New guidelines warn investors away from ‘nature-negative’ companies

A global taskforce backed by Australia aims to shift global financial flows away from ‘nature-negative outcomes’. Pendal’s MURRAY ACKMAN explains

• Investors need to consider biodiversity
• Agriculture, food sectors impacted most
• Find out about Regnan Credit Impact Trust
• Find out about Pendal Sustainable Australian Fixed Interest fund

MORE than half of global GDP depends on natural resources — and these days investors are well aware of biodiversity risk when making portfolio decisions.

Now a group of companies representing the sectors most exposed to the impact of nature loss has come together to guide investors away from what they call “nature-negative outcomes” towards “nature-positive outcomes”.

The Taskforce on Nature-related Financial Disclosures (TNFD) is made up of representatives from 40 organisations in sectors such as agribusiness, the blue economy (ocean resources), food and beverage, mining, construction and infrastructure.

It’s also backed by the Australian federal government — which has provided funding and participated in pilot programs.

New guidelines

In September, the taskforce issued a set of guidelines which aims to integrate nature into decision-making and give organisations a complete picture of their environmental risks,” says Pendal ESG credit analyst Murray Ackman.

It is, in part, a consequence of greater disclosure requirements around environmental risks, Ackman says.

“More than half the world’s GDP is estimated to depend on biodiversity and ecosystem services.

“Fresh water, fertile soils, clean air and even insects pollinating plants — the flow-on effects of the degradation of biodiversity are immense.

“As we become more aware of threats such as climate change, we’re beginning to understand how interrelated everything is.

“The framework is still emerging, but people are hoping biodiversity risk will become tied into a company’s social licence.

A global initiative

Investor focus on biodiversity has intensified in the past couple of years as regulation evolves to combat prevent “greenwashing”.

“The TNFD is a new global initiative which aims to give financial institutions and companies a complete picture of their environmental risks,” Ackman says.

“Biodiversity should be considered in managing business risks, and also in terms of system wide risks. It can can be seen as a proxy for resilience.

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“Companies that have an understanding of their biodiversity risk are more likely to have a multifaceted understanding of all their risks.

“Some sectors are more impacted than others. There is a more immediate effect on agriculture than on business software providers, for example.”

Investor influence

Already some big investors are using their influence to push companies to understand their biodiversity risk.

Though insisting that all companies spend time and resources deep-diving into biodiversity risk might not be an optimal outcome, says Ackman. 

“At Pendal, our focus is on direct risks in certain sectors like agriculture or sectors involved in selling food.

“We focus on the angels and demons — the extremes. We look at the sectors with a huge risks.

“On the angel side, we’re looking for solutions to some of the biodiversity challenges. That includes investing in World Bank bonds.

“In other sectors, biodiversity risk falls under the broad umbrella of whether a company is managing credit risk in general. Are they managing all their potential risks?” Ackman says.

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Regnan Credit Impact Trust

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Pendal has invested in a Biodiversity and Sustainable Development bond from the World Bank, which has an explicit focus on biodiversity.

“This bond is helping to put nature as central to development through promoting conservation, training, and policy to seek nature-based solutions in agriculture, forestry and fisheries.

“We view biodiversity as more than just another risk reporting framework.

“We see it as an opportunity to invest in solutions, and we’re optimistic that we will see more ways to bring about development and environmental outcomes through these types of investments.”