In December 2022, the Kunming-Montreal Global Biodiversity Framework (the Framework) was adopted at the 15th Conference of the Parties (COP15) to the UN Convention on Biological Diversity (CBD). This framework sets out the pathway to reach the global vision of world living in harmony with nature by 2050. It contains the target to halt biodiversity loss by 2030. The Framework text refers to private and financial sectors participating in its implementation and to reducing biodiversity related risks to business. The next COP takes place in Cali, Columbia later this month [note - publish in October] where the world's attention will turn to reviewing the Framework's implementation status and further developing mechanisms for monitoring progress.
Since 2022, we have also seen the Taskforce on Nature-related Financial Disclosures (TCFD) publish its recommendations to facilitate businesses assessing and reporting on their nature-related impacts and dependencies. The fourteen recommended disclosures of the TNFD follow the same four core elements of the Taskforce on Climate-related Financial Disclosures (TCFD) of governance, strategy, risk management and metrics and targets:
- Under the governance element, the TNFD requires business to disclose board oversight and managerial responsibility for nature-related dependences, impacts, risks and opportunities. Unlike TCFD, the governance element includes a further disclosure related to human rights policies and engagement and consideration of affected stakeholders in any organisational assessment related to nature.
- Under the strategy element, businesses are required to state the nature-related dependencies, impacts, risk and opportunities over three different time horizons (i.e. short, medium and long –term), as well as the effect these have had on the business model, strategy and financial plan. In keeping with the TCFD requirement there is also a disclosure related to resilience of the business strategy to nature-related risks and opportunities taking into account different scenarios.
The requirement to consider the effect on the value chain links to the requirement to assess, identify, prioritise, mitigate, prevent and cease adverse environmental impacts in the new EU Corporate Sustainability Due Diligence Directive (CS3D) across not only an organisation's operations but in the chain of activities of its business partners. In addition to businesses being required disclosure the locations of assets and/or activities in the organisation's operations, they are also obliged to, where possible, report on upstream and downstream value chains meeting priority location criteria. The strategy recommended disclosures also require consideration of any transition plans or analysis in place, which again links to the CS3D obligation to design and implement a climate transition plan.
- Under the risk and impact management element, there are requirements to describe the organisation's process to identify, assess, and prioritise nature-related dependencies, impacts, risks and opportunities in the company's direct operations, and its upstream and downstream value chains. Again, this aligns with the CS3D obligation. There are also recommended disclosures around the process for managing and monitoring these and to describe how these are embedded into and inform the overall risk management process.
- Under the metrics & targets element, there are three recommended disclosures. The first requires a company to state the metrics they use to assess and manage their material nature-related risks and opportunities in line with their strategy and risk management process. The key term in this disclosure is material and business should be looking now to consider the extent to which their materiality assessment considers nature-related risks and opportunities. A second disclosure related to the metrics used to assess and manage dependencies and impacts on nature. This is also useful in demonstrating progress in conducting risk-based environmental due diligence under the CS3D. The final disclosure requires the organisation to describe the targets and goals it uses to manage nature-related dependencies, impacts risks and opportunities. The TNFD like the CS3D however is not just about reporting goals and commitments - it requires practical measure to be taken as evidenced by the requirement in the final disclosure to describe performance against the stated goals and targets.
The report of the Recommendations of the TNFD notes that "Most companies, investors and lenders today do not understand their nature-related dependencies, impacts, risks and opportunities and are inadequately accounting for nature in their strategies and capital allocation decisions". Earlier this year, we polled 1200 C-Suite Leaders from across the UK and Europe in our DWF Thought Leadership Report entitled True Diligence. We found that less than half (47%) say their organisation measures nature and biodiversity loss. Which half are you in?
For those not currently measuring nature and biodiversity loss, the Taskforce also points out that "nature is no longer a corporate social responsibility issue, but a core and strategic risk management issue alongside climate change. It needs to be brought into the strategy, risk management and capital allocation decisions of business and finance, fully integrating climate and nature considerations".
Our multidisciplinary consulting-led and legally-backed Sustainable Business and ESG advisory practice can help you to consider nature-related dependencies, impacts, risks and opportunities against the backdrop of an evolving and complex ESG regulatory landscape. We can support you in:
- undertaking materiality assessments and value chain mapping to comply with the TNFD and CS3D;
- developing prevention and remediation action plans and climate transition plans;
- developing and reviewing environmental, climate and nature-related policies and risk management processes;
- embedding nature into your ESG strategy design and delivery, including exploring the socio-governance interface with nature, climate change and the energy transition to amplify your impact;
- delivering bespoke training to build internal awareness and capacities on nature and climate; and
- offering conflict support in the case of litigation claims/class action claims.
Authors: Nadine Robinson, Tracey Groves, Dominic Watkins and Michelle Headridge.
