Finally! An efficient tool for measuring economic exposure to nature

Every effective cure starts with a good diagnosis, and we finally have it! On 18?September at the New York Climate Week, the Taskforce on Nature-related Financial Disclosures (TNFD) unveiled its much-awaited final framework, addressing a longstanding issue: how can economic actors accurately measure and disclose their interactions with nature?

• $44 trillion, or over half of the economic wealth generated worldwide: that’s how much the economy depends on nature, says the AFD - Agence Fran?aise de Développement (French Development Agency). Yet nature’s health has never been so poor: wildlife populations have fallen by 69% over the past 50 years, shows the WWF Living Planet Report 2022. And at least 1.2 million plant and animal species may be extinct by 2100, says 英国伦敦政治经济学院 ’s Grantham Research Institute on Climate Change & the Environment . This decline could slow progress on up to 80% of the United Nations Sustainable Development Goals, including critical areas like poverty alleviation, health, hunger, and water security, warns Sebastien Soleille , Global Head of Energy Transition and Environment at BNP Paribas.
• But there is reason for hope: through last year’s Kunming-Montreal Global Biodiversity Framework, 200 governments have vowed to halt and reverse nature loss by 2030. Reaching this goal largely hinges on the actions of businesses and financial institutions. Yet most still fail to incorporate nature into their capital allocation strategies and to correctly assess their impact and dependence on nature as well as the ensuing risks, opportunities, and effects on their financial performance. Why? Because they lack the necessary information. Measuring nature-related risks is complex: while climate change is global, interactions with nature are localised, requiring companies to know precisely where and how their activities interact with nature.
• That’s where the TNFD comes in. Born in 2020 with an aim to create a common international framework for managing and disclosing nature-related dependencies, impacts, risks, and opportunities, the Taskforce aims to help economic actors better integrate nature preservation into their decisions.
• With 40 members overseeing $20 trillion in assets across 180 countries, including major consulting firms and large multinational companies, the TNFD relied on the expertise of 19 leading scientific organisations and standard setting entities and 1,200?institutions to build its framework.
• This framework was built following an open innovation approach, with a series of beta versions released for feedback from market players in 60?countries. Addressing ocean, freshwater, land, atmosphere, pollution, resource exploitation, and invasive alien species, it lays out 14?Recommended Disclosures and provides a toolkit of guidance and metrics to jump-start implementation. Want to learn more? Watch the video below.

• The Recommended Disclosures pertain to four different areas: governance, strategy, risk and impact management, and metrics and targets. Each of them requires the organisation to disclose its nature-related dependencies, impact, risks, and opportunities as well as its responses to each of these issues. All are designed to meet the reporting needs of a broad variety of organisations in all sectors and across the world.

• BNP Paribas has been a committed member since the inception of the Taskforce, which we co-presided in 2020. “Better understanding our portfolio’s exposure to these risks and quantifying its impact on biodiversity helps us make better investment decisions”, says Robert-Alexandre Poujade , ESG analyst at BNP Paribas Asset Management , who took an active role in the making of the framework alongside Sébastien Soleille.
• But BNP Paribas’s commitment to biodiversity goes further. Since 2010, we have implemented restrictive financing and investment strategies in sectors with the greatest climate risks, particularly those contributing to deforestation: we only provide financial products and services to clients with a “zero deforestation” strategy by 2025, among those producing or purchasing beef or soy from Brazil’s Amazon and Cerrado regions.?And since 2020, we are no longer financing oil and gas exploration in sensitive Arctic regions and have excluded oil exports from Ecuador’s Amazon Sacred Headwaters from our trading activities. Just as climate change is a vital preoccupation, so, too, is biodiversity – not merely for nature’s sake, but for the resilience of our global community.

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New frontiers?

With global water demand set to rise by 30% by 2030 and $1 trillion needed in investment within the next decade, private sector participation is crucial.

• Between 1962 and 2018, renewable freshwater sources declined by 60%. Amid these challenges, innovative technologies like desalination offer hope. BNP Paribas aims to be at the forefront of such technologies: for example, supporting projects like the Mirfa 2 RO Project in the UAE, which can supply up to 120 million imperial gallons of water per day.
• “Corporates are increasingly addressing their responsibilities for impact on water systems, from working with local communities to reducing the impact of industrial water”, says Anne van Riel , Head of Sustainable Finance Capital Markets Americas at BNP Paribas.
• BNP Paribas has supported Peru in its sustainable bond network and been partnering with nations across Sub-Saharan Africa to issue sustainable bonds for resilient water management. This program will have a ripple effect throughout the continent, offering water treatment plants, transmission pipes, storage, and distribution facilities, for the purpose of providing potable water in urban communities.

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Explorers

• Good news: BNP Paribas’s newly released ESG Global Survey 2023 shows institutional investors are rapidly moving towards sustainability. Surveying 420 key asset owners, hedge funds, and private equity firms, the survey reveals a shift towards investments that generate both financial returns and positive social impact: despite data constraints, regulation and reputational risks are fast making ESG expertise a must-have in investment strategies.

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Milestones

Launched in 2019, the UN-convened Net-Zero Asset Owner Alliance (NZAOA) brings together institutional investors aiming to make their investment portfolios reach net-zero by 2050.

• NZAOA members are the first in the financial sector to have set themselves intermediate goals which include CO2 reduction ranges for 2025 (22-32%) and for 2030 (40%-60%).
• A member of the NZAOA since 2021, world leader in credit protection insurance BNP Paribas Cardif is now pursuing and expanding its climate commitments by pledging to further decarbonise its portfolio, with a focus on the power generation sector.
• The goal? To limit emission intensity to under 125?g CO2/kWh by the end of 2024 for power generation activities held directly in Cardif’s equity and bond portfolios, in line with the International Energy Agency (IEA) ’s Net Zero Emissions scenario for electricity generation.

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From the observation post

What will our cities look like tomorrow?

• Journey into the future with the “Ville de Demain” exhibit, organised by the Solar Impulse Foundation, a BNP Paribas partner. Just steps away from the iconic Solar Impulse 1, at the Cité des sciences et de l'industrie , in Paris, this interactive experience dives deep into the challenges of urban sustainability and the innovations in energy, construction, infrastructure, or mobility that may well solve them!