PLSA ESG 22: Pension trustees urged to tackle climate change and nature together

Pension scheme trustees have been urged to tackle climate- and nature-related risks and opportunities together, ahead of the release of the Taskforce on Nature-related Financial Disclosures (TNFD) beta framework.

Speaking at the PLSA ESG Conference 2022, TNFD co-chair, David Craig, confirmed that the beta framework for the group will be published on Tuesday, 15 March.

This will include guidance for the analysis of nature-related risks and opportunities, and the fundamentals and definitions for understanding nature in the financial market.

A disclosure framework will also be included, which Craig said was very much aligned with the Taskforce for Climate-related Financial Disclosures (TCFD), but with “specific differences for nature”, such as disclosing areas of high risk, low integrity or high dependency.

Indeed, Craig stated that the TCFD “really paved the way” for the TNFD, confirming that there is a commonality of language between the two frameworks, and almost daily interaction between the two groups.

He also stressed that "we can’t just look at climate on its own", urging the industry to consider the two issues of climate and nature in parallel, rather than as separate issues, as "climate is a part of nature".

"Whilst everyone is racing to net zero and putting very ambitious goals in place, we will not be able to decarbonise energy supplies or supply chains at the pace that those milestones require, and therefore we’ll have to rely on the offset market," he explained, clarifying that most of those offsets will be nature based.

"The very things I require to hit my climate goals are actually nature based, so there’s got to be a common framework to deal with these together. Hence why alignment with the TCFD is so important," he continued.

“At the moment the TCFD is further along, but as we catch up I’d hope that joint reporting of assessments of nature and climate is the best way to do this," he added, noting that some schemes on the taskforce have already begun doing this.

In addition to this, Craig argued that nature risk may be "more immediate and more direct" for pension schemes, arguing that "you actually have to move quicker on nature than on climate".

"Looking at them together is the right answer and the sooner we can do that the better," he continued.

"Otherwise you’ll have a lot of inefficiency, duplication and contradictions, and if you singularly focus on climate you could actually damage nature," he added.

Craig also emphasised that this the beta release is “the first milestone in a marathon”, confirming that pilot testing is underway, with future iterations to include much more sector specific guidance.

Despite this, he urged pension schemes not to await finalised frameworks and standards before taking action, stating that conversations around investment mandates are "incredibly important" and can start now.

"If there is one thing, it is to start getting the talent on board before someone else gets it," he added, "because the number of people that really understand nature and can translate that into financial assessment is quite small."

The beta review will also include an assessment on data, which Craig stated "will play an incredibly important role in helping companies and their investors understand nature related risks and opportunities".

"Asking how do I as a company really understand every single asset I have, where they’re located and what the environmental considerations are and the dependency impacts that might have is the big data challenge," he said, highlighting this as "one of the most important things a company needs to do".

He also emphasised, however, that there are improvements underway in this space, confirming that the TNFD is also working to help companies move up the learning curve of this analysis much quicker than they would be able to independently.

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