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BEYOND20


rapidly, but the improved understanding has largely been confined to climate change, where the market has been increasingly able to pro- videmeaningfulmetrics todemonstrate a com- pany’s exposure to risks. The Task Force on Climate-related Financial


Disclosures (TCFD), set up by the Financial Stability Board, has been instrumental in advancing corporate data on climate-related risks. To date, more than 1400 companies have voluntarily signed up to the TCFD’s recom- mended reporting framework. G7 finance min- isters announced in June that they support moving towards mandatory climate-related financial disclosures in line with the TCFD’s recommendations.


Extinction event However, climate change represents just one part of the environmental equation. We are currently undergoing a sixth mass extinction: the rapid loss of biodiversity and ecosystems is possibly the most serious environmental problem of our time. The loss of a species is permanent, each of them playing a greater or lesser role in the living systems on which our societies, economies and financial systems depend. Natural capital loss is not currently on the


ESG radar in the way that it should be. This is problematic because, according to the World Economic Forum, more than half of the world’s output — $44tn of economic value gen- eration — is moderately or highly dependent on nature. The recorded extinction of 83% of wild mammals and 50% of plants, therefore, represents a significant risk to corporate and financial stability. Moreover, restoring and protecting nature


is one of the greatest strategies for tackling cli- mate change risks, and not just for the obvious reason that the soil, forests and oceans suck car- bon out of the air. These ecosystems also act as buffers against extreme weather, protecting houses, crops, water supplies and vital infra- structure, making our economies, societies and financial systemmore resilient. Until now, investors have had limited visi-


bility—and even less influence—on the extent to which their capital drives nature-negative outcomes. The recently launched Taskforce on Nature-related Financial Disclosures (TNFD) will look to close this information gap. Its pur- pose is to develop voluntary, consistent disclo- sures to help investors, lenders and insurance underwriters report and act on nature-related risks. Without incorporating nature-related risks in our financial valuations and risk assessments, they are simply wrong, and we will take the wrong investment decisions on the back of them.


Doing things properly While the TNFD aims to learn from and build upon the success of the TCFD, the new task- force faces unique challenges:when it comes to


August/September 2021 www.fDiIntelligence.com


data, metrics and methodologies, there are critical differences between climateandnature. One key challenge is that, unlike for cli-


mate, it is not just what your activities are, but where they are, that matters. This means that collecting more location-specific data from cor- porations will be part of the solution. Improving corporate disclosures will also


only be one of many levers to close the data gap on nature-related financial risks. In the climate space, better corporate disclosures were at the centre of the solution to the data challenge. Satellite data and other geospatial data may also play a significant role in closing data gaps on nature-related risks. Advancing technology combined with the data processing power of artificial intelligencemeans we can collect and make sense of vast amounts of geospatial data, including nature-related data. The rapidly growing field of spatial finance integrates geo- spatial data and analytics into financial prac- tice.Onthe risk side, thismeans financial insti- tutions can, for example, remotely monitor economic activity in and around protected areas. On the opportunity side, they can use it to identify and monitor investment opportuni- ties in nature restoration. As the TNFD now kicks off its work to plan,


test and deliver a framework for organisations to report and act on evolving nature-related risks by 2023, the challenge is to learn from what has worked for climate, while carefully considering how nature requires a different approach. Ultimately, theTCFDand TNFDwillcomple-


ment each other and work in tandem. As the old adage in business goes: what gets measured gets managed, and we have to manage nature- and climate-related financial risks simultane- ously. The two are strongly interlinked, and both are equally urgent. But while we work to close the data and val-


uation gap for nature, we must remember that the challenge ahead is bigger than that: exten- sive capacity building across corporates and financial institutions is equally urgently needed if we are to mobilise the full force of financial institutions and corporates towards nature-positive outcomes. In addition, corpo- rates and financialmarkets aremoving towards adopting a price for carbon and carbon-equiva- lent emissions; now, they also need to put a price on nature—to date there is no such price. Delivering on the ambition of shifting


financial flows globally from nature-negative to nature-positive will require significant and complex work, but I am optimistic that the TNFD can deliver a practical and impactful framework by 2023 and be at the centre of strengthening the ‘E’ in ESG across the world’s financial markets.■


David Craig is founder and former chief executive of Refinitiv, a senior advisor to London Stock Exchange Group and the co-chair of the Taskforce for Nature- related Financial Disclosures.


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