Taskforce on Nature-Related Financial Disclosure (TNFD) – A Plan for Integrating Nature into Business
Taskforce on Nature-Related Financial Disclosure (TNFD) – A Plan for Integrating Nature into Business
Chief Sustainability Officer
Michael Torrance is Chief Sustainability Officer of BMO Financial Group and is passionate about sustainability, especially as it pertains to corporate governance an…
Michael Torrance is Chief Sustainability Officer of BMO Financial Group and is passionate about sustainability, especially as it pertains to corporate governance an…
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Michael Torrance is joined by Nathalie Borgeaud, Lead, Financial Markets Stakeholder Engagement of Taskforce on Nature-related Financial Disclosures (TNFD), which is developing and delivering a risk management and disclosure framework for organizations to report and act on evolving nature-related risks.
In this episode:
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How the TNFD has created a framework for organizations to shift away from nature-negative outcomes and move toward nature-positive outcomes
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The difference between nature risk and climate risk
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How the TNFD integrates social dimensions
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Nathalie Borgeaud:
... regulators and the NGFS is now saying that they see biodiversity loss together with climate risk as the potential for systemic risk and financial instability, which, in the world of central banks, is something very important to hear and to start acting on.
Michael Torrance:
Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment business practices and our world.
Speaker 3:
The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.
Michael Torrance:
With the latest convention on biological diversity conference, COP15, now behind us and a new global biodiversity framework released, nature related sustainability is top of mind. According to the task force on nature related financial disclosures or TNFD, more than half of the world's economic output is moderately or highly dependent on nature. It's clearly a key topic for business leaders to consider. Today I'm joined by Nathalie Borgeaud, Financial Markets Stakeholder Engagement Lead at TNFD, to talk about the work underway to develop a global framework for nature related corporate disclosure, which will guide companies on how to incorporate nature related risks and opportunities into their strategic planning, risk management and decision-making. So Natalie, let me start off. Why don't you tell me a little bit about yourself? What do you do with TNFD?
Nathalie Borgeaud:
With TNFD, I am the lead for the financial markets and I am in front of financial institutions. TNFD's mission is to help shift financing flows from nature negative to nature positive. Currently, most of the flows are not nature positive. Otherwise, we would not see the biodiversity loss that we're seeing today. Biodiversity loss has reached an extreme rhythm. What we are facing today, and this is not me saying, this is the group of scientists called EBAs, which is the equivalent for biodiversity in nature that IPCC is for climate. What EBAs is telling us is that only half of our ecosystems are now in good health. So we've already lost about half of nature and all our economies are obviously dependent on nature.
Some have started to look at how much of the value of our GDPs are dependent on nature and the World Economic Forum published a study a couple years back saying that at least 50% of our global GDP is either highly dependent on nature or dependent on nature. So basically, what we have currently is a situation where we only have half of our ecosystems available to us, and this continues to dwindle and dwindle and dwindle again, and we are highly dependent on nature. So this is why we're trying, at TNFD, to help shift the financial flows from nature negative to nature positive, and to do that, we're providing and delivering a risk management and disclosure framework.
Michael Torrance:
And when you talk about risk and opportunity in the context of nature and biodiversity, can you unpack that a little bit? What do you mean by that and how does the TNFD think about that?
Nathalie Borgeaud:
The way we want to look at risk and opportunities, risk and opportunities stem from how nature impacts businesses, which means how business depend on nature, what is that link that they have together, and how also business do themselves impact on nature. So it's impacts and dependencies that's the basics of risks and opportunities. When we look at impacts, for example, we will look and we're very inspired by the works of EBAs, again, that group of scientists. That group of scientists tells us that there are five main drivers of impact. The first one is land use and ocean use change. Second driver of impact is the resource harvesting when it is done in a way that's not regenerative like fish stocks. Third impact driver is pollution, and this is well documented and it's air pollution, water pollution, soil pollution, and this comes equally with climate change in terms of the driver of impact.
So number four is climate change, and the fifth driver of impact as invasive alien species. Through TNFD, we are encouraging companies to look at, "What's their impact on those five type of drivers?" How is their interaction with nature? That's one example of what we do. On the other side of the coin, the coin on dependencies, companies also depend on nature for a lot of their processes and sometimes, that dependency on nature is not very well understood, established, and there are a number of tools that can be used to understand that. Microprocessors, a lot of them are fabricated in Taiwan, and there has been water shortages. Those water shortages have meant that, in certain cities, there's no water certain days and water is allocated to people or other days, it's allocated to industries. It's been really severe. It has created shortages of microchips. Those shortages are seen throughout the value chain all the way to the automobile industry that uses a lot of them, which has created, in turn, shortages and delays in auto sales. So that's one example of a nature dependency, and TNFD helps businesses understand how they interact with nature and precisely how those dependency play out.
Michael Torrance:
Will the framework give a methodology for how to quantify the value of nature in that context?
Nathalie Borgeaud:
The framework provides some guidance on looking at location because where those industries are, where those plants are, is incredibly important and it is what they do and where they do it because that's how nature is impacted or the nature dependency takes place. When you start looking at a company as a whole, it becomes more complex. The bigger the company, the bigger the question of location is acute, and when you're a financial institution and you want to look at your portfolio where you have thousands, sometimes millions of companies, then you have a question of aggregation and we give some guidance on how to handle this when you're a financial institution. We have a guidance that we have called LEAP, which is L for locate, E for evaluate, A for assess, and P for prepare, and it's a process that we encourage people to follow.
Michael Torrance:
So looking at that LEAP framework then, the first one being location, what are your thoughts around data limitations? We've been spending quite a lot of time actually trying to think about, "How do we get data on the physical locations of assets of clients that we would have financing with so that we could better understand these kinds of things?" And if you had that kind of data, you could use geospatial technology. There's all sorts of data sets. There's a lot of really interesting ways to analyze it, but the bottleneck often is that data availability. Have you explored those kinds of challenges and what are your thoughts?
Nathalie Borgeaud:
TNFD has just launched a data catalyst, which is an initiative where we've asked data providers of different types, data providers, public providers, commercial providers, academic providers, to all come together and address that question of gaps and work together so that more innovation is seen and address precisely those gaps. I used to sell physical climate risk data to financial institutions for a while, and one of the data gap there, which is completely similar for nature, was that there is some information. It is the same for nature. There is some information locally as to the state of nature. There is, in other types of data, information on where a company have their assets, have their operating assets, the ones that are nature impacting on nature dependent, but there is no overlay of those two type of data sets. For a financial institution, what you need to know is, both if you lend to a company or you invest in companies, where they have those assets and what's the state of nature around those assets and whether the company impacts that state of nature or not.
Michael Torrance:
Is geospatial technology part of that mix? Has there been any focus on that topic and technology?
Nathalie Borgeaud:
Yes, absolutely. There are plenty of new technologies. You have geospatial data. That is very important. You also have very promising technologies such as ADNA, where you take a sample of water in any place and just measure the different DNAs that you have in there, which is an indication of how much biodiversity you have or don't have or how it evolves over time.
Michael Torrance:
The targeted users of this framework, I know you're focused on the financial sector, but who in the end will be using the TNFD?
Nathalie Borgeaud:
We have a support group of our forum members that's over 600 institutions today. Among those, you have governments, you have central banks, you have financial institutions, plenty of corporates, you have various NGOs. The disclosure themselves, and that's the framework we're putting out, will be disclosures by corporations and financial institutions.
Michael Torrance:
Just pivoting a bit in terms of the interconnection between TNFD and other initiatives, how does TNFD relate to the global biodiversity framework as well as other initiatives like the ISSB that are focused on sustainability related disclosure?
Nathalie Borgeaud:
We entertain a dialogue with many of those standards, with ISSB, regular dialogue. We speak with AFRAC as well. We have started developing work on scenarios with SBTN, for example, on targets with SBTN. We'll look at scenarios with a number of those different knowledge partners. We have a group of 17 knowledge partners that is helping us day-to-day looking at a number of these issues.
Michael Torrance:
Can you tell me, in the design of this initial beta version of the TNFD, what were some of the challenges that you considered and had to try to overcome in the framework itself?
Nathalie Borgeaud:
The framework itself is meant to work for both corporates and financial institutions, and sometimes, it can create a number of tensions and it's probably more tensions about the vocabulary of how people see the world when you're a corporate and how people see the world when you're a financial institution. So that's something that we're very careful of and looking into. In terms of challenges, one of the challenges also to keep a good alignment with many of those different initiatives that are out there. We are trying to be very aligned to TCFD, because it has been immensely valuable on the climate front for the business and the financial community.
We have very close dialogue with ISSB, with SBTN, and that nourishes the framework. Other interesting discussions that we have are discussions with regulators, which we have and which we feel is important. We have discussions with the secretariat of the NGFS, the Network for Greening the Financial System, which is that network of over 100 central banks and regulators all around the world. That's something we feel is very important. Regulators and the NGFS is now saying that they see biodiversity loss, together with climate risk, as the potential for systemic risk and financial instability, which in the world of central banks is something very important to hear and to start acting on, I would say.
Michael Torrance:
And how does the TNFD consider the social dimension of sustainability, particularly indigenous peoples and indigenous rights?
Nathalie Borgeaud:
This is something that's very important to TNFD. We are currently working on this, so consultations are taking place. Discussions. We've obviously received feedback from a number of NGOs, but it's more than just responding to their feedback. The idea is to really integrate those point of views and this angle into the TNFD, and that's currently what we're doing.
Michael Torrance:
So going forward then, can you just recap what it is that will be happening over the next six months to a year and how people can participate, whether they're part of civil society or the business community?
Nathalie Borgeaud:
One is whoever you are, you can become a forum member. That's one way. If you want to get a bit deeper into things, you can have a look at our framework and provide feedback. We take all the feedback that can come in. For the first version, there was plenty, plenty of feedback came in. I read, myself, over 500 pieces of very substantive feedback. When I mean substantive, I mean at least one page. Sometimes it was 80 pages of feedback. So a lot of experts in this market are looking closely at what we're doing and are providing feedback, which is then used, discussed among the secretariat with our task force members. I will remind we have 34 task force members that all come from the largest financial institutions and the largest companies, the ones holding the pen for drafting the framework. The third way to be involved with us is to decide that you want to pilot the TNFD, which is try it out for a piece of your business, a piece of your portfolio, if you're a financial institution.
Michael Torrance:
And when do you anticipate the TNFD framework will be completed?
Nathalie Borgeaud:
September, 2023 is the our target deadline.
Michael Torrance:
Thank you very much, Nathalie, for your time.
Nathalie Borgeaud:
Thank you.
Michael Torrance:
Thanks For listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode and to see our other podcasts, visit us at bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple Podcasts or your favorite podcast provider and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO'S marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.
Speaker 3:
The views expressed here are those of the participants and not those at Bank of Montreal, its affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy or security. This presentation may contain forward-looking statements. Investors are cautioned not the place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment, legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment, tax and or legal professional about their personal situation. Past performance is not indicative of future results.
