David Craig: ‘If business is to survive, it has to stop stealing from nature’

June 6 - As the planet’s climate is changing, so too is corporate reporting. This financial year sees the largest UK-registered companies preparing mandatory climate-related financial disclosures for the first time. All UK firms will need to follow by 2025.

But what of nature-based risks? Research suggests that as much as $125 trillion of economic value is annually tied up in so-called “eco-system services”, from rainfall for crops to recreational spaces for leisure.

As occurred with climate reporting regulations, pressure is now growing for listed companies to disclose their exposure to risks associated with a depletion of the planet’s biodiversity.

A prominent proponent of such a move is David Craig, former chief executive of the financial market data provider Refinitiv, and now co-chair of the Taskforce for Nature-related Financial Disclosures (TNFD).

The case for business action on nature conservation is unequivocal, he states. And not just business, either. “We cannot just carry on degrading the natural system at the pace we are and survive,” he says.

Nor, he insists, is there time to waste in shoring up corporate assets against nature risks or in shifting capital flows to “nature positive” solutions – by which he means innovations that actively enhance natural ecosystems (think, living walls on buildings or sustainable agroforestry).

Nature-based disclosure won’t rebalance the planet’s fragile ecological health, Craig admits. But it can help in what he sees as the vital task of shifting mindsets in financial markets about the materiality of nature-based risks.

He gives the example of the Taiwan Semiconductor Manufacturing Company (TSMC). Last year, the world’s largest third-party semiconductor manufacturer had to truck water across the entirety of Taiwan to keep its factories from running dry after a poor monsoon saw reservoir levels plummet.

“We (TNFD) are saying, ‘look, if you’re operating in this part of the world and you’re taking 156,000 tonnes of water a day from the natural water table, then that could be a real problem,” he says.

“Soon, you’re not going to be able to do business, either because the local government environment agency stops you, or because you run out of water.”

Disclosure also has a bracing effect on management, he adds. By putting an audited data point into the public domain, a company is explicitly acknowledging the materiality of the issue as well as its intention to manage it.

Yet, the pre-eminent rationale for greater transparency – and the primary rationale behind the TNFD – is to assist financial markets in understanding the “interface” between nature and company performance.

Modelled on the Taskforce for Climate-related Financial Disclosures (TCFD), the cross-sector body comprises a core group of 34 representatives from large corporations, financial institutions, and market service providers. This group, which collectively controls $18.3 trillion in assets under management, is supported by a consultative grouping of over 400 institutional supporters.

TNFD was set up in June 2021 with the stated goal of creating a voluntary “management and disclosure framework”, with a view to assisting companies in the reporting of their evolving nature-based risks.

A first iteration of that framework was released for consultation in March 2022, with modified updates scheduled for late June and October this year, and February 2023. Final recommendations are earmarked for September 2023.

To catalyse debate around the adoption of its proposed framework, TNFD recently announced a series of national and regional dialogues. Initial discussions will kick off in Australia and New Zealand, India, Japan, the Netherlands, Switzerland and the UK.

Moves are also under way to run a portfolio of pilot tests of the “beta” version of the TNFD framework over the next 12 months. Spearheading this testing phase are the African Natural Capital Alliance, Global Canopy, United Nations Environment Programme Finance Initiative (UNEP FI), and the World Business Council for Sustainable Development.

The challenge, Craig concedes, is to establish a disclosure system that provides the consistency and comparability that investors require, while also reflecting the highly contextual nature of nature risks.

“You can't aggregate your way in nature … So, you cannot destroy an ecosystem in one part of the world and replant a forest in another part … and then say you’re net zero.”

The difference here with climate disclosure is sharp. There’s no “magic 1.5-degree number”, says Craig, referring to the maximum temperature rise target of 1.5 degrees Celsius set by the Paris Agreement.

Instead, context is everything. High water use is fine (within reason) in a tropical environment with plenty of rainfall, for instance; less good in an arid region prone to water shortages.

Any disclosure framework therefore requires nuance. TNFD’s proposal is to develop a four-part “taxonomy” covering land, freshwater, oceans and the atmosphere. These broad categories are then sub-divided into different “biomes”, such as coastal areas, lake systems, subterranean environments and so forth.

“The design is intended to help companies really look hard at a specific area and pick up on all the ecosystem services that are important for that area,” he states.

While the logic is “not rocket science”, to use Craig’s phrase, the act of data collection, corroboration and reporting is far from a walk in the metaphorical park.

That said, developments in spatial mapping, geolocation data, artificial intelligence and other digital technologies is taking the sting out of what was a fiendish challenge until very recently.

Welcome as the increase in the quantity and quality of nature-related data certainly is, few financial institutions currently have the internal expertise to know how to interpret such information, according to Craig.

“There are lots of people now talking passionately about nature-based accounting (but) it’s bringing all this data together and making it investment proof that is important,” he says.

Important, but also urgent. Over 10 million hectares of forest are cut down every year. Our oceans are growing gradually hotter and, consequently, more acidic. The number of species facing extinction has now hit 40,000 species.

If Craig has taken any lessons from the parallel TCFD process, it’s the imperative to get moving. Six years into the TCFD process and “still only 40%” of public companies report on their emissions, he notes: “We’ve got to have a much, much faster adoption curve for nature.”