‘TNFD provides companies with a means to reverse biodiversity loss’

Every business relies on nature, with more than half of the world’s gross domestic product being highly or moderately dependent. More than three years ago, World Economic Forum managing director Dominic Waughray warned that “damage to nature from economic activity can no longer be considered an ‘externality’ [when] exposure to nature loss is both material to all business sectors and is an urgent risk to our collective future economic security”.

With the business case being that humanity must save nature to save itself, we are seeing biodiversity becoming a mainstream issue for corporate risk management.

Realising the nature of these risks — which include increased occurrence of zoonotic diseases, reduced crop yields, growing water stress, and more extreme climate-related disasters — led to nearly 200 nations signing the Kunming-Montreal Global Biodiversity Framework to facilitate national policies and collective action on reversing biodiversity loss by 2030 and enabling the recovery of all ecosystems by 2050.

In particular, GBF Target 15, gave the signal to large transnational companies and financial institutions to regularly monitor, assess and transparently disclose impacts and dependencies on biodiversity associated with their operations, supply chains and portfolios.

Disclosure on nature

An international agreement that provides the vision and sets targets is an important element of the global response to the biodiversity crisis. However, in the case of Target 15, it also needs to be backed up by financial resources and collective action led by businesses and financial institutions.

The launch of the new TNFD framework provides these organisations with a means to reverse biodiversity loss, and for investors to more easily take advantage of the opportunities to invest in biodiversity and achieve global targets.

Building upon its climate-related disclosure predecessor the Task Force on Climate-related Financial Disclosures, the TNFD is a global, market-led initiative, represented by financial institutions with more than $20tn (£16.4tn) in assets providing familiarity and continuity to business sustainability. And, as TCFD is becoming mandatory, then TNFD may well follow. 

Measuring biodiversity is complex, requiring location-specific evidence using metrics for genes, species and whole ecosystems to describe their abundance, condition, interconnectedness and functional role

However, at least two substantial differences stand out when comparing the TCFD and TNFD. The first is that, unlike kilotons of carbon emissions, biodiversity cannot be measured using a single global metric.

Measuring biodiversity is complex, requiring location-specific evidence using metrics for genes, species and whole ecosystems to describe their abundance, condition, interconnectedness and functional role — or ecosystem services such as pollination.

Understanding current baselines is essential to determining material impacts and dependencies that organisations may then have on nature. Frameworks, such as the TNFD and Science-based Targets for Nature, are aiming to reduce some of this complexity by aligning with the GBF and converging guidance. 

The other major difference is the funding gap between climate and nature action. In 2021, the Climate Policy Initiative estimated that $632bn is mobilised annually for climate-related projects.

The Paulson Institute estimates financial flows into global biodiversity conservation in 2019 ranged between $124bn and $143bn. For context, its report shows that spending on agricultural, forestry and fisheries subsidies that degrade nature is at least two to four times greater (excluding fossil fuel subsidies).

The funding required to reverse the decline in biodiversity by 2030 needs between $722bn and $967bn a year over the next 10 years. That puts the biodiversity financing gap at an average $711bn, or between $598bn and $824bn a year to meet GBF targets.

How can investment be realised?

There is some hope, as researchers estimate the funding gap can be closed for less than 1 per cent of annual global GDP, or $711bn, and investors are key to unlocking the trillions currently sat in assets.

The greatest biodiversity gains can be made through the industries most highly dependent on nature — these are construction, agriculture, and food and beverage, generating 15 per cent of global GDP ($13tn).

However, the WEF predicts that supply chains may be more at risk of disruption, with the following industries being most affected: chemicals and materials; aviation, travel and tourism; real estate; mining and metals; supply chain and transport; and retail, consumer goods and lifestyle.

Some of these companies have been early adopters of the voluntary TNFD and SBTN frameworks, providing insights into how disclosure can inform investment.

Businesses and investors can take action on protecting nature in many ways. The first and simplest step is to avoid impacting areas of high biodiversity value

Advice to investors on helping to close the funding gap to reverse biodiversity loss includes: increasing and catalysing resources; reducing harmful investments to reduce the total funding needs; and, improving the effectiveness and efficiency of our actions — doing more with our limited resources.

As momentum begins to build around disclosure, insights can already be gained when taking investment decisions through environmental, social and governance due diligence and reporting. For example, does a company have a biodiversity strategy? Has it set nature positive targets? And, made nature-related disclosures?

What is biodiversity action?

Businesses and investors can take action on protecting nature in many ways. The first and simplest step is to avoid impacting areas of high biodiversity value. It is cheaper to avoid impacts than restore or compensate after damage has been caused, and it is one of the best ways to mitigate carbon emissions.

Biodiversity-rich areas also require long-term conservation management, which may benefit from reliable investment. Where biodiversity strategies lead to the securing of sustainable supply chains, then investments can drive ecosystem restoration at locations where raw materials are sourced, such as forest timber, or at processing facilities, for example, where clean water resources are needed and waste is generated.

These may also be described as nature-based solutions providing further restoration opportunities, potentially through payments for ecosystem services or leveraging other financial incentives, for flood mitigation (floodplain reinstatement) upstream of cities and infrastructure, regenerative farming, or the removal of invasive species, for example. 

The case for transforming our eating habits, improving food production and reducing food waste is clear. Recently, the EAT-Lancet Commission of world-leading scientists confirmed we need to make these changes in order to feed a future population of 10bn people a healthy diet within planetary boundaries.

Within South America, land clearance for soyabean production is responsible for widespread deforestation in the Amazon. While soya products are consumed globally, it is also used extensively for livestock feed.

Changing our eating habits and reducing our heavy reliance on meat-based products will help alleviate current biodiversity impacts driven by global animal feed production. 

Approximately 6 per cent of global conservation financing comes from biodiversity offsets. As businesses begin to understand and disclose their impact and dependencies on biodiversity, the next stage will be to reduce those impacts and to compensate for them, often through offsetting.

Changing our eating habits and reducing our heavy reliance on meat-based products will help alleviate current biodiversity impacts driven by global animal feed production

With the biodiversity net gain process for development projects becoming mandatory in England later this year, landowners and managers are recognising the value in improving biodiversity within their landholding, with a view to selling those biodiversity credits to developers in need of offsets.

The credit market within the UK will develop rapidly as demand increases due to the statutory requirement. Similarly, as businesses globally begin to disclose their impacts and look to compensate, it is clear to see that a global offsetting and biodiversity credit market will be essential components of this process, with biodiversity becoming a financial commodity, and the result being global investment in nature’s restoration.

The launch of disclosure frameworks, such as the TNFD, bring visibility and give a value to biodiversity risks to business and finance. While these are so far voluntary, the EU’s Corporate Sustainability Reporting Directive will mandate similar disclosures from 2025. These should support a shift in global financial flows away from nature-negative outcomes and towards nature-positive outcomes.

In fact, the Paulson Institute argues that around half of the nature funding gap could be closed with no new investment, just better deployment of existing funds and smarter policy and investment choices.

Collectively, we must take action to protect nature and mobilise more financial resources to secure a healthier planet.

Samantha Deacon is principal for biodiversity and ecosystems, Rodolfo Jaffé is managing consultant, applied ecology and environmental data science, and Vikki Patton is UK lead for nature positive services at Ramboll