A new reporting system for companies and financial institutions to tally their impact on land, water, biodiversity and other parts of the natural world will allow investors and regulators to finally get a full accounting of risks and benefits stemming from industrial operations, its developers said on Monday.
The Taskforce on Nature-related Financial Disclosures, or TNFD, released its final recommendations spelling out a standardized international framework that aims to present a full picture of what it calls “natural capital” – the value of the resources companies rely on to operate and the costs of disrupting them.
The system, which currently features 14 recommended disclosures, was developed by task force members representing more than US$20-trillion in assets. More than 200 companies – including several from Canada – have tested preliminary versions over the past two years. Full Canadian adoption, however, could be several years away.
The TNFD represents a major expansion of reporting for companies and financial institutions, which are already scrambling to catalogue climate and other non-financial items. Such data are increasingly seen as key to presenting a full spectrum of risks as climate-related disasters, including shoreline loss, floods, deforestation and wildfires, show an ever larger and more damaging set of variables to corporate health.
“The cash flows of business and finance depend on the flow of benefits that we receive from nature. Fresh water supply, pollination services from bees, the biomass from forests – these are the critical inputs that we receive into our business models through value chains, and ultimately the things that drive value in the economy and society,” TNFD executive director Tony Goldner told a media briefing.
The reporting system is designed to help companies compile data from an array of sources and disclose results through four categories: risks and opportunities to business as well as impact and dependencies on nature.
Mr. Goldner cited growing interest among the world’s largest financial players in getting access to these data in standardized form. Norway’s sovereign wealth fund, asset manager BlackRock Inc. and Aviva, the insurer, all have nature-related factors as part of their own stewardship guidelines.
Global regulators, meanwhile, have also followed the evolution of the framework closely, after delegates to the United Nations biodiversity conference in Montreal last year resolved to start monitoring and assessing whether businesses and financial institutions were placing necessary value on nature.
The system takes its cue from the Task Force on Climate-related Financial Disclosures (TCFD), which launched in 2017 and is now in wide use around the world. TNFD developers said they are not advocating for it to be mandatory, but pointed out how regulatory bodies in some jurisdictions have formalized its climate-related counterpart as it became more widely adopted.
The framework will be aligned with the International Sustainability Standards Board, which has begun rolling out rules for standardized reporting of climate and other environmental and social data.
TC Energy Corp., Canadian Imperial Bank of Commerce, Bank of Montreal, Teck Resources Ltd., Agnico Eagle Mines Ltd., and the Canada Pension Plan Investment Board are among 27 Canadian organizations that have piloted the system.
CPA Canada, the accounting umbrella group, and the Institute of Sustainable Finance at Queen’s University’s Smith School of Business are conveners in the process, in charge of rolling out the framework for Canadian companies, governments and regulators. It is unlikely the TNFD will be put into wide use quickly in Canada, said Ryan Riordan, the Institute of Sustainable Finance’s research director.
“Most of the financial industry, including the regulators, are still working through how TCFD is going to apply, and when it’s going to apply,” he said in an interview. “So the first step is now just to recognize that natural assets are important.”
The process represents an opportunity for Canada’s resource-based economy whose reputation has been “put through the wringer” on the world stage because of the large and carbon-intensive oil and gas industry, Dr. Riordan said. “This is a chance for us to balance the scales a little bit with all of the natural assets that we have on the other side, and really project a more nuanced picture.”
Jeffrey Jones