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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership Team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Esther Whieldon: The world's biodiversity is in rapid decline, and its loss poses big financial risks to businesses and the global economy. In fact, the world has experienced an average decline of nearly 70% in the populations of mammals, birds, reptiles, amphibians and fish since 1970. That's according to the World Wildlife Fund. And this matters because more than half of the world's economic output or about $44 trillion worth is moderately or highly dependent on nature. That's according to the World Economic Forum.

Moreover, the collapse of a number of bio-diverse ecosystems could hurt global GDP by $2.7 trillion annually by 2030, the World Bank has reported. And while corporate pledges to protect nature are increasing, they remain rare. Research by S&P Global Sustainable1 found that less than 20% of S&P 500 companies have made commitments to protect biodiversity and natural capital.

Lindsey Hall: About a year ago, in July 2021, we interviewed Elizabeth Mrema, the co-Chair of the new Taskforce on Nature-related Financial Disclosures, or TNFD, on this podcast to talk about the new initiative. We'll include a link to that episode in our show notes.

And the stated goal of the TNFD is to deliver, in 2023, a framework for companies and other organizations to report and act on evolving nature-related risks in order to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes; in other words, to usher in a coherent system of definitions, benchmarks and indicators that allow companies to measure, report on and eventually address niche-related risks.

Specifically, the TNFD is crafting a voluntary framework that companies can use to assess their nature-related risks and opportunities, and the TNFD aims to have that framework ready by September 2023. I should mention here our company's involvement in the TNFD. S&P Global Sustainable1 President, Richard Mattison, is a member of the Taskforce; and S&P Global is part of the TNFD working group that drafted the beta framework.

Esther Whieldon: Earlier this month, I met in New York City with one of the people deeply involved in crafting that framework. I spoke with Emily McKenzie. She is Technical Director of the TNFD Secretariat. By the way, you'll hear Emily mention the TCFD, that's the Task Force on Climate-Related Financial Disclosures, which is a voluntary framework for companies to disclose their climate-related risks and opportunities. She also mentions the ICMM, that's the International Council on Mining and Metals, as one of the groups TNFD is working with on a pilot program.

I started off my discussion with Emily by asking what the TNFD has been up to since launching in 2021. Here's her reply.

Emily McKenzie: Yes, absolutely. So the Taskforce on Nature-related Financial Disclosures, TNFD is the acronym we use, has been moving at tremendous pace over the past year and already achieved a lot. I'll focus on 2 areas. One is the development of the framework. So the Taskforce's mission is to develop and deliver a risk management and disclosure framework on nature-related risks. And they have already released 2, what we call, beta versions of that framework.

That first beta version in March included the 3 core components of the framework: so a set of definitions of nature, nature-related risks, how do you understand that; a set of draft disclosure recommendations, which are based on and aligned with TCFD, so Task Force on Climate-Related Financial Disclosures; and then the third final component is an internal assessment process for assessing nature-related risks and opportunities because we've heard from the market, and the Taskforce felt that would be really useful for people to get started on what's a new topic for many thinking about nature.

So that first release in March was the core components. And what came a few months later, just at the end of June, in the second release, was the overall architecture for measurement and target setting. So how will the framework set out metrics and targets, and then some detailed guidance for thinking about impacts on nature and dependencies on nature, how do you measure them with an illustrative set of metrics. So really important parts of this release as well as some guidance for pilot testing. So pilot testing is about to get going in earnest. So we also included some overall guidance for pilot testers.

So tremendous progress on the framework development. A lot -- almost all of the core components, there's a first draft out. And what happened between that first and second release between March and June was we began this process of getting feedback from the market. So we also received, I think, 500 pieces of feedback from about 130 either institutions or individuals on what came out in March that we were able to go through, what does that feedback mean for how the framework needs to evolve because we're doing this to make sure that it's credible and science-based, but also practical and usable. So we're getting feedback both from scientific organizations and standards bodies, but also from the financial institutions and the corporates. So you need to apply the framework in practice.

So that's on the framework development. That's been a huge amount of the progress. I guess underlying all of that, there's been, in the last year, the establishment of a tremendous network of support to the Taskforce to help them do their job. The task was being these 34 members of financial institutions, corporates and service providers, including S&P, who are developing the framework. So they sit at the center, but they've got this growing group supporting them. That includes 16 knowledge partners. So these are leading science organizations, standards bodies who help to provide expertise on market standards, risk management reporting, all the science around nature as well as the bigger forums.

I think The TNFD Forum, as organizations that support the mission of the Taskforce, is now over 500 organizations. So they're a huge mix. They're other corporates and financial institutions, but also regulators, NGOs, academics, who are aligned with the mission, want to support the Taskforce and learn from them and each other in the buildup to when the framework is finalized and then we move into implementation and uptake made.

So yes, that growth and support has been fantastic. I think those 500 institutions represent 180 countries. So we've also got really great global coverage and also increasingly working with the standards organizations and to learn from them and to make sure we're developing a framework that's fit for purpose.

Esther Whieldon: You mentioned pilot program. Do you have a specific set of companies that have volunteer institutions that have volunteered to do that?

Emily McKenzie: Yes. Yes, so we have established 5 pilot program partners who are helping. They have kind of cohorts of pilot testers who are coming together. So through the UNEP FI, a group of financial institutions; through FSD Africa, interesting is a group of financial institutions in Africa; Global Canopy is looking at pilot tests in food and forestry; the World Business Council For Sustainable Development, looking at sectors like energy and beyond.

Esther Whieldon: But so it sounds like your partners are covering different sectors or different areas of focus for these pilots to see how they play out. Yes.

Emily McKenzie: Exactly. Yes. So the final piloting partner, we may have more of those that I didn't mention, is starting with a specific sector, that's ICMM, which is focused on mining and metals. So each of them is -- they can cut and slice things in different ways. It's up to them what the pilot testing will be most useful, kind of scope and length, but the idea is to apply the framework, provide input to help us refine it.

And increasingly, we're also moving them towards specific guidance. So guidance by sector, but also guidance for specific realms of nature, so ocean, freshwater, land and air all have kind of different elements to them. So we're developing that specific guidance, learning through our pilot program partners.

The pilot testing, we've got to center that -- those pilot program partners. But also all foreign members, I mentioned the 500 organizations and growing, will have some light touch support from the Secretariat and the Taskforce to learn from us and to feedback over the next year. And then at the outer ring, what we call independent pilot testers because we set it up so that anyone could pilot test and provide us feedback via the online platform. It's interactive. People can set up an account and register as a pilot tester, classify their pilot test so we can learn from them and provide their feedback in real time.

So we already, I think, have quite a set of -- I think 20 organizations just as independent pilot testers have already registered, and we hope that will increase. But ultimately, we don't -- pilot testing won't be for everyone. At the core, we've got some high-quality, really committed groups that we can learn from to make sure that we're creating this practical, robust framework by September next year. And insights about what it takes to apply it will be absolutely essential to that.

Esther Whieldon: One of the big things you said that has to be done is sort of just testing out whether there's a gap or things you missed or aspects you need to be aware of. What other kind of big questions are out there looming or things that maybe consensus is a little bit harder to get?

Emily McKenzie: Yes. I think one of the most exciting nuts to crack, if you want me to use that analogy, for the next phase of work at Taskforce will be around scenarios. So just as the Task Force on Climate-Related Financial Disclosures recognize the importance of a forward-looking analysis considering future scenarios, the same holds true for nature. So the Taskforce already signaled that scenario. They would recommend the application of scenario analysis to think through the resilience of an organization's strategy and business.

So we need to tackle that now. We're hoping to put out a first discussion paper in November on the approach to scenarios for feedback and then the guidance in February, again, for further feedback. And that's going to be tough because nature is multidimensional, because it manifests itself locally, we don't yet have the clear policy equivalent of The Paris Agreement for transition pathways. So we're trying to develop practical scenarios and guidance on scenarios without having all the building blocks around targets and indeed the underlying science. So that's going to be a fascinating challenge.

And the second, I guess, the second nut in the bowl to crack is around data. So I didn't mention, but in March of this year, in the first release, the Taskforce published, again with the input of our S&P member, Richard Mattison, a discussion paper on data. And that set out kind of a landscape assessment of existing data platforms, what's out there and some hypothetical case studies of if you walk through the TNFD framework, where do you get the data from, where does it exist, how do you apply it, what's there and what remains difficult.

I think it was really positive in that there's plenty out there for data and analytics, but it also highlighted some significant gaps, 2 of which I would highlight. One is transparency along supply chains, so knowing your supply chain and then having location-specific information about your assets. So these 2 -- and to be able to do spatial analysis on that basis of that information.

There's plenty of innovations, and we will soon be launching a data catalyst initiative to further stimulate innovation around data and analytics and try to overcome some of the barriers with data providers. Obviously, it's not for the Taskforce to solve all these problems, but to try to stimulate others and work with others to do so, so that the idea being that by September next year, some of these barriers around data and analytics no longer hold. And obviously, you have to go longer than that. But that's one very important, exciting area of future work.

Esther Whieldon: Emily also noted that the rapidly evolving world of technology can play a role in helping solve the data gap on nature and biodiversity.

Emily McKenzie: I think what's really fascinating about what nature presents, and if you think about climate beyond just emissions, but around climate adaptation, this holds true also, is that there is a rapid development of technology, of science and has the potential to further rapidly increase your ability to get place-specific information, whether that be through remote sensing or environmental DNA where you can now already take samples of -- from water and be able to see the food web that was present in the last 48 hours. This is already being used by, for example, mining companies to see how does biodiversity, how does that food web or the ecosystem of species evolving over time.

So these technologies are enabling information to be more rapid, more transparent and robust. And interestingly, they don't require self-disclosure. So it's less reliant on self-disclosure. Potentially, there's accountability that could come from other sources using those same technologies. I think it's a fantastic potential for collaboration between public and private sector data providers, between scientists and those who've been innovating in conservation NGOs who understand the kind of relationships on the environment side and organizations who understand the financial and corporate data.

So a lot of it is there, it's taking the pieces together. And what we hope with the TNFD framework is that is providing a direction of a standardized framework that will become -- they're going to approach -- it provides a bit of standardization, but within that standardization, potential for innovation and further adaptation around data and analytics. So...

Esther Whieldon: So let's get a little more high level here. Why should nature and biodiversity and having these disclosures and assessing, understanding risk in this area, why should that matter to companies, to investors and anyone else, really?

Emily McKenzie: Yes, absolutely. So well, one angle on this, which maybe how many are starting, is from the perspective of climate change. So as we recognize climate-related risks, we know that climate change and nature loss are mutually reinforcing. So climate change is 1 of the 5 drivers of nature loss, but also nature loss is reducing the ability of these systems to sequester carbon emissions. And so we know it can't be climate first and then nature in order to address climate risk. We need to address nature loss and biodiversity loss now.

But more broadly, I think members of the Taskforce are seeing material nature-related risks that are already manifesting themselves in that setting. So whether it be -- and we know that ecosystems are being pushed to the point of potential, and in local systems, tipping points. So we have marine dead zones, crashes of pollinators, we have desertification. These are all examples where local systems are collapsing when you have the same thing of nature-related physical risks, right, that affect the bottom line of companies.

We also know that the policy and regulator interest is developing rapidly. One notable thing that happened around the same time of our publication of our beta release in March was a publication by a group called the NGFS, it's the network of central banks and supervisors for greening the financial system and now has over 100 members. And they published a report in March, which said that nature-related risks are fundamental to financial stability and squarely within the mandate of central banks.

This sort of momentum and interest, we see a lot of interest from regulators in the TNFD, which is a voluntary market-led initiative, but a lot of interest in how that's developing. So I think there are these -- the science sharing and indeed market participants seeing direct material physical risks and a sense of the transition that's coming, not just for net zero and seeing how nature is important for that, but also for nature positive.

So you spoke to Elizabeth Mrema, you said, a year ago. She's obviously the Executive Secretary of the Convention on Biological Diversity. So they -- we now have the time and confirmed the agreement of that global biodiversity framework, it will be in December in Montreal.

So all of those developments, central banks and supervisors, governments, is a sort of broader setting of agreements of global targets, of potential national momentum with regulators, within that, the TNFD being a practical risk management framework that can be put in practice in that context.

Esther Whieldon: You just heard Emily mention the upcoming Convention on Biological Diversity conference, which is also sometimes referred to as COP-15. COP-15 was originally slated to take place in 2020, but has been moved back at least twice and will now be held in Montreal from December 5 to 17, 2022. The plan is for government delegates to come up with a set of renewed biodiversity targets for the next 10 years.

Here's Emily talking more about the importance of that upcoming gathering.

Emily McKenzie: So of course, that meeting in December, the conference parties of the Convention on Biological Diversity is really critical because it's sort of the equivalent of The Paris Agreement. It sets that global framework of targets. So that's a critical milestone.

I guess we're also seeing these debates around, I'm sure you've been discussing it on your podcast, of investor expectations and the discussion is of around ESG wanting to make sure, and I think this is something that TNFD is really tackling in its framework, that approaches are robust, that there's not the potential for greenwashing. So those expectations have increased credibility for measurement and adding more to the E of environment than just climate.

And then, yes, I suppose, to add, I mentioned this regulator interest has been developed with that NGFS report I mentioned. I guess we're aware of these huge number of initiatives that are out in the standards world. I think there are more than 80 green taxonomies out right now, plus many consultation processes on climate regulation.

So we're trying to make sure we're aware of those demands on people right now for those consultations, also being highly aware of that changing external environment within which the Taskforce is doing its work to make sure we continue to align with it. You have, for example, the ISSB out for consultation on their general sustainability and climate prototypes. So all of that are things we're tracking and in good conversations with them on.

And I would say in the context of that highly dynamic environment where you have policy development, regulatory development and then these changing investor expectations, we're -- the Taskforce is trying to find the sweet spot along 2 lines of tension: so one is to be robust on the science, but practical to implement, which I mentioned earlier; the other is about the level of prescriptiveness versus flexibility. So, so far, we've received quite a lot of feedback that the market participants would like something quite prescriptive, for example, what to disclose, exactly how to proceed through the framework.

But then we have different jurisdictional approaches that are developing with different expectations. So we're trying to create a framework that's global, aligned with the global sustainability reporting baseline, but also flexible to be applicable in jurisdictions that may be more ambitious than that. So those are the things we're juggling in the context of those external developments in the wider world.

The next release at the beginning of November will include this initial discussion paper on the approach for scenarios. The approach to measurement of risks, opportunities and response metrics and initial approach to target setting in a bit more detail than we were able to do so far. So those will be really important components of that release later this year that we hope to do in February next year, that will be the last release.

So we're hoping. We're working as always so hard and at pace just to have all the components brought together so that then there is time for pilot testing and feedback of that coherent whole, so people see it as a whole and can feedback how it fits together and have a few months for pilot testing. We're asking for all feedback by the 1st of June next year and then heads down to pull it all together for September. So that's kind of our forward-looking time line.

And in the meantime, we have the pilot testing, but we also established a couple of other channels of consultation. So we have 6 regional country-based consultation groups. They're not something we orchestrated, but just places where there's been a huge amount of interest and momentum. They're self-started and led by a private sector organization, a business association of corporates. So they're in -- the first 6 have been in the U.K., Switzerland, the Netherlands, Japan, India and Australia and New Zealand. So those have been the first 6. Those are just sort of a groundswell. They want to work in their own countries to discuss and feedback on the TNFD framework and share insights.

And then interestingly, we've also expanded our consultation efforts with engagement with indigenous peoples and local communities who are the stewards often of nature and critical issues around rights and their own dependencies on nature as well as their stewardship role. So we've established a partnership with IUCN, the International Union for Conservation of Nature, who are going to bring in their voices and perspectives.

So really interesting organization because they include both NGOs globally, it's a network of NGOs who work on conservation, but also governments. So it's across government and civil society, one of the most well-reputed scientific bodies on conservation. And they have strong relationships with local communities, therefore, around the world in indigenous people. So we'll be doing that careful consultation through that route as well as at this national level one through pilot testing.

So huge amounts of information coming in. It's a great analytical challenge to even process the feedback. But we did it for that first release. I'm confident we'll do it again, and really tremendous insights and thought-provoking questions under the Taskforce to deliberate and make decisions on.

Esther Whieldon: So just thinking in the context of what's happening currently, we have sort of questions about energy supply happening with the Russia-Ukraine conflict. We have inflation happening at least in the U.S. but other parts of the world. And there's all these dynamics that are sort of putting economic pressure on companies and society. Where does this and how does that affect sort of what you're doing or the focus or sort of the view you're putting into the work here?

Emily McKenzie: Yes, absolutely. So I think one of the really powerful realizations is that nature-related risks are interconnected with these other risks. You didn't mention the really fundamental risk we had before the Ukraine crisis around COVID, but there's strong science that shows that that's connected to land use change and illegal wildlife trade, which are 2 pressures on nature loss. So the risk of global pandemics like COVID-19 being directly linked to nature loss.

Food security, obviously, in itself is linked to healthy soils, healthy sources of water. So how do we maintain resilient, diversified food supplies? We're not reliant on very few crops because again, we have very narrow now genetic pool of crops that we're reliant on. With climate change and less diversity, you have lesser resilience for those to continue to provide us with reliable food supply.

So there's sort of a dimension almost to any of this where you start -- if you start to think about how everything we do relies in nature. These -- we're embedded within it. And as we put further pressures on it, these risks are starting to manifest itself, whether it be through a pandemic or a food crisis. And I think really interestingly, one of the things that the central bank group, the NGFS, will be looking at is also the inter-linkages with these macroeconomic effects. So you can start to look at the consequences for GDP, for employment, for inflation, through modeling how nature-related risks might manifest themselves in terms of financial stability and macroeconomic change.

So that's all very innovative kind of modeling, but people are starting to connect the environment modeling with the macroeconomic modeling to provide these kinds of insights just like they did for climate, for stress testing. And so, yes, I think these links -- basically, bottom line is these links are highly connected. We're already starting to see them, and it's really important that there's an awareness and understanding of how nature is part and parcel of those risks. It's not a reason to ignore nature. It's even more of a reason to make sure that we're reducing our demands on nature and investing in it.

Esther Whieldon: One thing Emily said really stood out to me, Lindsey, that's how TNFD is trying to find the sweet spot between 2 lines of tension. One is how to make the framework robust on the science yet also practical to implement. And another challenge she listed is deciding how prescriptive the framework should be versus allowing for more flexibility. I, for one, can't wait to see where they land on those 2 questions.

Lindsey Hall: Well, please stay tuned as we continue tracking the TNFD's progress as well as broader discussions happening among companies, regulators and governments about tackling biodiversity.

Thanks so much for listening to this episode of ESG Insider. And a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.

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