Nature and biodiversity were front and centre at this year’s AICD Climate Governance Forum, featuring a strong to call action from the Minister for Environment and Water, and a panel of leaders discussing the board’s role governing for nature-related risks. We take a look at takeaways from these sessions, recent developments in this space and what’s on the horizon.
Nature and biodiversity degradation is occurring at an unprecedented rate globally according to estimates by the United Nations. Closer to home, Australia is in a particularly vulnerable position – being a mega diverse country, with high rates of endemism (i.e. species found only here) and one of the worst records on species extinctions.
Despite this rapid rate of decline, it is estimated that over half of the world’s total GDP is either moderately or highly dependent on nature and biodiversity, either directly or indirectly through supply chains. Against this backdrop, it comes as no surprise that the World Economic Forum (WEF) predicts that biodiversity will have the second biggest impact on businesses over the next decade, following climate change.
As Sarah Barker, Managing Director at Pollination Law, noted at the AICD’s Climate Governance Forum: ‘We are eating into our planetary principal, rather than living off our planetary interest. That is fundamentally financially unsustainable. Nature is scarce and it is no longer unlimited and free.’
Climate-Nature nexus
Changes to natural habitats and biodiversity loss are inextricably linked to both the drivers and impacts of climate change and should not be addressed in isolation. Commenting at the Climate Governance Forum, the Minister for the Environment and Water, Tanya Plibersek, noted:
‘Biodiversity really is the other side of the coin, and whatever we are doing when it comes to climate change has the potential to protect biodiversity and even to improve it. Whatever we do to improve biodiversity also helps us meet our climate change objectives as well.’
Similarly, Judy Slatyer, Chair of World Wildlife Fund (WWF) Australia, pointed out that 33 per cent of climate mitigation comes from nature-based solutions, with our marine and soil environments providing the best (and least costly) methods of carbon sequestration available.
While companies’ climate governance, strategy, risk and reporting are likely to be more advanced than that on nature and biodiversity, the interdependence between these two issues means that corporate strategy is only likely to converge. Directors should therefore be considering the role that addressing nature-related risks and opportunities can play in meeting climate-related targets.
Taskforce on Nature-related Financial Disclosures
Released 12 months ago during the 2023 New York Climate Week, the Taskforce on Nature-related Financial Disclosures (TNFD) is an international initiative that builds on the model developed by the Task Force on Climate-related Financial Disclosures (TCFD). Its mission is to provide a framework for how organisations can:
- identify and measure their dependencies and impacts on nature as well as their nature-related risks and opportunities; and
- disclose actions being taken to address nature-related issues subject to their own materiality, cost and capability considerations.
Identifying and assessing nature-related risks
An organisation’s dependencies and impacts on nature will give rise to nature-related risks and opportunities. These four concepts are collectively referred to by the TNFD as ‘nature-related issues.’ When reporting, the TNFD recommends that organisations delineate the four types of nature-related issues and explain the links between them:
- Dependencies of the organisation on nature;
- Impacts on nature caused, or contributed to, by the organisation;
- Risks to the organisation stemming from their dependencies and impacts (e.g. physical or transition risks); and
- Opportunities for the organisation that benefit nature through positive impacts or mitigation of negative impacts.
Recommended disclosures
Consistent with the TCFD framework and International Sustainability Standards Board (ISSB) standards, the TNFD recommends 14 nature-related disclosures structured around four pillars (being integrated with other business and sustainability-related disclosures whenever possible):
- Governance: The governance processes, controls and procedures the organisation uses to monitor and manage nature-related issues;
- Strategy: The approach the organisation uses to manage nature-related issues;
- Risk and impact management: The processes the organisation uses to identify, assess, prioritise and monitor nature-related issues; and
- Metrics and targets: The organisation’s performance in relation to nature-related issues, including progress towards any targets the organisation has set or is required to meet by law or regulation.
The TNFD has, however, recommended the following three additional areas requiring disclosure of:
- Engagement with Indigenous Peoples: an organisation’s process for engaging Indigenous Peoples, local communities and affected stakeholders about their concerns and priorities;
- Priority locations: the location of assets and/or activities in organisations’ direct operations or, where possible, value chains that meet the criteria for ‘priority locations’ (e.g. areas of importance or rapid decline for biodiversity); and
- Value chains: processes for identifying, assessing and prioritising nature-related dependencies, impacts, risks and opportunities in its upstream and downstream value chains.
Speaking on the panel at the AICD’s Climate Governance Forum, Dr Ken Henry AC, Chair of the Nature Finance Council acknowledged the conceptual challenges associated with assessing nature-related risks in value chains and in particular, assembling the data in the right form. However, Dr Henry said, it’s time to start.
"Nobody expects any corporate to be able to do this overnight or even this year or next year, or perhaps even the year after. But increasing numbers of people, whether investors, creditors, insurers, or workers, including trades union, or customers, the increasing proportion is expecting businesses will put themselves in a position to be able to make these disclosures, so we have fully informed markets, which we have never had."
- Dr Ken Henry AC
What reporting expectations are on the horizon?
Nature-related financial reporting remains voluntary, with Minister Plibersek confirming at the Climate Governance Forum that the Government has no immediate plans to mandate nature reporting in Australia.
However, despite mandatory nature-related reporting not being on the cards for now, momentum continues to build around nature-reporting frameworks at both the international and domestic level. Earlier this year, the ISSB announced it would be commencing work on nature-related issues drawing on the recommendations of the TNFD. While in Australia, the Government’s Sustainable Finance Roadmap indicates it will look to incorporate broader sustainability reporting over time, including on nature and biodiversity.
The TNFD has recommended that organisations familiarise themselves with the framework and begin disclosing ahead of potential integration into the global sustainability reporting standards over time. Over 400 organisations globally have now become a ‘TNFD adopter’, committing to make their first TNFD-aligned disclosures for financial years 2025 or 2026.
In the lead up to the Global Nature Positive Summit in October, hosted by Australia, the TNFD is urging more Australian organisations to register their intention to adopt the TNFD.
In the meantime, beyond the TNFD, there are other reporting obligations which may require Australian companies to disclose nature-related risks. For example, nature-related reporting under the EU’s Corporate Sustainability Reporting Directive (CSRD) or as part of material risk disclosure in an Australian company’s operating and financial review (OFR) or corporate governance statement.
As noted at the Forum by Sarah Barker: ‘If you are a large company in a highly exposed industry with international value chains, I think we are going to find nature-related reporting becomes base expectation very quickly.’
What skills are needed at the board level?
Closing the discussion on nature and biodiversity at the Climate Governance Forum, the panel were asked to reflect on whether Australian boards were equipped with the knowledge and expertise to govern in this area.
Judy Slatyer’s view was that directors already have a range of complementary skills that can be applied in this setting, coupled with existing processes and infrastructure such as organisational risk appetites, business continuity plans and supply chain assessments – ‘to me, it is about how we embed a nature perspective in that. What we need to be better at as Australian boards is opening our eyes to the future in our horizon scanning, so we get a much broader perspective.’
Asked how directors can get started and drive management’s focus on nature and biodiversity-related issues, the panel suggested:
- Starting small and picking an area that is a ‘no brainer to tackle’. Importantly, the panel stressed throughout the session there is no expectation to have a complete roadmap or solve it all at the outset.
- Asking management what the top three nature-related impacts and dependencies for your business are. An initial assessment using the TNFD’s recommend ‘LEAP’ framework can be a helpful entry point: 1) Locate your interface with nature; 2) Evaluate your dependencies and impacts; 3) Assess your risks and opportunities; and 4) Prepare to respond and report.
- Considering whether there is opportunity for your business to occupy a leadership position moving toward ‘nature positive’, or whether it is better to be a fast follower. The panel’s final reflection was that ultimately ‘nobody wants to be a slow follower in this space’.
Further Information:
Nature and biodiversity resources for directors:
- AICD and MinterEllison: Biodiversity as a material financial risk – what board directors need to know
- Getting started with adoption of the TNFD recommendations
- TNFD guidance on the identification and assessment of nature-related issues: The LEAP approach
- TNFD guidance on value chains
- TNFD sector-based guidance
- TNFD Pilots – Australian Case Study Report
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