Early adopters of the TNFD’s recommendations announced at Davos

Davos, the ski resort near Zurich where the global elite gather every year to chew over some of the world’s biggest problems, isn’t the first place that springs to mind when it comes to major proclamations and announcements regarding nature and biodiversity.

No one really expects significant progress to be made on climate or the environment at such events, which some have described as the place where the “world’s privileged 1% talk shop”.

But with last year being the hottest year ever recorded globally, it is becoming increasingly difficult — even for the powerful elite — to ignore the effects of climate change. At Davos last year, the lack of snow was even a major talking point among attendees. 

This year, conflict, climate change and artificial intelligence dominate the agenda, but biodiversity and nature have also taken centre stage. The Taskforce on Nature-related Financial Disclosures (TNFD) has used the snow-capped slopes and mountain peaks at this year’s event as the backdrop to announce that 320 organisations, representing $4tn in market capitalisation, have committed to start making nature-related disclosures just four months after the TNFD published its recommendations in September.

Among the “notable financial institutions”, said the TNFD in a statement, are the Norwegian sovereign wealth fund, Norges Bank Investment Management, which owns approximately 1.5% of all shares in the world’s listed companies, as well as seven of the 29 Globally Systemically Important Banks (G-SIBs). 

The “first cohort of adopters”, as the TNFD called them, includes leading, publicly listed companies across 46 countries and 58 industry sectors, more than 100 financial institutions (33%), including some of the world’s largest asset owners and managers representing $14tn in assets under management, as well as banks, insurers and other market intermediaries such as stock exchanges, audit and accounting firms. 

More than 40% of the early adopters announced at Davos came from each of Asia-Pacific and Europe, with only 6% from North America, Latin America and the Caribbean, and just 3% from Africa and the Middle East.

Organisations will start adopting the TNFD recommendations and publishing TNFD-aligned disclosures as part of their annual corporate reporting for the 2023, 2024 or 2025 financial years.

Climate risk only one aspect of nature risk

David Craig, co-chair of the TNFD and former founder and CEO of Refinitiv, described it as a milestone moment for nature finance and for corporate reporting. “As climate-related sustainability reporting goes mainstream through the new International Sustainability Standards Board standards and regulation in a growing number of countries, this is a clear signal that investors, lenders, insurers and companies are recognising that their business models and portfolios are highly dependent on both nature and climate and need to be treated as both strategic risks and investment opportunities,” he said.

Mr Craig said it is encouraging to see such a strong, diverse and international group of companies and financial institutions step forward only four months after the release of the TNFD’s 14 recommendations, which position nature risk alongside financial, operational and climate risk. 

Managing nature-related risks plays a critical role in solving the climate crisis. More than half of the world’s gross domestic product — an estimated $58tn — is moderately or highly dependent on nature. 

“As a conglomerate, we conduct business in multiple sectors including infrastructure, mining, forestry and agriculture,” said Masayuki Hyodo, representative director, president and CEO of Sumitomo Corporation. “Undoubtedly, we are largely dependent on nature across the globe, and therefore integrating nature into our business decision-making is crucial for the sustainable future of the company.”

While the climate crisis continues to receive a lot of attention, it is only one dimension of the nature crisis; pollution, freshwater, land use and biodiversity are also all in critical states.

“Halting and reversing biodiversity and nature loss remains one of the most urgent challenges for society and the financial sector,” said Oliver Withers, head of biodiversity at Standard Chartered. “Embedding the TNFD across our business provides a valuable risk management and disclosure framework to act on evolving nature-related dependencies, impacts, risks and opportunities in a consistent and transparent manner — enabling us to contribute to positive change in nature and the mission of the Global Biodiversity Framework.”

However, at COP28 recently in Dubai, where the European Bank for Reconstruction and Development (EBRD) announced its new nature strategy, Harry Boyd-Carpenter, managing director for climate strategy and delivery said nature may be more difficult to ‘solve for’ than climate given “the overexploitation of public goods, the mispricing of nature in economic systems and a lack of appropriate regulation to redress this”.

While there is much to learn from the climate change effort, McKinsey points out that nature-related risk is more difficult to address and “key differences will require new thinking, data, and tools”.

Some of the challenges include the lack of well-functioning markets for nature, which the EBRD says makes commercially driven investments a challenge. “Only a fraction of nature’s value to the economy is priced by markets, and most markets are not structured to conserve or sustainably manage natural resources,” it stated at the launch of its nature strategy.