The nature positive movement to restore and regenerate species and ecosystems has built such powerful momentum that it will soon demand a global solution like climate change, according to Accounting for Nature (AfN) director Ken Henry.
The former NAB chairman and federal Treasury secretary said landholders were increasingly aware that the productivity of the land they managed was “critically dependent” on a sustainable environment, measured by biodiversity, fauna, native vegetation, and the quality of the water and soil.
“AfN is filling a data gap which has existed for a long time, and the need for it is now urgent,” Dr Henry said in an interview.
“The spread of the methodology across the landscape has been quite spectacular.”
BHP is the most prominent local company to adopt nature positive measures, promising in June last year to have at least 30 per cent of the land and water it controls under conservation, restoration or regeneration.
Benefits can include a lower cost of capital from financial institutions incorporating more detailed data in their credit-risk models.
World Economic Forum estimates say half of the world’s economic output – $US44 trillion of economic value generation – is moderately or highly dependent on the environment.
About $US7 trillion is needed over the next decade to repair the damage already sustained, yet the United Nations says the annual rate of investment is only $US100bn.
Natural capital is therefore being rapidly depleted, with notable consequences such as water shortages in California and a nitrogen crisis in the Netherlands, according to management consultancy McKinsey.
Investors are alert to the global trends, and the pressure on the private sector to address nature-related issues has intensified as the global pandemic stretches public finances.
In February last year, the world’s largest asset manager BlackRock, said it might not support the re-election of board directors if companies had not “effectively managed, overseen or disclosed” risks associated with nature loss.
Dr Henry’s data gap is the main hurdle, because companies need a credible framework to understand how nature affects their immediate financial performance and the longer-term financial risks from positively or negatively engaging with the environment.
They will then be able to incorporate nature-related risks and opportunities into their strategic planning, risk management and investment decisions.
The turning point came in 2020 with the creation of the Taskforce on Nature-related Financial Disclosures (TNFD), modelled on the Taskforce on Climate-related Financial Disclosures which set the global standard for climate disclosures.
Last month, the TNFD, comprising 40 members with more than $US20 trillion in assets, released the fourth version of its draft framework, with the full framework scheduled for market adoption in September this year.
AfN chief executive Adrian Ward said in an internal NAB webinar that his company’s task was quite different.
“We’re not about putting dollar values on nature; we’re about measuring the biophysical condition, or the health of nature, using world-class scientific methods,” Dr Ward said.
“We let other people put the value on top, but before you do that you really need to understand if the state of nature is actually improving, sustainable, or degrading.
“From there, you can effectively monetise it.”
AfN, he said, had recently been verified by Deloitte for the TFND as the leading global nature accounting standard.
“We’re pretty much the only standard which prescribes the scientific process for measuring environmental outcomes,” Dr Ward said.
“We have scientists to sign off on methods, we have an assurance process like you’d have for financial accounting, and we’re very much into transparency so when you build an environmental account with AfN it goes on to a central public registry.
“It’s been audited and it’s a claim you can make with confidence without greenwashing the market.”
Trust was the most important driver of value, particularly in light of the integrity issues in the market for Australian Carbon Credit Units.
“We don’t want the same mistakes made in the nature market as it develops because it would be catastrophic for market confidence and actual outcomes for the environment in the long term,” Dr Ward said.
“TNFD will be the new norm for most serious companies to disclose their risks; it’s coming like a freight train and most people don’t know how to do it at this stage.
“On the opportunity side, there are a lot of organisations out there starting to think about how they position themselves to be nature positive by 2030 or 2050, and prove that without greenwashing the market.”
A recent example of AfN’s work was a 5.6m hectare stocktake – or environmental account – of natural assets in the Burnett Mary region in Queensland, which was seen as the first step towards unlocking billions of dollars in conservation investment.
The account received funding from Andrew Forrest’s Minderoo Foundation, with the NAB Foundation and the climate and nature investment and advisory group Pollination to present the account to financial markets looking to invest in natural capital.
AfN’s main benchmark is the ECond, where a score of 100 represents a pristine environmental state.
The Burnett Mary region scored a 44.8 Econd for vegetation, 94 for terrestrial fauna with only a few species under threat, and 62 for water quality and flow.
Dr Ward said a regional account generated strong insights to screen nature risk, and by overlaying data measuring fire and flood risk, biodiversity, biomass carbon and soil carbon it was possible to build a strong data set.
“And then you can use the data to zoom in to where you need to measure at the property or asset level to get a finer understanding of the risks and opportunities, and determine which sites might not be appropriate for end-use,” he said.