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How much would you pay for a bumblebee?
That's the kind of unusual question that asset managers, corporate executives and insurers will increasingly ask in the years ahead, as they seek to measure the impact businesses have on the world's natural resources, and how that rising toll could in turn affect revenue and profit. The effort to put a price tag on nature — whether it's to calculate the costs of plastic pollution on fish stocks, the impact of reduced soil fertility on cotton growers, or the alarming lack of bees to pollinate food crops — takes a small yet important step forward on June 10 with the launch of the Taskforce on Nature-related Financial Disclosures, or TNFD.
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The stated goal of the initiative 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 and eventually address nature-related risks in their supply chains.
There's already a buzz in the air. On June 5, finance ministers from the group of seven (G7) of the largest economies endorsed the TNFD. The Bank of France, the World Bank, AXA SA, BNP Paribas SA, Credit Suisse Group AG, Wells Fargo & Co., KPMG International and clothing retailer H & M Hennes & Mauritz AB (publ), have also backed the plan.
The approach is modeled on a more familiar reporting framework, the Taskforce for Climate-related Financial Disclosures, or TCFD, which focuses on climate-related risk. But because the scale of natural degradation is so large, it could be considerably harder to measure impacts, persuade companies to disclose exposure, and then implement real-world changes.
"Nature has no numbers, unlike climate, which has carbon dioxide emissions," says Andrew Mitchell, founder and senior adviser at think tank Global Canopy, and one of the architects of the TNFD, in an interview. "Climate also has a target, such as 1.5 degrees or 2 degrees, but with nature we don't have targets. The challenge is to figure out how we measure nature in a way that's meaningful for companies, investors and insurers."
More than half of the world’s economic output, about $44 trillion of economic value generation, is moderately or highly dependent on nature, according to the World Economic Forum, or WEF. "The recorded extinction of 83% of wild mammals and 50% of plants therefore represents significant risk to corporate and financial stability," the TNFD says.
A March 2021 report published by S&P Global Ratings noted that terrestrial biodiversity loss is tied to three consumer staples: palm oil, beef and soy. These soft commodities are responsible for around 70% of the 10 million hectares of natural habitat that the U.N. Food and Agriculture Organization estimates is lost to deforestation globally each year.
But there's opportunity here, too. According to another WEF report, published in July 2020, action for nature-positive transitions could generate up to US$10.1 trillion in annual business value and create 395 million jobs by 2030.
One way to put a price tag on nature is to have a "user pays" approach. Consider a cocoa producer in west Africa, which finds that drought conditions exacerbated by climate change require it to cultivate cocoa pods at higher latitudes, where it is cooler and more wet. To gain access to fresh land, the producer has to first chop down a tract of primary forest, currently a free, nature-given good, that is also vital to an indigenous population. The idea behind the TFND is to comprehensively pin down the financial value of that primary forest — based on flora, fauna and people — so that the cocoa producer can pay for its destruction as part of its cost of doing business.
Similarly, while insects are small, their economic value as crop pollinators is surprisingly large — even if they are yet to appear as an asset on any company's balance sheet. Now, their falling numbers is a source of worry. In a study published in 2020, scientists at the U.S. Geological Survey estimated a 93% decline in the occurrence of the western bumblebee in the continental U.S. between 1998 and 2018.
"One way to calculate the value of bumblebees is to imagine you don't have any," says Mitchell of Global Canopy. "So you have to ship beehives on trucks to pollinate crops. It's normally a free service but now you can say, 'It costs X-million a year.'"
On a June 8th webinar called "Investing in Nature," organized by the Financial Times, former U.S. Treasury Secretary Hank Paulson weighed in on the issue. "If you look at pollinators," including butterflies, bees and other insects, said Paulson, "we're talking about $500 billion" in economic value they bring to the global food supply chain. "It's a lot cheaper to protect [nature] than it is to restore it."
While the plight of the bumblebee isn't going to inspire corporate target-setting anytime soon, the TNFD does have a few broad and loosely-defined goals to help guide policymakers. It suggests that 30% of the world's surface should have some protection by 2030 and half of it should be protected by 2050, according to Mitchell.
It won't be easy. The decision to adopt the TNFD framework will be voluntary, at least in the first few years, which could slow implementation. Some corporates and financial institutions will balk at having to make yet another set of disclosures, in addition to the climate-specific TCFD. Perhaps most important of all, the cost of rejuvenating the planet's land, seas and air is pegged at an eye-watering level, and it's unclear where all that money will come from.
"If the world is to meet the climate change, biodiversity, and land degradation targets, it needs to close a $4.1 trillion financing gap in nature by 2050," concluded a May 2021 report by the U.N. Environment Program and other groups. "The current investments in nature-based solutions amount to $133 billion — most of which comes from public sources."
Paulson suggests that because financial institutions are so exposed to nature-related risk, their willingness to be transparent is crucial. "No lender wants to make a loan that's not going to be paid back," Paulson said. "If they're making a loan or an investment with a negative impact [on any ecosystem], that should be disclosed."
There's growing momentum behind the idea. French financial institutions must now disclose both biodiversity- and climate-related risks and impacts, a sign that climate change is no longer the only environmental risk attracting attention. The need for nature-related disclosure is also likely to be a focus at the U.N.'s biodiversity conference in Kunming, China in October.
The TNFD's four founding partners are Global Canopy, the U.N. Development Program (UNDP), the U.N. Environment Program Finance Initiative (UNEP FI) and the World Wide Fund for Nature (WWF). For the past nine months the founders and other groups have worked on the framework's scope and governance structure. Over the next year, they will assemble a first draft, which will be tested and refined by companies and financial institutions in 2022. If all goes well, it will be formally launched in 2023.
"I've been working [on biodiversity] for 40 years, and the biggest hurdle in the past was indifference," says Mitchell. "The challenge now is the complexity. The data has to be decision-grade for financial companies, so the devil will be in the details."