The concept of 'sustainability' has emerged as a critical emblem in today's world, highlighted by severe global climate events and widespread pandemic illnesses. Nevertheless, an imbalanced approach to Environmental, Social, and Governance (ESG) issues can lead to major unprecedented crises. In the prevailing international conversations about sustainable growth and in capital market debates, the issue of climate change stands at the forefront. Still, merely focusing on 'climate policy and action' is not enough for genuine sustainable development. Concentrating too much on 'climate response' might lead to a narrow view that equates environmental management solely with this challenge, overlooking the significance of 'natural capital', which includes elements such as water, soil, biodiversity, forests, oceans, and all species, both sentient and insentient, within the greater framework of society.

Similar to the way human bodies can heal themselves, ecosystems naturally have a 'self-repairing capability.' The United Nations Environment Programme (UNEP) has published information on 'Ecosystem-based Adaptation (EbA),' which suggests that sustaining and safeguarding natural processes is a top approach for mitigating the growing challenges of climate change. Nonetheless, the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) has noted a steep decline in the Earth’s natural capital. For instance, in the last 300 years, Europe has seen the loss of over half of its wetlands, and currently, more than a million species face the risk of extinction; moreover, there has been a 69% reduction in the global animal population in just half a century. These facts underscore that the regenerative capabilities of present-day ecosystems are being overwhelmed by human consumption.

Significant ecological changes could have considerable risks for businesses, with the World Economic Forum (WEF) stating that nature-dependence amounts to $44 trillion of global GDP. Construction, agriculture, and food and beverage industries are especially at risk. Organizations like the Taskforce on Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN) have issued frameworks to help companies and financial bodies factor in nature-related risks and opportunities in their strategies.

Understand the Distinctions and Overlaps Between TNFD and SBTN to Aid Businesses in Thorough Natural Risk Management

Based on the inaugural biodiversity management survey by CDP in 2022, an impressive 87% of companies (around 7,700) were ready to offer explanatory responses. Around half are assessing how to weave biodiversity into their strategy development. Unfortunately, 55% have yet to convert policy commitments on biodiversity into concrete measures. This suggests that biodiversity management is frequently only a written statement. The figures reflect the dilemma faced by corporate organizations: not knowing where to start.

Consequently, the two principal international entities that have suggested central guidelines for the governance of natural capital, namely "The Taskforce on Nature-related Financial Disclosures (TNFD)" and "Science Based Targets Network (SBTN)", will respectively roll out pilot versions of these disclosure standards in 2023. Their purpose is to support corporate entities in integrating concerns related to nature and biodiversity into their operational risk management and strategic decision processes.

While TNFD and SBTN share the goal of enhancing "positive natural impact and management within corporate entities," distinct variances can be observed in their "fundamental objectives" and "approaches to execution":

1. Purpose:

TNFD centers on the "risk/opportunity" framework, advising companies to clarify how issues relate to finances through risk evaluation and reveal their pledge and actions regarding natural capital. SBTN emphasizes "establishing and monitoring" corporate impacts on nature along with the targets for lessening and adjusting to these effects.

1. Method

TNFD has created a systematic framework that outlines the principles for financial disclosures and risk management concerning nature. Conversely, SBTN offers a standard approach along with tools to establish numerical goals aligned with the latest scientific knowledge.

The architecture of the SBTN platform takes inspiration from the Science Based Targets initiative (SBTi) and integrates the principles and reporting frameworks of the TNFD, thus allowing organizations to translate the insights from TNFD evaluations into actionable strategies.

The two models underline the influence of corporate entities on the environment through their activities and supply chains, offering significant proposals for interventions. There is a strong partnership between the agencies. TNFD encourages firms to implement the SBTN approach in setting scientifically based target objectives concerning nature. By collaborating, businesses can meet TNFD's reporting standards and adhere to the goal-setting criteria laid out by SBTN.

（Reference: Guidance for corporates on science-based targets for nature）

Three Steps to Lead the Practice of Natural Risk Management Beyond Climate.

The Convention on Biological Diversity defines "biodiversity" as encompassing all forms of life from various habitats, including land, sea, and other bodies of water, along with the ecological complexes of which they are a part. This definition spans intraspecific diversity, diversity amongst species, and ecosystem diversity. In contrast, current conversations in the capital markets tend to concentrate on issues like responding to climate change, tracking the effectiveness of carbon reduction efforts, and conserving biological resources, frequently overlooking the profound link between biodiversity and the management of natural capital. This narrow viewpoint not only risks an insufficient response to today’s environmental concerns but might also lead organizations to overlook substantial opportunities for more effective management and action.

Capital markets and policymakers should expand their focus beyond just carbon reduction and species protection to include a more robust comprehension and investment in natural capital. Hence, we outline three key steps for organizations to effectively manage natural risks.

Step 1: Grasp the intersections of business operations and natural systems

Upon embarking on the formal process of evaluating and quantifying natural risks, it's imperative to acknowledge that "not every stage of operations will be impacted by the interplay of natural hazards." It is advised that corporate entities initially undertake a tiered screening across various departments and processes within the supply chain. This is to ascertain the "direct or indirect" relevancies of interactions with both upstream and downstream suppliers, as well as their own operational procedures, concerning nature-related risks during business practices.

Step 2: Evaluate and rank priorities concerning key dependencies and impacts.

Perform thorough materiality evaluations using indicators from TNFD and SBTN to grasp the primary dependencies and effects on natural capital throughout operational phases, including associated risks and opportunities, to guide the development of targets and risk management strategies.

Step 3: Quantify, Establish Objectives, and Report

For better management, increasing openness and reporting is key. Enterprises should adhere to the guidelines in SBTN's "Freshwater and Land" document (with the Marine Guide due in late 2024) to set goals for critical regions and track progress internally. By developing strategies and plans focused on nature, plus risk management procedures complemented by TNFD's framework for reports, companies can enhance their nature and biodiversity disclosure.

From both a business and social system viewpoint, we need to shift away from an economic approach that harms nature towards one that supports and revitalizes natural systems, in order to comprehensively tackle the pressing issues of environmental degradation and biodiversity loss. The Taskforce on Nature-related Financial Disclosures (TNFD) and Science-Based Targets Network (SBTN) contribute by positioning "environmental" concerns within ESG at the heart of a wider systemic change, complementing the Science Based Targets initiative (SBTi) for climate. They aim to stimulate market dialogue on moving "Beyond Climate." Concurrently, these efforts seek to rectify the disproportionate focus on 'E' within the unbalanced ESG framework, aiming to establish a stronger and more sustainable foundation for businesses as they navigate various future challenges.

Sub-editing: SC. (Tracy) Ni

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