{"id":60034999,"date":"2024-06-05T13:00:38","date_gmt":"2024-06-05T12:00:38","guid":{"rendered":"https:\/\/dialogue.earth\/?p=60034999"},"modified":"2024-06-12T13:50:18","modified_gmt":"2024-06-12T12:50:18","slug":"chinese-companies-pilot-nature-related-disclosures","status":"publish","type":"post","link":"https:\/\/dialogue.earth\/en\/business\/chinese-companies-pilot-nature-related-disclosures\/","title":{"rendered":"Chinese companies pilot nature-related disclosures"},"content":{"rendered":"\n

At the Davos World Economic Forum in January, 320 businesses and investment institutions representing 46 different countries announced<\/a> they would start disclosing their impacts on nature. They did so in line with recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD<\/a>), a global initiative that last year released its framework for nature-related corporate disclosures.<\/p>\n\n\n\n

Research has found<\/a> that over half of global GDP (USD 58 trillion) is moderately or highly dependent on nature. Issues such as deforestation and biodiversity loss present systemic risks to this value. Nature-related disclosures will see firms reveal the impact of their activities on nature, so investors can monitor these issues and the public can exercise oversight. As such they are an important part of sustainability disclosures, alongside carbon emissions and social impacts, for example.<\/p>\n\n\n\n

Some Chinese firms are already on board. On 22 April, the Mengniu Dairy Group became the first Chinese company to publish a full nature-focused report<\/a> in line with TNFD recommendations. A little before that, tech giant Tencent had also disclosed some TNFD-based nature-related information in its annual ESG (environment, social and governance) report<\/a>.<\/p>\n\n\n\n

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Recommended<\/span><\/span><\/div><\/a>\n\n\n\n

Dialogue Earth has consulted several experts who say an increasing number of Chinese firms have been working on nature-related disclosures since the 2022 adoption of the Kunming\u2013Montreal Global Biodiversity Framework, under the UN biodiversity convention. However, they add that these efforts are just getting started and many challenges lie ahead.<\/p>\n\n\n\n

From climate disclosures to nature disclosures<\/h2>\n\n\n\n

Nature-related disclosures have developed out of climate disclosures. In 2017, the since-disbanded Task Force on Climate-Related Financial Disclosures (TCFD<\/a>) came up with the first framework for climate disclosures, built upon four pillars: governance, strategy, risk management, and metrics and targets. The aim was to allow for a full assessment of the impact climate change will have on a firm\u2019s future operations. <\/p>\n\n\n\n

This framework had far-reaching effects and laid the foundation for the International Sustainability Standards Board\u2019s more comprehensive sustainability disclosure framework. The latter has since been endorsed by the International Organization of Securities Commissions, which signals<\/a> adoption in 130 jurisdictions which together regulate 95% of the world\u2019s financial markets.<\/p>\n\n\n\n

\u201cTNFD uses a very similar methodology to TCFD, with four pillars. Even the suggested language for disclosures is very similar,\u201d says Sylvaine Rols, senior specialist for nature at the UN\u2019s Principles for Responsible Investment (PRI<\/a>), an organisation committed to making global investment more responsible. Of those four pillars, only the third is different: rather than the TCFD\u2019s \u201crisk management\u201d, the TNFD specifies \u201crisk and impact management\u201d.<\/p>\n\n\n\n

But nature is a broader concept than climate, and clearer definition was needed before the framework could be drafted. \u201cTNFD defines nature as the natural world, emphasising the diversity of living organisms, including people, and their interactions with each other and their environment,\u201d explains Rols.<\/p>\n\n\n\n

Biodiversity is at the core of nature-related disclosures. Dialogue Earth consulted Yang Fangyi, China senior programme officer for the International Union for Conservation of Nature. The three elements to biodiversity are species, habitats and ecological services, he explains. Ecological services include the carbon absorbed by an ecosystem, the water it conserves, and the leisure opportunities or cultural value it provides. Yang says it is relatively difficult for a company to quantify its impacts on these very important services.<\/p>\n\n\n\n

\"Aerial<\/div>
Cows graze on deforested land in Para, Brazil in August 2023. The expansion of soy plantations and cattle ranches for beef production has been responsible for the destruction of large areas of the Amazon rainforest. (Image: Andre Penner \/ Alamy)<\/div><\/div><\/div><\/div>\n\n\n\n

The TNFD\u2019s recommendations try to target those characteristics. Rols says that doing so encourages companies to engage with Indigenous peoples and local communities. The location of assets should be disclosed, Rols adds, because, unlike with its greenhouse gas emissions, a company\u2019s activities impact nature in areas specific to where it works. And finally Rols says that the TNFD takes a more flexible approach to assessing \u201cmateriality\u201d, with firms encouraged (but not obliged) to consider a \u201cdouble materiality\u201d approach.<\/p>\n\n\n\n

What is double materiality?<\/span>
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In traditional financial reporting, \u201cmateriality<\/strong>\u201d refers to the significance of a piece of financial information. Specifically, whether its omission or misstatement could influence economic decisions made based on a company\u2019s financial statements.<\/p>\n\n\n\n

In sustainability reporting, materiality refers to the significance of a piece of information in relation to a company\u2019s interactions with external environments, and how sustainable this interaction is.<\/p>\n\n\n\n

\u201cDouble materiality<\/strong>\u201d can ensure this interplay is a two-way street: what is material to an external environment\u2019s health and wellbeing in relation to its interactions with a company?<\/p>\n\n\n\n

Both TCFD and the International Sustainability Standards Board currently use single materiality, only considering external impacts upon a company\u2019s financial position. However, the Global Reporting Initiative and the European Sustainability Reporting Standards apply double materiality.<\/p>\n<\/div><\/div><\/div>\n\n\n\n