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Understanding nature risk is an ‘immense amount of work’

The Taskforce on Nature-related Financial Disclosures is proposing yet another framework to understand sustainability but its co-chair insists this will lead to a better, more harmonised reporting system.

David Craig, the former CEO of data provider Refinitiv, has joined the newly created Taskforce on Nature-related Financial Disclosures (TNFD), which recently published its prototype framework, and is planning updates for June and October this year and a final structure by the third quarter of 2023. Established in June 2021 with a mandate from the G7, TNFD now counts on 34 members helping design its framework and representing over $18tn in assets or assets under management, including the Norwegian pension fund, BlackRock, UBS, BNP Paribas and the Singapore Exchange, says Craig. Sustainable Views spoke to him ahead of the framework release.

Q: Why do we need nature-related financial disclosures in addition to the existing Task Force on Climate-related Financial Disclosures (TCFD)?

A: If we wound back the clock, an ideal solution would be to tackle nature and climate together. If you look at what’s happening as a result of climate change – rising sea levels, fires, floods, temperature rises – this relates to nature. It’s been well published and well understood through the UK’s Dasgupta Review, [and] other reports, about the dependencies we have on nature for our economic systems, traversing not just food and agriculture but many other sectors.

A lot of the specifics of climate risk are actually nature risks, and climate change is accelerating those risks. A second really important point is that as many companies strive for net zero targets, many of them are learning that the energy system and the logistics and transportation systems cannot be decarbonised as fast as they may have wished for or thought, particularly now with what’s happening with global fuel supplies. They’re going to rely on offsets. And natural-based systems are the most efficient and effective way of absorbing carbon, particularly if you don’t destroy rainforests.

We’re not a standards body, we’re trying to influence the standards bodies, like the International Sustainability Standards Board, the European Financial Reporting Advisory Group, other standards bodies in Asia and around the world. 

Q: Will TNFD replace the TCFD?

A: It’s not about replacing TCFD; it’s about getting to a position where the frameworks that have been developed by TCFD and TNFD are both incorporated into the work of accounting standards bodies. Our goal is to create an integrated framework because you have to look at nature and climate together. The way that we’ve designed our taxonomy and definition of nature includes atmospheric pollution – be it by nitrous dioxide or CO2 or methane, it is part of that nature problem. You have to look at these things together. It just so happens that TCFD is a few years ahead of where TNFD is, so we have to recognise we are building on that but, ultimately, companies will have to look at these together. That’s the goal. 

Q: How concerned are you about greenwashing?

A: Everyone should be concerned about greenwashing. I’ll give an example of a concern I’ve been very public that I have, which is that if $200bn or $300bn goes into the offset market, those offsets will not be mechanical. They’ll be mainly nature-based because mechanical offsets [using machines to capture atmospheric CO2] are quite inefficient and expensive, and don’t scale yet. Potentially they will in years to come, but it’s quite hard to find an artificial offset that works at a price point that is acceptable and therefore nature will be used. In fact, some research found that many artificial carbon offsets actually create more carbon than they absorb.

You need to look at offsets’ integrity, not just financial and carbon integrity, but their natural system integrity too. If you only plant one type of forest, it may absorb carbon and may do it really well but it’s not necessarily very good for biodiversity. If you cut down a forest and then replant it, that is quite ridiculous. Much better to have incentives to preserve the forest in the first place. This applies to seagrass, savannahs and other areas, and there are many natural-based solutions being created for offsets. We just need to make sure that there is full transparency and understanding of the natural system impacts.

You also need to look at companies that are making some efforts in one part of their organisation to reduce carbon. If you’re investing in that company, you have to be aware of all of the activities that it’s doing – you should be careful not to assume that the entire company’s activities are nature-positive. 

Q: Where are we in terms of availability and quality of sustainability data?

A: We have to separate input data versus output data. For example, one of our members – a big food producer – has spent four years building a data and analytics platform to try to understand nature risk. Its system needs to map the assets of each operation to a location, and that location has to be specific enough so the analytic tool understands the ecosystem that it relies upon and the impacts that the company’s operations might have. This is an immense amount of work. 

Very few companies have a data model that can do this. And so while everyone likes to get excited about satellites and the Internet of Things, what really is required to ground this work is a fundamental re-look at the core underlying data models of companies. 

On the other hand, output data is what you disclose. What I’ve just described could [take up] petabytes, you would not disclose all of that data – no one would read it; it would not be useful. What we have designed at TNFD is a ‘leap’ methodology – which stands for locate, evaluate, assess, prepare – that helps companies step through that process. It’s like a how-to guide on nature-related risk. 

The interview has been edited for clarity and brevity.

A service from the Financial Times