Missing metrics: climate vs nature

Insight / 15 Dec 2020

Data on nature-related risks is more complicated than for climate

This OpEd was first published by Environmental Finance

Just like its precursor did in the climate space, the emerging Taskforce on Nature-related Financial Disclosures (TNFD) has gathered significant mainstream finance sector interest. With a group of new members joining today – including the Brazilian development bank, BNDES, clothing giant H&M, and the world’s largest meat producer, JBS – the initiative’s Informal Working Group now totals 73 members, including over 40 financial institutions. But while the TNFD builds on the successful Task Force on Climate-related Financial Disclosures (TCFD), the new nature-focused Taskforce faces unique challenges: when it comes to data, metrics and methodologies, there are critical differences between climate and nature.

The missing metric

Impacts on nature lack a commonly agreed metric. The greenhouse gases driving the climate crisis can be measured and converted into the single metric of CO2-equivalents. Having this sole indicator makes it easier for financial institutions to compare climate performance across organisations. Earlier this year, a group of 21 investors and companies called for metrics for biodiversity that are “comparable” to the CO2-equivalents we have for measuring climate impact.

For nature and biodiversity, a single metric may be unlikely, as it’s a more multifaceted issue than climate. For example, greenhouse gas emissions contribute equally to global heating regardless of where in the world they occur, but the same is not true for nature. Biodiversity impacts can vary significantly depending on the location. For nature, a standardised set of several metrics is more likely.

Awaiting clarity on policy targets

Another key difference between climate and nature is that we do not yet have a commonly agreed global policy target to guide best-practice in the nature space. For climate, expectations are now clearly defined, after the 2015 Paris Agreement on climate change cemented broad international consensus for limiting the global temperature rise to 2 degrees Celsius above pre-industrial levels, and pursuing efforts to limit it to 1.5 degrees. This global policy target has since provided the basis for companies and financial institutions to establish science-based targets.

The world’s governments are taking steps towards setting a global target for nature. In May, the world’s governments will negotiate a policy framework and internationally-agreed targets for nature protection at the Convention on Biological Diversity summit. Already now, we have an idea of what targets may look like: Speaking at a summit in November, the Executive Secretary for the UN Convention on Biological Diversity, Elizabeth Maruma Mrema, said that we must halt nature loss in the next ten years and achieve complete biodiversity recovery by 2050.

If successful, next year’s agreement could be the biodiversity equivalent of the 2015 Paris Agreement on climate change. In 2015, we saw the launch of the TCFD and a global agreement on climate targets. In 2021, we will see the launch of the TNFD, and hopefully, we will also have a global policy target for nature protection that clarifies expectations for action.

A multitude of data sources

Improving corporate disclosures will only be one of many levers to close the data gap on nature-related financial risks. In the climate space, better corporate disclosures were at the centre of the solution to the data challenge. The recommendations from the TCFD have helped drive a rapid expansion of corporate data on climate risks over the last years: CDP’s data for investors now include emissions data for over 5000 companies.

Speaking at an event last month, Simon Zadek, my co-chair of the Technical Expert Group in the initiative to bring together a TNFD, explained that while TCFD looked at data as an input to companies who would then disclose, a huge chunk of biodiversity data is currently being generated by public institutions, maybe as much as 80-90 percent. The TNFD will have to consider how this nature-related data from governments will complement corporate disclosures, and how those data sources will sit alongside data from NGOs and satellites.

Satellite data in particular may play a significant role in closing data gaps on nature-related risks, as big data and artificial intelligence is constantly changing the landscape of what’s possible. Leading financial institutions are already using a combination of satellite data, artificial intelligence and machine learning to map areas of protected nature or fragile ecosystems against a company’s facility coordinates, when that location data is available for the companies they invest in. For example, the Dutch asset manager ACTIAM has partnered with Satelligence, a geodata analytics firm, to monitor the deforestation impacts of the companies they invest in by matching geographical environmental data to asset locations.

As the initiative to bring together a TNFD continues its work over the coming months, the challenge is to learn from what’s worked for climate, while carefully considering how nature requires a different approach. Engaging with the TCFD and learning from their process is a key part of this. With such an extensive global coalition of 73 financial institutions, corporates, governments, think tanks and technical experts now lending their expertise to the initiative of bringing together a TNFD, we are building off a strong foundation.

Learn more about nature-related risks, data and metrics in The Case for a Task Force on Nature-related Financial Disclosures, published September 2020 by Global Canopy and Vivid Economics.

Image: Unsplash

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