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Biodiversity financing new focus for investors
TNFD develops management and disclosure framework for nature-related risks
Bayani S. Cruz 21 Feb 2022

Biodiversity financing is starting to gain attention from investors, but a lot more needs to be done in the capital markets if the world is to close the US$4.1 trillion financing gap to meet climate change, biodiversity, and land degradation targets by 2050, as set by the United Nations Environment Programme.

For biodiversity financing alone, some estimates put the global financing gap at between US$598 billion and US$824 billion per year by 2030.

The good news is that more investors, governments and market participants are now talking about biodiversity, and there are encouraging signs that there will be more focus on it in 2022.

“I want to start with a stark reminder that we are facing a biodiversity crisis in addition to a carbon crisis, and a climate crisis, as 83% of wild mammals and 50% of plants are now recorded as extinct,” says Chaoni Huang, head of sustainable capital markets, APAC, BNP Paribas, during the bank’s ESG Outlook 2022 presentation. “We feel there are more encouraging signs this year, with increased focus on steering financial resources towards a positive outcome for nature.”

Huang cited the growing interest in the Task Force on Nature-related Financial Disclosure (TNFD), a new initiative launched in June 2021, designed to develop consistent nature-related financial risk disclosures for use by companies, banks and investors in providing information to stakeholders. This is the equivalent of the Task Force on Climate-Related Financial Disclosures (TCFD) founded in 2015.

As of January 2023, the TNFD is working with a multi-disciplinary group of leading international organizations that will support its task of developing an integrated management and disclosure framework for nature-related risks.

The group includes the Agence Française de Développement, CDP, Cambridge Institute for Sustainability Leadership, Global Reporting Initiative, International Union for Conservation of Nature, Network for Greening the Financial System, SASB Standards Research Team, Science Based Targets Network, The Capitals Coalition, UNEP World Conservation Monitoring Centre, UNSD, The World Business Council for Sustainable Development, and WWF.

The TNFD framework will provide companies and investors with decision-useful information to help shift the flow of global capital to nature-positive outcomes by building on the expertise and existing definitions, data, analytical tools and disclosure standards these organizations have developed.

“The TNFD aims to shift capital flow from nature-negative outcomes to nature-positive outcomes, and it comes with a new set of disclosure requirements, which is likely to become effective for those who committed to the initiative from 2023,” Huang notes. “We think that similar to what we have seen from the impact of the TCFD, TNFD can be a driver to push financial institutions on their bio-diversity impact through financing; and this, in turn, can provide incentives for issuers to think […] about biodiversity when it comes to their day-to-day business operations.”

The TNFD framework will also go hand in hand with commitments made during COP26, the most recent annual UN climate-change conference that was held in Glasgow last November 2021, at which over 100 countries committed about US$19 billion in public and private funds to end deforestation by 2030.

In addition, the heads of more than 30 financial institutions with over US$8.7 trillion of global assets, including Aviva, Schroders and AXA, also committed to eliminate investment in activities linked to deforestation.

“These are drivers to put biodiversity closer to the centre of focus in the capital market,” Huang points out. “That’s really the demand side of why biodiversity is going to be important from this year onward. So, we hope to see this reflected in the supply side of bonds as well.”

In September 2021, Bank of China’s Macau branch issued the first-ever biodiversity-themed green bonds offering by an Asian issuer, and the first to be issued by a financial institution issuer globally.

This dual-tranche transaction comprises a 1-billion-pataca 0.6% bond and a 1-billion-yuan (US$158 million) 2.75% bond, both due in 2023. The proceeds will be used to finance or refinance biodiversity-related eligible green projects, under eligible categories like terrestrial and aquatic biodiversity conservation and environmentally sustainable management of living natural resources and land use.

Huang concludes: “We hope this could be one of the many to come.”

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