Green Finance Advisor of Friends of the Earth (HK)

While climate change stays in the focus of the society and investors, we are glad to see more discussion around the topic of nature and biodiversity. In fact climate and nature are impacting each other. Climate change has driven the increase in wildfire, drought and other hazards happening in nature. On the other hand, the weaker ecosystems of our sky, land and ocean have impacted the ability of the nature to regulating climate. Having a stronger nature can certainly help us mitigate climate change. We need big and quick actions from both the corporations and the governments to help recover our ecosystems.

Noticeably, climate action failure, biodiversity loss and natural resource crises are among the long-term existential threats for the world according to The Top Global Risks Reports 2021[1] from the World Economic Forum. (And we believe that these three risks are very likely to stay as the world’s major threats in The Global Risks Report 2022, which is scheduled to be published in this month.) According to the report from The World Bank, the collapse of the ecosystem would cost US$2.7 trillion annually (or 2.3% of global GDP) and some countries would be hard hit. In 2021, a group of 34 executives from global financial institutions, corporates and market service providers were appointed to the Taskforce on Nature-related Financial Disclosure (TNFD). The Taskforce members will help develop a framework for corporations to assess their nature-related risks and opportunities.

TNFD will adopt the same structural approach of TCFD’s four pillars (governance, strategy, risk management and metrics & targets) to guide companies operate and report nature-related issues. That being said, companies face more challenges when assessing their financial impact related to nature than those related to climate. This is underpinned by the complexity and the scope of nature-related issues. We have developed a widely accepted set of metrics for measuring climate risks (such as greenhouse gas emissions from Scope 1 to 3 and carbon prices). But there is no single set of one-size-fit-all metrics for assessing nature-related topics. Each nature-related topic (e.g. land degradation, biodiversity and water pollution) will need to be assessed by its own set of metrics.

It is important for corporations and nations to understand and access their nature risks and the associated financial impacts. While TNFD will take some time to be launched for wider adoption (by 2023), corporations and nations do not need to wait. There are plenty of tools available to help them assess nature related impact. The web-based ENCORE, developed by Natural Capital Finance Alliance in partnership with UNEP-WCMC, is a useful tool to facilitate financial institutions assess dependencies and impacts on natural resources for major industries. The Global Forest Watch is another online platform that provides tools and near real-time data for monitoring forests. We see no lack of tools for measuring nature-related impact but there a lack of effort among companies and governments to drive substantial positive impact on our nature.

Same as climate change, nature depletion and biodiversity loss are systemic risks that affect everyone of us. In 2022, the second part of the United Nations Biodiversity Conference (COP15) is expected to be held and to conclude the Post-2020 Global Biodiversity Framework. The Framework aims to work on 21 targets and 10 milestones for 2030.[2] The goal is to put the earth on the path to recover its nature and biodiversity. We urge businesses and governments to take bold moves to manage and reduce their nature risks and to drive positive changes to our ecosystems.

[1] The Global Risks Report 2021, the World Economic Forum, January 2021

[2] First detailed draft of the Post-2020 Global Biodiversity Framework, Convention of Biological Diversity, June 2021