Nature is increasingly emerging as an issue for boards to consider as part of decision making, alongside climate, and large companies are making Nature-positive commitments. Nature will feature prominently at our AICD Climate Governance Forum on Friday 11 August 2023.
Large companies such as BHP, Salesforce, and Blackmores have made ‘Nature positive’ commitments in recent times, with the latter also undertaking Nature risk assessments aligned to the emerging Taskforce on Nature-related Financial Disclosure (TNFD) draft framework as part of its 2022 Sustainability Report.
In this article, we cover the current TNFD consultation on its final draft framework, insights from a recent AICD director roundtable on the governance of biodiversity risk and opportunity, the Government’s role in addressing Nature, and key takeaways from a New Zealand legal opinion on directors managing Nature-related risks.
Nature will feature at our upcoming Climate Governance Forum on Friday 11 August 2023, hosted by the AICD. Following on from the success of the inaugural event in 2022, which saw around 1400 directors and senior leaders attend, this year’s event will be held at the Hilton Sydney and feature key director, regulator, and stakeholder voices including Xero Chair, David Thodey AO FAICD, on how boards should be getting ready for mandatory climate reporting, Atlassian Co-Founder and Co-CEO, Mike Cannon-Brookes discussing the energy transition, and ASIC Deputy Chair, Sarah Court outlining the regulator’s approach to greenwashing. Again, please register here to secure your tickets.
TNFD releases final draft framework
On 28 March 2023, the TNFD released its fourth and final draft TNFD Nature-Related Risk & Opportunity Management and Disclosure Framework (TNFD Framework). Consultation is open until 1 June, with the final recommendations to be published in September 2023.
What is the TNFD?
The TNFD is a voluntary market-led, science-based and government supported initiative that provides a structured framework for companies to report their interactions with Nature. Whether directly or indirectly, all businesses rely on, and interact with, Nature at some point in their value chain, therefore the TNFD is likely to influence boardroom decisions across all sectors regarding not only reporting, but also strategic planning and risk management.
The TNFD encourages business and financial institutions to disclose Nature-related dependencies (upstream and downstream), impacts, risks, and opportunities for four Nature realms: ocean, freshwater, land, and atmosphere. In contrast, its sibling framework, the Taskforce on Climate-related Financial Disclosures (TCFD), only requires businesses to disclose risks related to the atmosphere realm, and to disclose their greenhouse gas (GHG) emissions.
The TNFD Framework recommendations follow the TCFD’s four pillars of governance, strategy, risk management and metrics and targets to retain consistency between the frameworks:
- Governance – How the organisation’s oversight and decision-making functions take Nature-related risk and opportunities into account. Boards may need to adapt their governance structures to effectively assess Nature-related interactions and embed them into executive management and strategic decision-making.
- Strategy – Integration of actual and potential effects of Nature-related risks and opportunities on the organisation’s business model, strategy, and financial planning. This can include the preparation of a register for each stage of the value chain that considers current and future risks and opportunities for the organisation.
- Risk & impact management – How the organisation integrates Nature-related risks into its overall risk management approach. These can include local and international policy and regulatory contexts, technological innovation, changes in market dynamics, and changes in consumer preferences and demand. Impacts may include business impacts on Nature such as lack of access to land due to damaged stakeholder relations, or damage to reputation following the release of pollutants that affect the health of local communities.
- Metrics and targets – Quantitative and qualitative performance indicators and aims related to Nature-related risk and opportunities, based on Nature dependencies and impacts. Metrics to be included in all TNFD disclosures on a comply or explain basis, split into core global metrics and core sector metrics.
How should directors think about Nature?
As TNFD Executive Director, Tony Goldner MAICD, and Accounting for Nature Director, Dr Ken Henry AC noted in an April Company Director magazine feature, it is time to think about Nature as infrastructure. This means treating Nature as ‘a set of strategic assets providing critical services to our economy and society’. The Responsible Investment Association Australasia has noted Nature is becoming more attractive for investment, whilst NAB highlights the benefit of a lower cost of capital for businesses.
In March, the AICD hosted a roundtable with senior directors on the governance of biodiversity risk and opportunity. Directors noted climate and Nature are inextricably linked as net zero will not be achieved without being ‘Nature positive’. Indeed, the Nature playbook and implementation of the TNFD in Australia should move more rapidly than the approach to the TCFD (and the forthcoming International Sustainability Standards Board standards on climate and sustainability). Directors agreed that Australia is ideally placed to become a world leader in financing Nature-based solutions. Boards should be thinking strategically, given Australia has the workforce, government support and financial expertise to take advantage of these opportunities.
What is ‘Nature positive’?
The draft TNFD Framework defines Nature positive “as a high-level goal and concept describing a future state of Nature (including biodiversity, ecosystem services and natural capital) which is greater than the current state.”
What is the Australian Government’s position on addressing Nature?
The Australian Government has taken a lead role in supporting the TNFD. In November 2021, it joined the TNFD as a strategic funding partner, with the Department of Climate Change, Energy, the Environment and Water (DCCEEW) represented on the TNFD Stewardship Council. At the United Nations Biodiversity Conference in Montreal (COP15) in December 2022, the Australian Government played a leading role in the negotiations of the landmark Global Biodiversity Framework. Under Target 15, governments are required to take measures to ensure large and transnational corporates and financial institutions disclose their Nature-related risks. Additionally, Minister for Environment, the Hon Tanya Plibersek MP announced Australia would host a Nature Positive Summit in 2024.
As part of 2022 Nature Positive Plan, the Government is developing a ‘Nature Repair Market’, underpinned by the Nature Repair Market Bill 2023. The Bill establishes a transparent framework to issue Australian landholders with tradeable biodiversity certificates for projects to protect and restore Nature. The market will be regulated by the Clean Energy Regulator to help align carbon and biodiversity markets. Further consultation will occur in 2023 as the government develops details of the market required to commence trading in the second half of 2024.
Whilst the Government is prioritising the implementation of mandatory climate reporting, it is also considering how the reforms allow future flexibility for disclosing Nature-related disclosures (e.g. TNFD). The Treasurer, the Hon Dr Jim Chalmers MP in February 2023, flagged the development of a new sustainable finance architecture that “begins with climate finance, but over time I see it expanding to incorporate Nature-related risks and biodiversity goals.”
Key questions for directors:
- How is our organisation assessing Nature related risk and opportunity?
- What role can Nature play in meeting our climate related targets?
- What are our investors’ expectations on disclosing Nature risks?
NZ legal opinion on Nature-related risk
A new legal opinion by Chapman Tripp for sustainable finance group, The Aotearoa Circle, advises that New Zealand company directors are obligated to ensure that their businesses are identifying , assessing and managing ‘Nature-related risks’ in their decision making where these are foreseeable and material. ‘Foreseeable and material’ will be shaped by ‘anticipated domestic and international regulatory change that prioritises protection of Nature, the degree of understanding of the risk, their dependence on the environment, and stakeholder expectations’.
The legal opinion also references claims made against the ANZ where shareholders argued its duties under the Australian Corporations Act 2001 required its directors’ report to disclose that biodiversity and Nature loss represented a material risk.
An Introduction to Reporting on Nature-related Risks
The Chairperson’s Guide to Valuing Nature
Biodiversity as a Material Financial Risk: What Board Directors Need to Know
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