cost of natural resources in order to build sustainable and resilient businesses. The report was published to provide guidance for the business community.
YES BANK has also applied the Natural Capital Protocol’s Finance Sector Supplement on its green bonds to study their alignment to natural capital concerns and measure the impact and dependencies of the projects funded by these bonds.
Using the PBAF Standard
The bank’s experience with PCAF (the climate initiative that was also initiated by ASN Bank) has taught the bank about the importance of having a globally accepted standard for impact assessment and disclosure for financial institutions.
Moreover, the discussions with colleagues from other financial institutions in the process of developing the PBAF standard helps ASN Bank in gaining a better understanding of the challenges and solutions surrounding impact assessment and the ways in which the results can inform investment policies and decisions.
Using Science based Targets for Nature
As a result, the Commissioners became the first investor to support the development of the Science based Targets for Nature framework. Widespread adoption will provide a consistent gold standard that will ensure companies take sufficient action, and that investors can easily recognise as the sign of a rigorous and ambitious target.
The framework encourages immediate action to assess exposure and prioritise action, whilst future progress tracking will enable peer comparison and assist capital allocation decisions.