What Investors Need to Know About Biodiversity Reporting Standards

By GIST Impact & TMX Datalinx

Since the launch of the Global Biodiversity Framework at the Kunming-Montreal conference in December 2022, we are seeing an international movement urging businesses to disclose the impact of their operations on biodiversity and nature loss, the dependencies they have on nature, and the risks posed to their business of those impacts and dependencies. According to KPMG, however, only 46% of the world’s largest revenue-generating companies acknowledge the influence of biodiversity loss on their operations.

Investors are uniquely positioned to influence biodiversity through their capital allocation to companies. The positive and negative effects of these investment decisions can and do shape the future of ecosystems and species across the planet.

The scale of the challenge remains staggering. According to MSCI, only 2% of the estimated USD 3 trillion invested in sustainable funds globally is linked thematically to biodiversity, representing USD 60 billion held by 149 funds (as of September 2023). To make matters worse, in most of these cases, the methodology applied to link investment strategies to biodiversity remains a black box.

In order to bridge the gap in nature-positive investment and bring transparency and rigor to the process, we need:

1. A set of transparent, credible, and science-based standards that provide frameworks and guidance for investors to easily and confidently evaluate how their strategies align with biodiversity objectives.
2. Disclosure regulations that incorporate those standards systematically and in an interoperable way.
3. Datasets that use accurate data sources (whether that’s company data or site-specific data) as a foundation and apply transparent methodologies based on peer-reviewed science, in alignment with the frameworks defined by standards and built into regulation.    

Organizations like TMX and GIST Impact now provide science-based and fully traceable biodiversity data to support investors in this transition. Such guidance is essential for investors to allocate funds in a way that mitigates risks and contributes positively to ecosystem preservation and species conservation.

In this article, we provide an overview of the latest updates related to the standards and associated frameworks that provide guidance to investors on biodiversity, as well as the key regulatory developments from around the world and implementation timelines to help investors navigate this complex landscape.

Emergence of Biodiversity-related Frameworks

The emergence of science-based frameworks and regulations has fundamentally reshaped how companies and investors are expected to report on biodiversity. Many frameworks that assist organizations in assessing and disclosing their nature-related risks, impacts, and dependencies are already available. Here, we’ll provide an overview of the critical frameworks companies and investors need to know about.

• Global Biodiversity Framework (GBF): The Global Biodiversity Framework was adopted at the Kunming-Montreal CBD COP-15 (the UN Convention on Biological Diversity) in December 2022. The framework includes four goals and 23 targets to halt and reverse biodiversity loss by 2030. The framework is historic as it recognizes the leading role of big businesses and large investors in conserving biodiversity. Target 15 requires all large companies and financial institutions to assess and disclose their risks, impacts, and dependencies on nature.

• Task Force on Nature-related Financial Disclosures (TNFD): The taskforce has been at the forefront of efforts to align nature- and financial-related disclosures. The final TNFD recommendations were published in September 2023 and provide a comprehensive framework for measuring, understanding, disclosing, and managing the impacts and dependencies of business activities on nature. The TNFD guidance comprises 14 disclosure recommendations and adopts a systematic approach, encompassing the Locate, Evaluate, Assess, and Prepare (LEAP) framework. The framework enables businesses to systematically address their nature-related impacts and dependencies. It covers the same four pillars as the Task Force on Climate-related Financial Disclosures (TCFD): governance, strategy, risk and impact management, and metrics and targets.

• Science Based Targets for Nature (SBTN): Released in May 2023, SBTN supports corporations in assessing their impacts on nature and biodiversity. SBTN covers a five-step process: Assess, Interpret and Prioritize, Measure, Set and Disclose, Act and Track. The method enables corporations to set nature-related targets to halt and reverse biodiversity loss and track progress. SBTN has also released a Materiality Screening Tool and a High Impact Commodity List to help companies navigate the assessment step.

• Partnership for Biodiversity Accounting Financials (PBAF): An independent foundation based in the Netherlands and is the sister initiative of the Partnership for Carbon Accounting Financials (PCAF). Its aim is to provide specific guidance to the financial sector on nature-related disclosures and investment strategies. PBAF’s Standard for Financial Institutions provides a step-by-step approach to assess, measure and report on the positive and negative impacts of an organizations’ loans and investments on biodiversity. Fund managers can use these to, for example, estimate biodiversity loss from an investment in a multinational food company and gain insights into the underlying causes. Furthermore, PBAF updated its standards in 2023 to include dependencies on ecosystem services.

The congruence between all of these frameworks is encouraging. PBAF is aligned with the “Evaluate” stage of the TNFD’s “LEAP” framework. TNFD and SBTN are collaborating to align their respective frameworks and methods further to help ease the corporate disclosure burden and accelerate standardization. Together, these increasingly aligned voluntary frameworks provide the foundations of a robust and science-based measurement and reporting system for companies and investors.

The Evolving Regulatory Reporting Landscape

Some governments have established mandatory disclosure requirements to promote sustainable growth of businesses and financial institutions and to protect and restore nature and biodiversity. Here, we provide salient information on noteworthy nature-related disclosure requirements worldwide to help investors stay informed.

Click Here To Read More

—

Originally Posted May 2024