Lesson learned by investors from climate risk management could be applied to nature where “urgency is paramount”.
Investors are prioritizing location-specific data as they try to leverage the recommendations of the Task Force on Nature-related Financial Disclosures (TNFD) framework to ‘conceptualize’ the nature of its risks, consequences and dependencies.
Speak at ESG‘S Nature data for institutional investors Speaking at the event on November 2, Miriam Benarey, Associate Director, Sustainability & Stewardship at Impax Asset Management (AM), said the TNFD framework is critical for the company to assess the impact of its investments on nature, which means that it is evaluating its exposure to companies “operating in sensitive geographic areas.”
The TNFD framework also provides detailed guidance on the four phases of the LEAP approach, designed to be used by an assessment team in an organization: locate, evaluate, assess, and prepare. “The location-specific element, [identifying] where activities and value chain activities take place near biodiversity-sensitive areas is crucial for conceptualizing our approach to nature,” Benarey said.
“This leads to the importance of corporate geolocation disclosure, which we very much appreciate being included in the TNFD recommendations, expanding on what we have seen in the Task Force on Climate-related Financial Disclosures‘ (TCFD) framework.”
The TNFD’s final recommendations, published in September, included fourteen recommended disclosures in four categories: governance; strategy; risk and impact management; and statistics and objectives.
One of the four strategic disclosures of the TNFD requires reporting on “the locations of assets and/or activities in the organization’s direct operations and, where possible, the upstream and downstream value chain(s) that meet the criteria for priority locations.
Benarey told audience members that Impax AM had paid close attention to assessing the physical climate risks of its investments, which, like nature-related impacts, are “very location specific.”
The company has therefore learned “valuable lessons” from its focus on physical climate risks that apply to assessing nature-related risks, impacts and dependencies, she said.
“Initially, our climate-related business activities did not deliver the desired results,” she said, noting that to address this issue, Impax AM developed a proprietary geolocation-based scenario analysis tool using data acquired through its operations.
“Geolocation disclosure is critical to addressing both physical climate risk and impacts on nature,” she said, noting that investors need accurate physical location data from companies to make good long-term financial decisions .
According to Benarey, the second lesson Impax AM learned from its experiences with climate risks was the need for “systematic engagement to shape the landscape”.
“We combined our engagement on physical climate risks with companies and our advocacy with policymakers,” she said, adding that this approach became a “powerful nexus,” leading the company to submit a petition to the U.S. Securities and Exchange Commission (SEC) to require companies to report on the location of their assets, including disclosing “where their most vulnerable assets were located by GPS coordinates.”
Impax AM also partnered with the New York State Common Retirement Fund (NYSCRF) to request S&P 500 companies to report geolocation data points.
The SEC then made its proposal Climate disclosure ruleincluding a focus on physical climate risks and geolocation data, expected to be released in 2024.
“These lessons underscore how much we have learned from tackling climate challenges,” Benarey said.
“In nature, we lack the luxury of time because urgency is of the utmost importance and that is why we actively work across channels to encourage location-specific disclosure by companies, enabling better assessments and long-term financial decision-making.”
Shortcuts for nature
Also speaking at the event, Maria Nazarova-Doyle, Head of Sustainable Investment at IFM Investors, said the experience of policymakers and investors in the field of climate can provide “shortcuts” to better nature integration.
The groundwork done by asset owners and managers on climate has improved the data architecture available to investors overall, according to Nazarova-Doyle.
“ESG-related data is being piped in from data and analytics providers – all that is missing is a source for nature data,” she said, noting that TNFD will drive the necessary proliferation of nature-related data.
Nazarova-Doyle also noted that climate work has led to a transformation of the sustainable investment teams of asset owners and managers in terms of relevant skills and competencies needed for assessing nature-related risks, impacts and dependencies.
“A few years ago, financial services firms had just a few corporate social responsibility people, but now they have sustainable investment teams that are fully staffed and full-time,” she said.
“Nature may not be completely on the agenda yet, but the fundamental work has been done.”
She also noted how approaches to stewardship have evolved, noting how responsible investors have come together in recent years to work with companies and push for dialogue.
“Discussions and investor engagement with governments in terms of support and policy development have happened a lot in the field of climate, but not enough in nature, but the channels of communication exist,” Nazarova-Doyle said, previously Head of Responsible Investment and Stewardship at Scottish Widows.
“We are in a better position now than when we started with climate because we have already laid the foundation. We just need to come together and take action faster.”
However, Nazarova-Doyle recognized key differences between climate and nature-related risks, including the non-fungibility of impacts on biodiversity versus carbon emissions.
These differences create an “intellectual challenge” that may require further upskilling of existing sustainability teams in financial services firms, she said.
“They need either intensive training or additional resources to understand the nature-related impacts on biodiversity issues,” she said, adding that the work done to understand different sectors’ exposure to climate change will need to be replicated for a variety of nature-related risks. and dependencies, such as pollination.