Biodiversity - the next area of focus

The world is currently experiencing a loss of species and ecosystems that contribute to global biodiversity, at a distressing rate.

Given the reliance of businesses on natural resources, it is crucial for corporates to adopt measures to reduce their impact on the environment.

According to the latest CDP report[1], published in August 2023 – less than a third of the financial services industry is assessing the impact of nature-related risks to their businesses. The focus has been on climate risks but firms now need to seriously consider nature. Natural capital is vital for the economy, with more than 50% of the global GDP being highly or moderately reliant on nature.[2] Firms should treat nature equally with climate and not put it on the back burner. Working on both areas simultaneously can be beneficial for companies.

Financial services also depend on and impact biodiversity through their operational activities, supply chains, financing and investment decisions. They are uniquely placed in their financing, investing, and underwriting role to be a driver for good and to safeguard, restore and protect the natural world for decades to come. Businesses, investors, and other stakeholders are starting to recognize biodiversity as a major priority.

Policy and regulation are an important part of the puzzle, because, for the financial sector to do their part, supporting regulation needs to be in place. As with climate, public and private partnership is key to achieve results.

Global direction of travel

Jurisdictions like the EU recognise that biodiversity and nature-related risks are a part of their wider sustainability strategy, its biodiversity strategy for 2030 is a core part of the European Green Deal such as the EU Taxonomy, EU Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CS3D) and Sustainable Finance Disclosure Regulation (SFDR) — will all require reporting related to biodiversity. In 2023, the four remaining environmental objectives in the EU Taxonomy, including protection and restoration of biodiversity and ecosystems, will enter into force. CSRD includes a draft standard on biodiversity and ecosystems. Financial actors will also have to report according to the SFDR, which has specific points related to biodiversity. Many other countries have already adopted environmental financial risks frameworks into their guidelines for financial services institutions these include Singapore and Hong Kong.

The Taskforce on Nature-related Financial Disclosures (TNFD)

The TNFD, published their final recommendations on 18 September 2023. It is the leading nature initiative in the market for financial institutions and corporates and has developed a market approach for companies to report on nature-related risk and opportunities, measure and set targets on nature, address data challenges and undertake risk assessments and scenario analysis. The initiative is backed by national governments and the United Nations, as well as the largest corporates and FIs globally, and is expected to become mandatory in the some jurisdictions. The framework will support a shift in global financial flows toward nature-positive outcomes.

Learnings from TCFD could be key for firms. Using the TNFD framework is a strong starting point for companies as they embark of their biodiversity strategy.

Interoperability

The recommendations also build on those of the Task Force on Climate-related Financial Disclosures (TCFD) and are consistent with the global sustainability standards of the International Sustainability Standards Board (ISSB) and the impact materiality approach used by the Global Reporting Initiative (GRI) and incorporated into the new European Sustainability Reporting Standard.

What FS institutions should focus on now:

·?????? Ensure familiarity with upcoming regulations, reporting frameworks and required indicators

·?????? Define your priorities and prepare a roadmap

·?????? Understand your company’s impact boundaries and operational control for dealing with nature

·?????? Raise awareness within your organisation and upskill applicable teams

·?????? Map your value chain footprint and assess impacts and dependencies

·?????? Understand what drivers of environmental change such as nature have the greatest impact on your business/portfolio

·?????? Evaluate potential risks and opportunities in relation to stakeholders including investors

·?????? Develop KPIs and implement strategies

?

?The views reflected in this article are the author’s and do not necessarily reflect the views of the global EY organization or its member firms.

[1] Financial Institutions Failing To Integrate Nature And Climate: New Report Warns Inaction On Nature Impedes Net-Zero Ambitions - CDP

[2] Irene Espinosa Cantellano: Moving beyond climate - the relevance of biodiversity loss for the financial system (bis.org)