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10/21/2024
Whitepaper #3: Standards, frameworks and tools relating to nature
Michael Lewis
Head of Research, ESG
Steffen Kutscher
Lead Sustainability Frameworks
Otar Sarishvili
Sustainability Frameworks Specialist
Annekathrin Mueller-Lohmann
Senior Sustainability Strategy Manager
In our third paper in this biodiversity series[1] we explore how nature-related standards and frameworks aim to improve investor understanding when it comes to nature. The paper is organized into four sections. The first section examines the steps investors are taking to understand and assess nature-related risk and opportunities at a portfolio level. The second section explores the efforts underway to address the challenges faced by investors to integrate nature-related risks and opportunities. The third section then examines some of the tools available for investors to assess the materiality of nature at a portfolio level. Following the conclusion, the appendix provides an overview of how the main nature-related standards and framework compare.
1.1 Frameworks to support investor understanding of nature
In recent years, there has been a noticeable uptick in the need to evaluate businesses' dependencies and impacts on nature. According to a study conducted by GARP[2] approximately 30% of financial institutions (FI) participating in the study indicated that regulators are now mandating the disclosure of their nature-related risks and opportunities. This figure is expected to rise over time, driven by Europe’s Corporate Sustainability Reporting Directive (CSRD), the Sustainable Finance Disclosure Regulation (SFDR) and initiatives by central banks such as the Network for Greening the Financial System (NGFS)[3]
While there is no one-size-fits-all approach to the incorporation of sustainability factors such as nature into an asset managers’ investment process, global initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD), the Science Based Targets Network (SBTN) and the Nature Target Setting Framework[4] developed by Finance for Biodiversity Foundation (FfB), are supporting financial and non-financial organisations to incorporate nature considerations into financial and business decision-making processes.
Of these, the TNFD focuses on improving corporate reporting on nature with the aim of businesses incorporating nature-related risks and opportunities into their strategic planning (Refer to Table 1 in the appendix). The SBTN helps companies set and achieve targets to reduce negative impacts on nature while the FfB’s Framework provides asset managers and asset owners with recommended strategies and methodologies for setting nature-related goals, along with assistance in guiding their investment and capital allocation decisions to address nature loss.
1.2 Understanding, assessing and target setting
Investors typically need to adopt a three-step process of understanding nature-related exposures, first at a sector level and second at a location level. This then allows investors the ability to consider setting targets for relevant key performance indicators (KPIs).
The TNFD framework offers guidance on identifying, assessing, managing, and disclosing nature-related dependencies, impacts, risks, and opportunities. This includes the LEAP assessment, which encourages organizations to:
To better serve the specific requirements of FIs, the TNFD has enhanced the LEAP approach for financial institutions, creating LEAP-FI. This guidance recommends that FIs disclose all core global risk and opportunity disclosure metrics, along with two core sector disclosure metrics.
DWS Research Institute (December 2023). Nature-focused regulations start to get serious; DWS Research Institute (April 2024). Why companies are waking up to nature-s value *We wish to thank Dr. Katja Kirchstein and Matthias Kopp of WWF Deutschland for providing comments on a draft of this report
GARP (March 2024). Global survey of nature risk management at financial firms. The GARP survey covered 48 firms comprising 37 banks 7 asset managers and 4 insurers around the world https://www.garp.org/hubfs/Website/GRI/PDF/GRI%20Nature%20Risk%20Survey%202024_032524.pdf
NGFS (September 2023). Nature-related financial risks: a conceptual framework to guide action by central banks and supervisors.
Finance for Biodiversity (July 2024) Nature Target Setting Framework for Asset Managers and Asset Owners https://connect.financeforbiodiversity.org/hubfs/Docs/FFBI_ExeSummary_Guidance_on_nature_target_setting.pdf
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