Transcript by Kensho.

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: On this podcast, one topic we've been covering a lot is nature and biodiversity. Nature is all around us, and it underpins much of the global economy. 55% of global GDP is moderately or highly dependent on nature, which is equivalent to about $58 trillion. And that's according to a recent study by professional services and accounting firm, PWC. 

Recent research by S&P Global Sustainable1 found that most of the world's largest companies are significantly dependent on nature in their operations. We'll include a link to that research in our shoots. Biodiversity was a key theme of the GreenFin conference I attended in Boston earlier this week. The conference convene stakeholders from across the green finance ecosystem. And let me note real quick before I go on the S&P Global Sustainable1 was a sponsor of the event.

Lindsey Hall: Okay Esther. So what did you hear and how was the conference?

Esther Whieldon: I learned a lot, and I had a jam-packed agenda that was filled with in-person interviews for this podcast, lots of networking and some really great ideas for future episodes that I can't wait to share with you, Lindsey. And also, I really love crossing pads with some of our listeners and hearing about the sustainable finance issues and challenges that they're working to solve.

Lindsey Hall: I had similar experiences at some of my recent conferences. One of the most impactful for me was getting to attend the UN's biodiversity focused COP15 conference in Montreal back in December 2022. And as we talked about on this podcast, at COP15 nearly 190 governments agreed on a new global biodiversity framework. Among other things, it pledged to protect 30% of Earth's land and water that's considered important for biodiversity by 2030. That's known as 30X30. Now in the intervening 6 months, we've seen a lot of developments in the nature and biodiversity space Esther. And you mentioned that biodiversity was a big focus at GreenFin. So can you tell us what did you hear about that?

Esther Whieldon: Actually, I heard someone else say the last 6 months has just been a real catalyst since COP15. So it was interesting you mentioned that. I heard how biodiversity and nature are gaining rising attention from companies, investors and governments. But at the same time, many companies are in the early stages of measuring and understanding the risks that nature poses to their business. 

One thing I heard mention was how a soon to be finalized set of disclosure recommendations from the Taskforce on Nature-Related Financial Disclosures could help companies answer some of those questions. 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. So it's not too far away. And I should mention here that S&P Global is part of the TNFD working group that drafted one of the beta disclosure frameworks. And while I was at the GreenFin conference, I was able to sit down with TNFD Executive Director, Tony Goldner, to get an update on the TNFD's progress. Tony also talks about which sectors are the furthest along in understanding the nature related risks and what trends he's seeing in nature-related finance. Now the TNFD was formed after another group that you'll hear him mention, which was the TCFD, and that stands for the task force on climate-related financial disclosures. I started off by asking Tony, what lessons that TNFD has learned while crafting its framework. Here's his answer.

Tony Goldner: Yes. So it's been a fantastic journey. So typically, the development of frameworks like ours, a task force is assembled, they go away. They have their consultations. They speak to some stakeholders and publish a set of recommendations. 

We've done this in quite a different way where we've done this in a very open -- we call it open innovation. So very open way, everyone's been looking in as we've been building the framework. We published it in 4 stages as a beta framework or as a draft framework, much as the way software and apps are developed. You put out a first prototype, you get the market to test it, you benefit from the feedback and you go to the next version. 

So we've taken a sort of software development approach to building the framework. And as a result, we've had a huge amount of engagement from the market. So we just closed the feedback process as we head towards our final recommendations being published in September, and we had about 750,000 page views of the online draft framework. We've had over 1,000 institutions have joined the TNFD Forum, which is our sort of broader institutional support base. helping the task force, and we've been doing focus groups, we've been doing surveys. 

We've also had 200 institutions pilot test the framework in their own organizations. So the learning from that has been tremendous, and that's informed each of those iterative stages of development because we've been getting feedback over the last 18 months. 

Some of the big things coming out of that. The first has been overwhelmingly that the advice, the process advice, so how do you identify and assess nature-related issues has been seen as hugely helpful because, for most organizations, that is just a completely new topic. They don't have any in-house expertise. Most people have never thought about this before. So the big question is, how do we relate to this topic? What do we have to know, how do we get started? 

Everyone is right at the beginning. So what do I need to be thinking about? What's the conceptual construct and then practically, what should I be doing? What data should I be pulling either internally or externally what's the analytic process to start assessing those nature-related issues. 

So we came out with a stage-by-stage process that companies can go through to start on that journey. And overwhelmingly, we've got very positive feedback to that. Now as they've gone through each of those stages, people have hit roadblocks or found things confusing. And so that feedback has hugely benefited us as we've tried to clarify it and make it easier to work through. And I think the other really big piece of feedback has been in relation to if we want to move towards the disclosures that you're recommending, how do we get started now. So are there particular sectors we should look at? Should we be looking at particular supply chains in our business? Should we be looking in particular geographies. So the big question has been how do we get started? And we've provided some guidance in that regard, but we're also planning to provide additional sort of getting started guidance to coincide with the launch in September.

Esther Whieldon: That's interesting because when you think about like the climate finance, a lot of them start off with energy, right, like as the first assessment because it's where the metrics are already somewhat available on all that. Do you have -- are there some industries or sectors or parts of supply chain where that data might be more available?

Tony Goldner: So a good example is the mining sector. So in heavily regulated sectors where they've had to go through extensive research and due diligence processes to get regulatory approval, mining tends to be one of those industries where you can't start digging until you've satisfied an environmental impact statement or some other usually multiple regulatory hurdles.

So those sectors are actually really well positioned to start using the framework because they've already been looking at these issues, they've built the internal capacity and the skills to do it. And in many cases, they've already got lots of data. 

Another good example is the beverage industry, beverage makers, brewers, soft drink makers, they know that they're incredibly dependent on the water sheds from which they pull their water. So they've actually been investing in water sampling technologies and water sampling science for many, many years because they've been appreciating a lot longer than many others in other sectors, what their dependencies on nature are. 

So they're -- again, they're actually pretty well placed to get started because they've got the skills, they've got the data and they've got the methodologies to start with the assessment -- they've been doing a little lot longer, yes. And they just intuitively understand that if we -- our impact on nature is the water that we take out of a watershed. And if we take it out too fast today, we might be increasing our dependence on that water source in the future. So they're acutely aware of the sort of sustainable -- long-term sustainable nature of the way in which they interact with the natural assets to provide them with those inputs into their business. 

Every sector has an impact on nature. So we just need to get this information in front of investors so that they can be making better allocation decisions. And food and agri and consumer goods have got huge global, very complicated supply chain. So the question is what information can they gather at reasonable cost on an annual basis subject to assurance that can help to illuminate on their impacts, dependencies, risks and opportunities. 

And when you've got a huge global supply chains, then it's a really complicated task, right? There's potentially thousands of locations in the world that you're interfacing with nature. And you've got to work with your supply chain partners to get that data. 

Supply chain partners need to be educated. They need to be going through the identification and assessment piece even if they don't have disclosure requirements. But I think for small and medium-sized businesses, one of the pieces of feedback we've had is how can the TNFD framework be relevant for us. And we've tried to prepare the materials in a way that we think is accessible for a very broad audience because if you're a food and beverage company globally listed food and beverage company, you're going to need your suppliers to be involved because they're going to provide the ones providing you with the data. 

Now those small- and medium-sized enterprises may not have an outside shareholder or an investor or a capital provider to report to, but we certainly want them to be identifying and assessing their nature-related issues. And so for those companies, I think the pressure is going to be primarily from their customers who are going to start asking for this information. And so we've also got a lot of work ahead of us to prepare SMEs so that they can be in a position to provide that information and not be worried about the risk that if they can't provide the information customer is going to go to somebody else who can, right? 

So that brings us back to making the data and assessment piece, manageable and scalable so that everyone can do this in a reasonable time frame at reasonable cost. And one of the big issues is, for example, if we need on-ground data, who's going to pay the people on the ground to collect the data, right? So a farmer is going to have to front up the cost. Yes. And then on the opportunity side, it's like, well, can we come up with models where there are actually positive incentives for collecting the data as a public good, for example, from farmers or from Indigenous communities who are custodians of 80% of the remaining biodiversity on the planet. How do we use that traditional knowledge and finally compensate them for the value of that knowledge and for the fact that they're on the ground, they can collect the data. 

But what's the combination of the hardware and the software, the kit that can be deployed to collect that data, potentially put it into a public data cloud and then make that accessible to business and finance everywhere because the other reality is, at the moment, lots of companies are collecting their own data. But the company next door in the same watershed or in the same ecosystem might be collecting exactly the same data. 

We've got global multinationals deploying scientists to the same location collecting the same data because they can't access a shared data set. So we've got lots of duplication of money and scientific research and then the data gets locked up in proprietary systems. So if we can liberate that data, create common data standards, put the data somewhere where everyone can access it, that should actually help make a significant difference in driving down the compliance costs as well.

Esther Whieldon: I asked Tony how long the TNFD's framework will take companies to implement?

Tony Goldner: It's probably going to vary quite a lot across geography and sector. So as TNFD, we've tried to build a tool and an approach that works across jurisdictions. So we've -- for example, we've taken quite a flexible approach to the topic of materiality because we needed an approach that worked in the European context. 

In Europe, they have to start reporting from next year. So I think we're going to see European companies getting onto nature-related disclosures quite quickly. And we should know in the next 2 weeks where the final European regulations are going to stand. It's in a final review process at the moment. So in Europe, things could move quite quickly depending on what comes out in the next couple of weeks. 

In some sectors like mining and beverages, for example, I think we'll start to see a lot. Obviously, investors are worried about drought conditions, soil erosion. So sectors like agriculture, anything to do with food production. I think we're going to start to see investors asking a lot more questions around whether the companies they're investing in are actually looking at these issues. And we're already seeing those questions being asked now. 

So really, what we're trying to do is help people get started now. We fully recognize that no one's going to do all 14 of the recommended TNFD disclosures in year 1. That's going to be a big lift and there's some very obvious data constraints and things, but it's about getting started. Starting first with the identification and assessment internally, then moving into disclosure and then increasing that disclosure ambition over time. So my hope would be, I think we're going to see this move faster than what we've seen on climate just because investors are acutely aware now that nature risk is a source of nature issues or a source of risk alongside climate. So I think it's going to move faster. 

We're also seeing great advancements in the technology, which will make it easier to collect their data and do the analysis there's a whole suite of sort of stack of technology tools that's being developed. So I think it's moving pretty quickly. So I think I don't want to pick a number. I don't have a crystal ball, but I'd say within 5 years, we should be able to see both through better technology, through greater awareness and understanding amongst investors, companies will have to respond to those information needs. And so I think we're going to see quite a lot of activity in the next 3 to 5 years.

Esther Whieldon: Earlier on this episode, I mentioned that a key theme at GreenFin was how biodiversity is gaining increased attention. Here's Tony talking about that trend.

Tony Goldner: Yes. I think the global biodiversity framework negotiations in Montreal last year was a real sort of tipping point to use the science language in terms of our financial sector interest in the Nature agenda. 

We're also hearing that biodiversity in nature is the hot new theme in ESG investing in the U.S. and elsewhere. But I think the agreement that was struck in Montreal has really been a bit of a tipping point moment for interest. I'm told from people who were at COP 14, 4 years ago, there was a sort of dozen business and finance executives walking around, not sure who to talk to and they didn't know who was who. In Montreal, we had over 1,000 business and finance people. 

So you can see the -- just a shift in the level of interest. And I think it's been helped by the fact that regulators, the global network of central banks and others have published papers saying nature risk is a source of systemic risk alongside climate change. So once regulators start sending those smoke signals that they're looking at this. It tends to cascade down through the financial system and then into corporate reporting. So that's already happening.

Esther Whieldon: Yes, we've -- I mean with CP15, right, they had that 30x30, right percent thing. So you may see an expansion of protected areas or things like that happening as well?

Tony Goldner: Yes, absolutely. So deforestation is a big issue, protected areas, marine-protected areas with lots of interest in marine issues. But alongside that, it's not just protecting it for the restoration of nature. It's also, I think, we're going to see a shift in financial flows to look at how nature-based solutions can help get us to net zero as well. 

So there's this interesting intersection now between the goals of Paris on climate change and the goals that came out of Montreal on nature and how do they fit together. They're inextricably linked. We tend to break complex problems into pieces, and we dealt with Climate 15 years before, we're now catching up with the rest of nature. But these 2 things are inextricably linked, and the solutions to one will enable solutions to the other. And I think the site is increasingly clear. 

We're not going to get to net zero, if nature is not absolutely at the core of the solution set. So nature-based solutions is getting a huge amount of traction, and that includes things like seaweed and sea grasses to capture carbon and clean water systems, mangroves deliver a whole range of benefits, carbon sequestration, they grow 5 times faster than trees, coastal land protection for coastal communities, fisheries for fish stocks. 

So I think the blue economy carbon, what's happening on the carbon markets with forestry solutions. I think this is the beginning of a huge level of interest in scaling up nature-based solutions. So it is very much about the opportunity side of the equation, not just on the risk and risk management side of the equation.

Esther Whieldon: That's interesting you bring that I was actually going to ask about that because I think originally, the goal of the TFND was to help shift the flow.

Tony Goldner: Yes, that is our ultimate mission. And we took the decision very early on that while we have "D" for disclosure in our name, the disclosure by itself is important, but it's not going to move the dial. So we've taken the mandate of risk management and disclosure because I think for us, we really believe that if we can get nature embedded into enterprise and portfolio risk management practices in companies and financial institutions, that's going to have a much bigger impact than a list of disclosure requirements in corporate reports. It's about just embedding the consideration set into standard risk management practice.

Esther Whieldon: What would you say is the hardest nut still to crack? 

Tony Goldner: Yes. I think the big issue is around metrics that can be assured by third-party assurance providers because ultimately, that's what companies are going to need in order to have the confidence to put disclosure statements into reports.

Esther Whieldon: So like what kind of metrics are you thinking?

Tony Goldner: So well, we've done a lot of work on the metric side to try and come up with a set of metrics, it's both science-based, but also small enough to be practical and to be implementable by companies, recognizing the significant cost and time commitment that can be required to collect and analyze data. 

And particularly, what's come through in the feedback is for most businesses and financial institutions, they're not -- they haven't been working on nature, so they don't know where to find the data. And there's been a bit of a misperception that there is no nature-related data to use. And in fact, we did a gap analysis paper in March last year. And we found there's actually a lot of nature data that's out there. It's just that the market participants don't know where to find it. 

And there are certainly gaps and there's certainly quality and consistency issues. And so I think that's probably the biggest challenge that we have is getting the market to start using the data that's there and moving quickly to start addressing some of the challenges in the data landscape. And so we're working on a set of parallel initiatives around that with others to see if we can address those in the next couple of years. 

But I'd say getting to an agreed set of metrics and data that can be -- can meet assurance criteria and assurance requirements, that's probably the big challenge because if we can get through that fairly quickly in the next couple of years, then companies will have the confidence to move into disclosure and reporting.

Esther Whieldon: What Tony said about how there's more nature-related data available than people think, was something that I hadn't really heard before, but he also noted something we have talked about on this podcast, which is that some data gaps remain.

Lindsey Hall: Yes. And we also heard Tony mention something that's been really fundamental for us on this podcast. This idea that nature and climate change are interconnected. And in fact, the interconnectedness of different sustainability challenges is a key area of focus in the S&P Global Sustainability quarterly, which we just published earlier this week. We'll include a link in our show notes if you'd like to read more. 

Tony said we're not going to be able to get to net zero without using nature as part of the solution. He also said he expects to see a shift in financial flows to nature-based climate solutions going forward.

Esther Whieldon: And I also think it's noteworthy that the TNFD tried to prepare the materials in a way that's accessible to a very broad audience, including small and medium-sized enterprises or SMEs.  SMEs came up quite a bit at GreenFin and specifically, I heard how companies and financial institutions are developing strategies and tools for engaging with SMEs on the low-carbon transition and sustainable finance. We'll dive into that topic and other sustainable finance teams are hurt at GreenFin in next week's episode, so please stay tuned.

Lindsey Hall: 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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