Protecting Economies and Ecosystems: Why Nature-Related Reporting is Business Critical

Pressure mounts to rethink balance sheets to account for natural capital—arguably the world’s most important asset. Are you prepared?

Nature is deteriorating at an alarming rate, and with over half of the world’s GDP (US$44 trillion) at risk due to rapid biodiversity loss, environmental degradation is quickly climbing to the top of corporate and investor agendas.

In a major step forward, the international Taskforce on Nature-related Financial Disclosures (TNFD) released landmark guidance last September to help organizations identify and assess nature-related risks, impacts and dependencies. Interested and affected parties in many jurisdictions, including Canada, are evaluating the standards and international developments to determine the best path forward.

Having finalized its climate and general requirements standards in June 2023, the International Sustainability Standards Board (ISSB), an independent standard-setting body charged with streamlining sustainability reporting by developing a global baseline, has turned its attention to discerning its next areas of focus. In April 2024, the ISSB announced that it will commence a research project on the disclosure of risks and opportunities associated with biodiversity, ecosystems and ecosystem services, shining a spotlight on the value of accounting for nature.

Following the release of the TNFD’s risk management and disclosure framework, the ISSB announced that it would “look to the TNFD recommendations—where it relates to meeting the information needs of investors—in its future work.”

Improving nature-related practices and disclosures

A growing global network of TNFD consultation groups is working diligently to identify knowledge gaps on nature-related issues and to engage with regional markets on its recommendations. The Chartered Professional Accountants of Canada (CPA Canada) and the Institute for Sustainable Finance (ISF), as co-convenors of the Canadian consultation group, are responsible for fostering awareness, education and capacity building for TNFD in Canada.

For more than 20 years, the Canadian accounting profession has been at the forefront of championing sustainability as a good business practice. With a long history of ensuring that organizations manage risk and report credible information in the capital markets, the accounting profession will play a pivotal role in guiding organizations and investors through the integration of nature into decision making, helping turn ambitious environmental pledges into practical actions.

Catalyzing sustainable investment

Commitments made at the COP 15 Biodiversity Conference in Montreal to safeguard 30 percent of natural habitats by 2030 have intensified the global focus on building capacity for nature-based reporting to support frontline conservation and adaptation efforts.

In resource-based economies like Canada, there is particular urgency to see stakeholders across the financial and corporate systems work collaboratively to shift business models, budgets and financial flows away from nature-negative to nature-positive outcomes. Investors increasingly recognize that they hold nature-related risk in their portfolios and want to understand how those threats are being managed to deliver robust financial returns and minimize environmental disruption. In fact, a 2023 study of ESG sentiment among institutional investors found that 63 per cent of respondents consider nature-related factors when making decisions.

Credible and comparable data is essential for building trust to drive effective capital reallocation and to attract new investments for scaling up sustainability efforts. The TNFD’s emphasis on transparency and accountability will help bridge the gap between financial markets and the natural world.

Climate and nature goals inherently linked

A collaborative and proactive approach to reporting could not be more urgent as climate change proves to be an increasingly important driver of biodiversity loss. Consequences of the climate crisis, from deforestation to water scarcity, can materialize as financial risks to businesses that inevitably impact the broader financial system. Conversely, restored ecosystems rich in biodiversity can enhance business operations, create new markets and play a critical role in achieving net-zero goals by removing carbon from the atmosphere.

Indigenous communities hold a profound connection to the land, rooted in centuries of stewardship and traditional knowledge. Despite comprising only 6.2 per cent of the world’s population, Indigenous Peoples safeguard an astonishing 80 per cent of the planet’s biodiversity, making the Indigenous perspective another vital component in combatting climate change and environmental degradation.

Natural capital underpins healthy societies and resilient economies. Halting and reversing nature loss hinges on our ability—as businesses, financial institutions and asset managers—to understand our dependencies and impacts on the natural world.

There is a significant need to empower both the users and preparers of climate- and nature-related information with best practices for disclosing sustainability performance. I can say with confidence that the CPA profession is up to the capacity-building challenge, but we are only one piece of the puzzle. With growing recognition of the intrinsic value of nature, investors are increasingly being called upon to finance this change.

Your blueprint for action

By aligning investment decisions with sustainability goals and advocating for robust reporting standards, investors are well positioned to drive transformation in nature-related reporting practices. Your role extends beyond mere financial support; your requests for transparency, accountability and standardized metrics have the power to catalyze a more holistic approach to accounting and reporting practices.

RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Author

Pamela Steer

President & CEO

CPA Canada

Pamela Steer is the president and CEO of CPA Canada. A dedicated community leader with a passion for sustainability, she helped found the Canadian Chapter of the Accounting for Sustainability CFO Leadership Network and is an active and founding member of the advisory board for the Institute for Sustainable Finance (ISF). A recent CPA Canada and ISF TNFD Webinar Series provides a closer look at the development of the TNFD recommendations and how they can work for your organization. If you’re a financial professional determined to uphold economic prosperity and environmental stewardship, CPA Canada’s library of sustainability resources is your blueprint for action.