Elizabeth Mrema: Businesses must prepare for greater scrutiny over nature-related risks

Business leaders are increasingly aware of the commercial risks associated with the continued loss of nature, including disruption to supply chains, particularly in highly exposed sectors such as agriculture, and food and drink production. Biodiversity — and other facets of nature, such as freshwater and the ocean — are now becoming the new frontier for sustainable finance and business.

This increased attention is both warranted and welcome. However, there is a risk that companies and financial institutions could feel they are ahead of the curve if they start to consider these issues now. Instead, nature-related commercial risks are already here.

More than 50% of the global economy depends directly on nature and the ecosystems it provides. Yet, incomprehensibly large areas of rainforests are already gone and extreme droughts limit freshwater availability in many parts of the world.

Solving the climate crisis will depend on nature too. The world’s race towards net-zero emissions will only succeed if we race equally fast towards nature-positivity. By 2030, nature-based solutions could contribute more than a third of the cost-effective cuts in greenhouse gas emissions. If we fail to halt and reverse nature loss, global climate risks will escalate dramatically.

On top of these direct physical risks, governments are now recognising the urgency of the issue, and the role that business and finance play in nature’s destruction — and therefore the role they must play in its protection and restoration. Consequently, business should expect more nature-related regulations soon and must prepare accordingly.

Stepping stone 

In December of this year, nature will take centre stage on government agendas, as the world’s governments meet for the final negotiations of the Convention on Biological Diversity’s post-2020 global biodiversity framework (GBF). As executive secretary of the Convention on Biological Diversity, I have been working closely with state leaders and policy-makers towards an ambitious GBF for several years now.

Last year, in June 2021, we published a first draft of the framework. Governments then met in October 2021 for the first phase of negotiations, which resulted in the Kunming Declaration, under which 99 ministers, nine heads of state and the heads of delegations committed to negotiate, adopt and implement an effective GBF this year.

This commitment provides a sound foundation as we progress towards the final phase of negotiations. The GBF is a stepping stone towards a vision of living in harmony with nature by 2050. The current draft of the framework, which is expected to be adopted by world leaders later this year at the UN’s COP15 biodiversity conference, has several targets relevant to financial institutions and corporations. For example, the current draft of Target 15 sets out measures to reduce the negative impacts of businesses and financial institutions on biodiversity and to increase their positive impacts, including by asking them to assess and report how they impact and depend on biodiversity.

This target for biodiversity-related assessment and reporting proposed by the world’s governments has a close relationship and aligns with another market-driven initiative, the Taskforce on Nature-related Financial Disclosures (TNFD), which I have the pleasure to co-chair alongside David Craig, founder of data provider Refinitiv.

The TNFD is working with the market to develop a framework for businesses to assess and disclose their nature-related risk, dependencies and opportunities. Following the release of a first prototype for consultation in March of this year, we received more than 500 pieces of feedback from 138 organisations and individuals in 37 countries, which were used to update a second prototype, which was released in June. Over the coming months, we will continue with this open innovation approach, cycling through a series of further prototype releases and external feedback before we launch a final framework in September next year.

Powerful synergies

As I have the pleasure of working across both the government-led post-2020 GBF and the market-led TNFD framework, I see a set of powerful synergies now emerging.

First, having large private sector actors now backing the TNFD signals to global governments that halting and reversing nature loss is not just a human and societal imperative, but an economic and financial one. This increases the likelihood of an ambitious post-2020 GBF when governments meet in December.

Second, provided that Target 15 of assessing and reporting on biodiversity remains intact in the final version of the post-2020 GBF, the TNFD’s framework will offer a practical guide for companies and financial institutions to deliver and report against this target.

Third, while the TNFD framework will initially be voluntary for companies and financial institutions, over time, governments and regulators may mandate disclosure against the framework. Over the past year, we have seen significant interest in the TNFD from policy-makers and regulators from around the world, including endorsement by G20 and G7 members.

Ultimately, it will be up to them to decide whether to incorporate TNFD recommendations into any mandatory risk management and reporting requirements in their respective jurisdictions. The climate space has set a precedent for regulating environmental disclosures, and we should not be surprised to see that governments may move faster on nature than they did on climate. As the global community of scientists remind us, the 2020s is the final decade we have at our disposal to protect and restore nature. After that, it will be too late.

Reversing nature loss

As we progress with both the post-2020 GBF and the TNFD framework, we must remain strictly focused on this ultimate goal: halting and reversing nature loss. Asking companies and financial institutions to assess and disclose their nature-related risks is simply a tool, a foundational step that, in turn, can lead to a shift in behaviour and investment flows, away from nature-negative outcomes and towards nature-positive ones.

We cannot save nature without the incredible intellectual and financial resources of the private sector. The world’s governments have set global targets for biodiversity before and failed to meet them. We committed to the Aichi targets in 2010, and by the 2020 deadline, we had collectively reached none of the 20 targets in full. While a complex array of causes led to this failure, lack of effective engagement with the private sector was one of the biggest reasons.

It is different this time around. Governments sit at the centre of the negotiations of the global targets for biodiversity, but companies and financial institutions have been engaged throughout the process. At the same time, those organisations have a much stronger appetite for bringing their resources to the nature challenge, as they see the commercial value of doing so. Governments, companies, and financial institutions alike also recognise that we will not succeed without close collaboration with scientific experts, civil society and the stewards of much of the world’s remaining biodiversity, indigenous peoples and local communities. We are all in this together.

Our emerging nature-related frameworks must enable business and finance to deliver for nature and people, while helping nature-positive businesses thrive in the process. The GBF can provide the private sector with more policy certainty and attainable goals for biodiversity protection and restoration, playing a similar role in the nature space to what the 2015 Paris Agreement achieved for climate change.

The TNFD framework can provide companies financial institutions and companies with the practical guidance they need to deliver against those global goals. CEOs, risk managers and strategists who are only now beginning to recognise nature as commercially relevant will not be able to get fully ahead of nature-related risks or opportunities. But, if they immediately begin to build capacity on nature across their teams, and actively engage with the nature-related frameworks under development by TNFD and the world’s governments, their organisations can be ready for a future when governments — and the natural world itself — further ramp up the pressure to deliver for nature.

Elizabeth Mrema is co-chair of the Taskforce on Nature-related Financial Disclosures and executive secretary of the Convention on Biological Diversity.