How can financial institutions stop using the rear-view mirror to drive nature-related decision-making?

Romie

Ever driven to work while only looking through the rear-view mirror? You might be able to make it out of your street and take a few turns, but at some point, you will be pulled off by the traffic police or decide to go back home for your own safety. The reason for this is simple: we need forward-looking information to guide our decisions.&nbsp;
Yet, when financial institutions look at nature data to guide their decision-making, they mostly use the rear-view mirror to guide their decisions today. The data they use is often based on historical data, which is inconsistent and hard to access. Moreover, whilst nature is always location-specific, many data providers only use proxies to predict impacts or dependencies &ndash; which can only provide a limited picture in the expectation that location data is improved.&nbsp;
<h2>Insights from the UNEP FI-led TNFD pilot process&nbsp;</h2>
This blog explores why data constraints are the last mile for effective action by financial institutions on nature, and what they can do to change this. The <a href="https://www.cbd.int/gbf/">Kunming-Montreal Global Biodiversity Framework</a> (GBF), particularly target 15 which calls on business and financial institutions to monitor and disclose nature-related impacts, and the <a href="https://tnfd.global/">Taskforce for Nature-related Financial Disclosures</a> (TNFD) have created unprecedented interest and momentum for reliable, science-based decision grade data to halt and reverse nature loss.
As financial institutions seek to improve their understanding of nature-related risks and dependencies, standardization of data and metrics is crucial. Today, financial institutions lack the data required to accurately assess impact and dependency, and therefore, the risk and opportunity to nature of their investment and credit portfolios in order to stop financing harmful activities and direct financing towards nature-positive outcomes. While there are significant variations in the data and metrics used to assess nature-related risks and dependencies across sectors and geographies, there is also a growing recognition of the need for greater consistency and comparability.
UNEP FI <a href="https://www.unepfi.org/nature/tnfd/">piloted the draft beta framework of the TNFD</a> with over 50 financial institutions, supported by a group of technical partners including leading market data providers. Our work highlighted the need for better data and tools and specific guidance on tools, alongside building consistency and comparability. Financial institutions are often dependent on the quality of data provided by their clients. Poor and non-inclusive client-related data can make it significantly challenging for them to make informed decisions. Many of the pilot participants collected proprietary nature data via the use of data providers, that could benefit other users including governments, which often do not have access to such data at the moment.&nbsp;
<h2>How to incorporate nature data in financial decision-making today</h2>
As described above, the availability of data, in particular contextualized, comparable, and recent data that could help drive financial decision-making, is an area for further improvement. With nature declining at unprecedented rates in human history, nature encompassing all of its wealth through complex ecosystems &ndash; and our societies &ndash; do not have the time to wait for better corporate data. An integrative and improved approach requires collaboration between industries. Financial institutions can use the following publicly accessible data tools:
<ul>
<li style="font-weight: 400;" aria-level="1"><a href="https://encorenature.org/en">Exploring Natural Capital Opportunities, Risks and Exposure</a> (ENCORE): Developed by UNEP FI, UNEP-WCMC and Global Canopy, ENCORE is a tool to help users better understand and visualise the impact of environmental change on the economy.&nbsp;</li>
<li style="font-weight: 400;" aria-level="1"><a href="https://www.ibat-alliance.org/">Integrated Biodiversity Assessment Tool</a> (IBAT): IBAT is a web-based map and reporting tool that provides authoritative geographic information about global biodiversity through fast, easy and integrated access to three of the world&rsquo;s most authoritative global biodiversity datasets: the IUCN Red List of Threatened Species, the Database on Protected Areas, and the World Database of Key Biodiversity Areas.</li>
<li style="font-weight: 400;" aria-level="1"><a href="https://www.pbafglobal.com/">Partnership for Biodiversity Accounting Financials</a> (PBAF): The PBAF Standard aims to provide guidance to financial institutions on biodiversity impact and dependency assessment and to define what is needed for these assessments to deliver the right information to financial institutions.</li>
</ul>
While several leading scientific and data organizations continue to develop new tools and data sets for assessing the integrity and resilience of ecosystems, there is currently no single global methodology or metrics to make this determination, despite progress at national levels via the UN System of Economic Environmental Accounting Ecosystem Accounting (UN SEEA EA). Nature-related impact and dependencies require the tracking of location-specific data on different data points, such as water use, pollution, and biodiversity. Nature data is context specific as withdrawing 1 liter of water from a drought-prone area has different impacts than from a part of the world where freshwater is still abundant. As a result, UNEP FI continues to encourage organizations to use several different tools and data sets to triangulate an understanding of ecosystem integrity and resilience.
<h2>Next steps in the data landscape&nbsp;</h2>
Throughout the UNEP FI piloting groups and phases, a persistent theme was the complexity of the topic of &ldquo;nature&rdquo; and the institutional capacity of participating financial institutions to address the challenge adequately. A common conclusion involved the perception that nature-related disclosures seem more complex than climate disclosures. With the release of the TNFD recommendations during New York Climate Week, we expect nature to rise up on the agenda of data providers.&nbsp;
Nature-related data is expected to increase from different sources, including:
<ul>
<li style="font-weight: 400;" aria-level="1">Corporate data: Via TNFD uptake and regulatory developments among others in the EU we expect that corporates, particularly those that have a strong dependency and impact on nature to start reporting their nature impacts and dependencies soon. This data can serve as a starting point of action by financial institutions.&nbsp;</li>
<li style="font-weight: 400;" aria-level="1">Large data providers: The emergence and rise of initiatives such as the TNFD has been watched closely by large data providers and it is expected that they will continue to innovate and provide their clients with the data they need and want to increase understanding of nature risk.&nbsp;</li>
<li style="font-weight: 400;" aria-level="1">Small/innovative data providers: From e-DNA, bio-acoustics, and satellite imagery to AI, innovative start-ups and scale-ups are working to build their data sets to provide decision-relevant data. Shortcomings are the comparability and accessibility of data sets under development.&nbsp;</li>
<li style="font-weight: 400;" aria-level="1">Government data: Governments are expected to update their National Biodiversity Strategies and Action Plans (NBSAPs) as called for under the Convention on Biological Diversity (CBD), setting high ambition agendas and closer partnerships with the private sector.&nbsp;</li>
<li style="font-weight: 400;" aria-level="1">Indigenous Peoples and Local Communities (IP &amp; LCs): Have a key role to play in accelerating the collection, connection, and disclosure of credible in situ nature-related data. They also play a key role in verifying data findings.&nbsp;</li>
</ul>
<h2>Global nature-related public data utility&nbsp;</h2>
How can financial institutions stop using the rear-view mirror to drive nature-related decision-making? UNEP FI supports the efforts by the TNFD, together with its partners, to develop a global nature-related public data utility. In this way, all relevant actors can be convened to contribute to a collective global solution at scale and bring together a patchwork of relevant nature-related data expertise and capabilities into a common-use platform. This data utility can serve as an open data utility for nature-related data. This can help and encourage the availability of data sets at scale, improve consistency among them, ensure data is openly available where possible, and set the stage for comprehensive analysis of data for different purposes. It also builds capacity across the data landscape for the usage of this nature-related data, making financial institutions better equipped to finance the transition to a nature-positive economy.
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Romie Goedicke

Romie Goedicke

Nature data: the last mile towards effective action by financial institutions

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