What to expect for nature-related business & finance in 2022
The commercial imperative of managing nature-related risks alongside climate risks and opportunities became clear in 2021. In 2022, TNFD expects considerably strong interest among corporates and financial institutions looking to understand and assess nature-related risks and opportunities more firmly across their organisations.
The five key nature-related developments highest on our radar for the coming year include a strengthened connection between the climate and nature agendas; progress on a framework for nature-related risk management and disclosure; a global framework agreement on biodiversity; the ramping up of a regulatory and public sector response; and new nature-related guidance and standards, resulting in a strengthened call for further global harmonisation.
Organisations integrate climate and nature
In 2021, leading organisations began to increasingly connect climate- and nature-related risks. Last month’s climate summit COP26 marked a significant shift, as nature was part of the climate discussions at a greater scale than ever before. Nature-based solutions to curbing greenhouse gas emissions and adapting to physical impacts of climate change were widely recognised by private sector players and governments alike.
In 2022, more private sector players will realise that their race towards net zero emissions will only succeed if they race equally fast towards nature-positive. As a result, organisations will look to translate their awareness of the interlinkages between nature and climate into their governance, strategy, targets and metrics, risk management and disclosures.
Progress on framework for nature-related risks
Managing nature-related risks in a robust manner alongside climate risks requires organisations to have access to more and better decision-useful information on nature-related dependencies, impacts and risks. The market has been calling for an integrated risk management and disclosure framework that aggregates the best tools and materials, and that’s what the TNFD aims to deliver.
Responding to market interest, the first beta version of the TNFD framework will be released in Q1 2022. This tees up 2022 as a year for corporates and financial institutions, as well as scientific experts, development finance institutions and standard setting bodies, to test the proposed framework and provide the TNFD with feedback to inform future updates. Extensive testing by a wide range of stakeholders at an early stage of the development process will help the TNFD develop market guidance and tools that are both scientifically rigorous and practical for organisations to implement. We are delighted that many of the 250 organisations that are part of the consultative TNFD Forum have already expressed interest in piloting the beta version of the framework when it’s released.
Piloting organisations will provide feedback to the Taskforce itself. Throughout 2022, the 34 senior executives from financial institutions, corporates and market services providers will continue to work on building-out the detailed aspects of the framework towards the final release in 2023.
It is our hope that piloting in sectors with a moderate and high dependence on nature will provide a range of corporate and financial organisations with further insights on how to manage, report and act on nature-related risks in practice. The TNFD framework will build upon the structure and foundation of the Task Force on Climate-related Financial Disclosures (TCFD), with a view to enabling organisations to assess nature- and climate-related risks and opportunities together wherever possible.
Global biodiversity agreement at COP15
As we move into Q2, national governments will gather in Kunming, China, to agree on a post-2020 Global Biodiversity Framework, a 10-year roadmap for reversing nature loss. The meetings in April and May will form the second phase of biodiversity summit COP15, after the first phase of the summit took place in October this year.
If governments next year deliver on the promise of an ambitious agreement when they meet in Kunming, COP15 could be the biodiversity equivalent of the 2015 Paris Agreement on climate change, providing clarity for the private sector on global goals and strengthening expectations for action.
Several of the targets included in the latest draft of the biodiversity framework are specifically focused on the role to be played by financial institutions and corporates, including a target for all businesses to assess and report on their dependencies and impacts on biodiversity.
Regulators and public financial institutions ramp up response to nature loss
While national governments aim to agree on global biodiversity goals, we expect to see a growing number of central banks, financial supervisors and development banks consider their own nature-related agendas in 2022, and look at how they can support the private sector in transitioning towards nature-positive investments and managing transition risks along the way.
The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) will release the final report of their study group on biodiversity and financial stability. The report will set out options for central banks and financial supervisors to address the financial risks posed by biodiversity loss. Under the NGFS Glasgow Declaration, signed at COP26 in November, the 100 central banks and supervisors committed to “keep exploring emerging topics such as the impact of the loss of biodiversity”.
Leading development banks have also committed to mainstream nature considerations into their policies and operations by 2025. Next year, they will start work towards delivering on this commitment, which plays a critical role in catalysing a shift in financial flows towards nature-positive outcomes in developing and emerging economies in particular, which is where the majority of the world’s intact nature resides.
An increasing proliferation of nature-related guidance
With an increasing number of actors considering nature-related risks and opportunities in 2022, the calls for harmonisation will grow, as a plethora of relevant guidance and standards emerge.
Following the recent creation of the International Sustainability Standards Board (ISSB) under the IFRS, the European Financial Reporting Advisory Group (EFRAG) is expected to provide a draft of an EU biodiversity disclosure standard to the European Commission in mid-June, as part of their work on European Sustainability Reporting Standards. The Global Reporting Initiative (GRI) also plans to release an update to their 2016 Biodiversity Standard in the second half of 2022. Additionally, CDP has announced that it will expand its corporate questionnaire, which currently focuses on climate, water security and deforestation, to include oceans, land use, biodiversity, food production and waste. The Science Based Targets Network will also release guidance on science-based targets for nature. And already this November, the Climate Disclosures Standards Board (CDSB) released their own biodiversity application guidance.
TNFD is working closely with all of these standard setting and disclosure mechanism bodies to contribute to the momentum towards further consolidation by ensuring that the TNFD framework is compatible with the emerging global baseline and other relevant regional and national standards in existence and under development.
2022 and beyond: strong momentum, urgency remains
Taken together, all these key developments expected in 2022 suggest strong positive momentum behind nature next year. But progress across business and finance will still occur against the backdrop of continued nature loss – and a corresponding increase in nature-related financial risks. It is clear that we need to continue to push ahead with urgency, while prioritising collaboration and rigour. TNFD will be working hard throughout 2022 to deliver a framework, with the market and for the market, that enables organisations to assess and manage these risks in a robust and practical way, and ultimately shift financial flows from nature-negative to nature-positive.
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Listing image: Fabio Fistarol, Unsplash