by Natacha Guerdat, Head of Research
14 March 2023
In order to factor nature and biodiversity into business and financial decisions, we need frameworks to understand how our production practices should transition.
The 15th United Nations Biodiversity Conference held in Montreal late December, saw the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF) sending a clear message to the financial community which is expected to play a strong role.
Nature capital data and disclosure
There is currently a very low consensus on which metric to be used to assess nature-related impacts. This is largely due to the complexity of biodiversity loss assessment methodology, standardized metrics. This is a consequence that, unlike climate change, the phenomena is intrinsically linked to the geographical footprint of a company and its exposure to sensitive areas.
Subsequently, existing reported data on biodiversity is weak in terms of coverage and accuracy. Biodiversity metrics are today mostly, either estimated or modelized, which makes them unfit to take investment decisions.
However, biodiversity already does materially impact several activities or sectors and represent a series of risks. In France, under the Article 29 of the Energy and Climate Act, organizations are already required to disclose their biodiversity-related risks and strategies or a plan how they will do so in the future.
The Task Force on Nature Disclosures delivers a risk management and disclosure framework for organizations to report and act on evolving nature-related risks. A market-led and science-based support, it follows the LEAP approach: locate, evaluate, assess, and prepare. The complete version will be available in September 2023 and cover the following:
- Physical risk: for instance, reduction in agricultural yields due to pollinators reduction
- Transitional risk: regulation changes or new consumer behaviors with a biodiversity loss lens could affect license to operate.
- Systemic risk: the addition of physical and transitional risk affecting the financial system.
It aims to help drive alignment, provide adaptability and flexibility, encourage actions and increase ambitions.
Tackling nature loss is a collective effort. When talking about nature positive actions, private markets can take, and avoid, actions to contribute to a nature positive world. In the next blog we will cover how biodiversity can be integrated in an impact investing strategy and create investment opportunities. From product and services from responsible businesses to companies or projects with a positively contributing business model that restore and regenerate rather than degrade nature.