Richard Morrow

David Craig is co-chair of the Taskforce for Nature-related Financial Disclosures (TNFD) and Advisory Board member of the Sustainable Markets Initiative (SMI) launched by His Majesty King Charles III. He is also a member of the International Advisory Panel for Biodiversity Credits and has recently been advising the Bank of England on Data and Nature Risks. David was the founder and CEO of Refinitiv, one of the world’s largest data and technology providers for financial markets. He was previously founder and CEO of the Governance, Risk and Compliance (GRC) business and head of strategy at Thomson Reuters and Reuters plc. Prior to these roles he spent 8 years as a partner at McKinsey focusing on technology and finance.

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What problem does the TNFD address, and how do you see it developing?

Companies and investors do not systematically understand their interface with nature and the ecosystem services their businesses or portfolios depend upon.

Every company relies on ecosystem services—such as clean water, fertile and stable soil, marine services—somewhere in their value chain.

Due to this lack of transparency, companies and their investors are exposed to external and potentially material financial risks. Additionally, they are unable to capitalize on some of the opportunities that can be created by having a better relationship with nature, including new and emerging nature-positive methods and technologies. As a result, nature is presenting both a risk and a missed opportunity.

The TNFD guidance and recommendations provide a consistent and comprehensive way to assess a company’s or investors’ interface with nature and create an approach for managing and disclosing against nature risks and opportunities more effectively. It does so by using tools such as LEAP (Locate, Evaluate, Assess and Prepare) which help companies systematically evaluate, at a precise location level, both risks and opportunities derived from dependencies and impacts on nature. By recommending standard metrics and disclosures, both qualitative and quantitative, it also creates more information and transparency for investors and other stakeholders.

What benefits will TNFD bring?

At its core, the TNFD recommends disclosures align with the four pillars of the Taskforce on Climate-related Financial Disclosures (TCFD)—governance, strategy, risk management, as well as metrics and targets—plus include nine nature-related impact and dependency metrics. The data will enable better transparency and better investment decisions, for example highlighting ‘how much fresh water does my business or portfolio require?’, or ‘how much land am I converting from natural ecosystems such as forests to a built environment or agricultural land?’. Ultimately these key metrics will enable financial portfolios to have a better view of aggregate risks, to perform comparison analytics at a sector or country level, and to create new investment products with clear data backed strategies for nature-related risks and opportunities.

As more and more companies disclose against TNFD’s recommended metrics, assessment of nature dependencies and risks through the global supply chain, both upstream and downstream of a company, will be much easier than it is today.

Currently climate and nature are treated separately, would we see more progress if we integrated them?

Climate and nature are two sides of the same coin. Nature is comprised of four realms: atmosphere, fresh water, oceans, and earth. The natural realms are highly interconnected, so taking a holistic view of nature, including atmospheric issues, climate change and its interdependencies is very important. By re-using the TCFD framework, and adding specific disclosures and recommendations for nature, we made it easier for organizations and teams familiar with TCFD to include additional TNFD recommendations and ensured that nature and climate risks are assessed in an integrated way.

Whilst the impact of greenhouse gas emissions is agnostic to where these emissions occur, dependencies and impacts on nature are location-specific and depend on the exact characteristics of the ecosystem where the company is operating. More and more companies who now assess climate risks have to consider location-specific risks, such as flooding, temperature impacts, and the like. Another difference is that indigenous peoples and local communities are highly dependent on and often the rights holders or stewards of the natural systems companies are relying upon. Therefore, when assessing nature issues these groups need to be involved in many of the planning and operational aspects of a business and this is another area where TNFD has additional requirements compared to TCFD.

How do you think about economic activity’s dependence on nature?

What particularly interests me is the work of the central banks with regards to how much of the financial system is dependent on nature and is at risk from impacts to nature and ecosystem services. The Brazilian, French, Dutch and now British central bank have been assessing the impact of nature on the financial system. Several of the completed assessments have come to similar conclusions that roughly 35- 48% of bank portfolios have a high dependency on nature.

Many of the companies taking part in TNFD pilots have found that their nature risk is larger and even more immediate than climate risk, and many find that the largest risks from climate change are on the natural system and services they depend upon.

Risks can also come in different forms, and more and more are coming from new environment regulations. The EU for example just passed laws limiting the use of plastics in packaging. It is difficult to think of a manufactured product that doesn’t rely on plastics in some form and companies will have to find new solutions.

Plastic is just one example where environmental regulation is driving nature-related costs and risks. Regulation covering other different pollutants (use of phosphate-based fertilizers for example) are likely coming in the medium term. Financial institutions are starting to assess exposures to new regulation on the horizon, deforestation, pollutants, chemicals, animal products.

Who are the most important stakeholders to reduce pressure on the biosphere?

Regulatory risks from nature don’t necessarily come from financial regulators; they can also come from environmental agencies. These organizations are very important stakeholders in the debate because their work is geographically and environmentally broad, covering areas as wide as individual pollutants, ways that land is used, fertilizers, or invasive species. They sit at the center of conversations on how to manage many environmental stressors.

TNFD sees its role in helping create the bridge between environmental agencies and treasury departments, which is an important part of the stakeholder alignment. Central banks and central regulators are interested in protecting consumers and considering systemic risks and protecting the system, which is why regulators are becoming more interested in pushing central banks to do this risk analysis—to make sure we don’t suddenly see a massive issue where things fall off together.

A good example of where nature risk applies to the whole economy is food inflation. The war in Ukraine has been one factor of increasing raw material and other input costs, but weak harvests (such as in India or the US) and adverse weather conditions (drought in Italy and Southern Europe, cold temperatures in North Africa) have also created inflation and scarcity of key products. As climate change continues to impact the natural system, this impact will only increase and food supply, security and inflation have become important agenda items for governments globally.

How do you see the private sector’s approach to nature evolving between now and 2030?

The private sector has already started to look at nature related risks and opportunities, and whilst issues like water use and deforestation have been on the agenda for many years, the need for a more comprehensive and holistic approach that includes and integrates both climate and nature together is now being recognized. Several firms are already merging their TCFD and TNFD assessment. I hope a move towards wider and better data availability and quality enable financial markets to understand, through their investment and or lending portfolios, material nature risks and impacts, and how these lead to either risk or opportunity. This can underpin an active dialogue with clients on their strategies, and a hunt for new investment opportunities that offer both a lower footprint and financial returns.

We see these trends continuing and enabled by the range of nature-related technologies available today. I split this into technology that helps us monitor the biosphere and technology that relieves pressures. In terms of monitoring technology, the eDNA and air-based versions offer huge promise in monitoring the abundance and type of species that are in a local ecosystem and doing that in a more scalable way than most physical methods available today. These technologies combined with satellite monitoring offer significant ways of increasing the data available on both the state of nature and the impacts human activity has on the system. In terms of lowering our footprint, alternatives to animal proteins and products offer a way of us reducing the heavy load on the natural system from animal farming and feedstock, one of the largest drivers of deforestation.

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