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The pressures to which our natural environment is exposed have increased significantly over time. Protecting and preserving nature and thus its ability to contribute to sustainable economic growth is a major task for companies. Certainly, it also entails risks for corporate and financial stability. But it is the only chance to secure the continued existence of companies in the long term.

All companies are directly or indirectly dependent on nature and are therefore threatened by the consequences of natural destruction and biodiversity loss.

The Taskforce on Nature-related Disclosures (abbreviated TFND for Taskforce Nature-related Financial Disclosures) has published a framework with recommendations on how companies can report on their nature-related risks and incorporate the risks into their strategies, operations, risk management, metrics and targets.

Given the complexity of this task, early action is recommended. Ahead of the final publication of the TNFD framework in September 2023, companies should take action now to get a head start on measuring and managing nature-based risks.

What is the TNFD and what are its goals?

The Nature-related Financial Disclosures Taskforce was formed in response to the growing recognition that nature should be considered in financial and business decisions. The TNFD is a global, market-driven, science-led, government-supported initiative that aims to:

  • Develop a practical and consistent risk management and disclosure framework that enables companies and financial institutions to assess, manage, and report on their dependencies on and impacts on nature
  • Help assess nature-related risks and opportunities with the goal of supporting a redirection of global financial flows away from activities that harm nature and toward activities that benefit nature

What are nature and natural capital?

Four areas are considered under the term "nature": Ocean, Land, Freshwater, and Atmosphere. TNFD defines nature as the natural world and emphasizes the diversity of living organisms (including humans) and the interactions among them and with their environment. Humans are part of nature and not separate from it.

On the one hand, the well-being of society depends on the natural capital that the four realms provide to people. On the other hand, our behavior affects the available resources.

Nature is our most valuable asset. The term capital is often equated only with money, but capital describes any resource or asset that provides or delivers value to people and the economy. "Natural capital" works similarly to monetary capital - when we invest in nature, it creates value, and when we damage it, we limit its value.

Why is nature important for companies and investors?

Nature's contribution to the global economy is estimated at $125 trillion per year, and more than 50 percent of global GDP ($44 trillion) is moderately or heavily dependent on nature and its services1 - either directly or through its supply chains. Those companies that are highly dependent on nature are considered to be most vulnerable to the impacts of nature degradation and biodiversity loss. Yet investors, businesses, and policymakers consistently fail to consider the true value of nature in their decisions and actions. Business and investment activities can contribute both directly and indirectly to the destruction of nature and the loss of biodiversity. Both represent a major risk for business and society. However, there are also opportunities for companies and investors if they consistently consider nature conservation in their business models and investment decisions. In order to continue to survive and grow, we must all protect and regenerate our natural resources.

What are nature-related risks?

Nature-related risks are the potential threats to companies and investors arising from the effects of natural phenomena and developments and our dependence on them. These can be physical risks, transition risks and systemic risks, which can have both short-term and long-term effects:

  1. Physical risks arise when natural systems are impacted by the effects of biodiversity loss or the failure to provide ecosystem services. Ongoing species extinctions include the loss of pollinator species necessary for food production. Alien invasive species are becoming more common due to climate change, among other factors, and not only pose a threat to native species, but can potentially even cause pandemics. The increasing loss of ecosystems further accelerates climate change, and extreme weather events are much worse due to the lack of naturally protective ecosystem services.   
  2. Transition risks arise in the transition to a greener economy from the mismatch between corporate or investor:in strategy and management, and the changing legal and policy environment.
  3. Systemic risks arise from the collapse of a system relevant to society, such as health care or food supply. The effects of such a collapse are striking and far-reaching macroeconomic damage is caused.

What are nature-related opportunities?

Nature-related opportunities are positive results for companies and/or investors as well as for nature. They can arise if the destruction of nature and the exploitation of natural resources are avoided in entrepreneurial activities and measures for regeneration are implemented.

Nature-related opportunities can arise,

  1. if companies reduce the risk of destroying natural capital and exploiting ecosystem services, as well as
  2. Integrate business models, products, services, and investments that actively help halt or reverse the loss of nature into their strategy. This includes implementing nature-based solutions and providing support services for these solutions, for example through financing or insurance.

What can you do now?

  1. Inform and plan:
       -    Building internal expertise and competencies
       -    Assessing your organization's ability to evaluate, manage, and report on nature-related risks and opportunities
       -    Establish goals
  2. Make assessment:
       - Assess nature-related impacts and interdependencies of your organization.
       - Prioritize the assessment
       - Focus on the activities and business areas where nature-related risks and opportunities are most important
  3. Engage and network:
       -    Engage in conversations with companies, investees, or supply chain partners to understand the state of nature-related risks and opportunities in portfolios and business units

1    World Economic Forum, 'Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy', January 2020