#17: Can Business Truly Protect Nature? Unveiling the Gap in the TNFD Framework
Environmental life support systems are deteriorating globally and biodiversity is declining faster than at any time in human history.
Established in 2021, the Task Force on Nature-related Financial Disclosures (TNFD) was created to help business, government and other decision-makers to protect nature and biodiversity. The approach is based on the idea that the economy and business are embedded in and dependent on nature. The rapid decline of nature poses rapidly growing risks to companies and investors.
TNFD provides a set of recommendations that encourage companies to assess, report and act upon nature-related dependencies, impacts, risks and opportunities. The disclosure framework focuses on governance, strategy, risk and impact management, and metrics and targets. TNFD will provide many benefits to business and society. Disclosure will raise public awareness and encourage companies to more effectively reduce impacts and protect nature.
But unfortunately, as shown with essentially every other effort to address major environmental and social challenges, this type of work will not be enough to reverse the decline of nature and biodiversity, and thereby provide the basis for a prosperous future for business and society. The gap in TNFD is exactly what SCI, and its related corporate program Total Corporate Responsibility (TCR), are intended to fill.
TNFD, like pretty much all other efforts to address SDG problems, does not adequately address root causes. It implies that companies can stop harming nature and biodiversity through more effective sustainability strategies and disclosure. But this is only partly true.
Economic and political systems continue to favor and reward extractive/degenerative business practices over sustainable ones. As a result, companies continue to harm nature because these systems unintentionally compel them to do so. They do not hold companies fully responsible for harming nature. In competitive markets, if companies attempt to voluntarily stop harm, costs usually rise and they ultimately will put themselves out of business. Current systems are the engines driving the decline of nature and biodiversity. This decline cannot be reversed without far-reaching systemic adjustments.
A TNFD strategy that could actually reverse environmental and biodiversity decline would therefore need to include a system change component. It is not enough for companies to disclose negative impacts. They also must be incentivized to collaboratively change the systems that compel their negative impacts.
Adding disclosure of corporate system change efforts to current disclosure recommendations will enable TNFD to far more effectively protect nature and biodiversity and contribute to a prosperous future for business and society. This additional disclosure will incentivize companies to implement systems change strategies.
As part of the recent public consultation, SCI provided feedback to TNFD about encouraging companies to address system change by adding system change metrics to suggested TNFD disclosures. Our suggestions are shown in the following note to TNFD.
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Feedback on TNFD Publication:
Additional Guidance for Financial Institutions
Frank Dixon & Claudine Perlet, System Change Investing
This statement is in response to the request from the Taskforce on Nature-related Financial Disclosures for feedback on the publication Additional Guidance for Financial Institutions. The statement provides general suggestions for enhancing the publication and improving the overall effectiveness of the important TNFD effort.
TNFD has done a good job of identifying company-level risks, opportunities, governance, strategies and metrics. Unfortunately, this company-level work will not be nearly enough to significantly slow, much less reverse, the rapid decline of environmental life support systems. The overall TNFD approach does not adequately address root causes. It implies that companies can stop harming nature by implementing more effective sustainability strategies and quantifying negative impacts. But this largely is not true.
Companies harm nature because reductionistic economic and political systems compel them to do so. Beyond a certain point, ending harm often increases costs, and ultimately puts firms out of business. Flawed economic and political systems effectively (though certainly unintentionally) say to companies, degrade nature or cease to exist.
Businesses do what systems demand. If we want different corporate behavior (e.g. protecting nature instead of destroying it), we must change systems. System change probably is at least 80 percent of the SDG, sustainability and nature-restoration solutions.
System change traditionally has not been the responsibility of the corporate and financial sectors. But these sectors, in collaboration with other segments of society, have great power to drive policy reform and other types of systemic change. Typically the corporate and financial sectors used their strong influence over government to block systemic changes that threatened investment returns.
However, flawed systems are creating rapidly growing problems for investors and companies. For at least the past 100 years, companies could profit by degrading life support systems and society. But this cannot go on forever. It is like burning the walls of a house to heat it. At some point, it becomes counterproductive.
Throughout history, destructive systems always changed, usually by collapsing quickly. Given rapidly growing environmental, social, economic and political problems, we almost certainly have entered another phase of rapid system collapse. It is now in companies and investors’ best interests to use their influence to drive system change. System collapse would destroy many companies and wipe out extensive investments.
New corporate sustainability strategies that focus on system change are needed. This should be reflected in TNFD approaches. Companies should do all they can to mitigate negative environmental and social impacts. But this is not enough. They also should collaborate on driving systemic changes that enable further, and then full, impact mitigation. If system change is 80 percent or more of the sustainability solution, it probably should be at least 50 percent of corporate sustainability strategies and metrics.
Within the context of current systems, companies do what investor/owners demand. Responsible investing and ESG metrics have been used to compel nearly all large companies to implement sustainability strategies over the past 20 years.
System Change Investing (SCI) uses the same proven approach to incentivize companies to implement system change strategies and drive collaborative system change. It builds on current responsible investing and corporate sustainability approaches by adding system change metrics to ESG/responsible investing models.
ESG models often include a few system change metrics (e.g. campaign finance, lobbying, media campaigns). But the focus of ESG largely is on changing companies and addressing symptoms, such as climate change. SCI expands the focus to include system change and addressing root causes.
The SCI team developed and extensively evolved the concept of using investing to drive system change. We are glad to advise TNFD on integrating system change strategies and metrics.
There is no human society or economy without nature. Encouraging companies to disclose and reduce negative impacts on nature is important, but not nearly enough. We must address root causes (i.e. flawed systems) far more extensively and effectively.
Our myopic economic and political systems unintentionally demand that we destroy that which sustains us – nature. These myopic, unintentionally suicidal systems will not last much longer. Investors, companies and society overall have very strong incentives to voluntarily change these systems before nature and reality change them involuntarily.
Thanks for considering these thoughts in the updated paper and TNFD’s overall strategy for protecting nature.
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Next week, we will further discuss how investors and companies can powerfully, profitably and effectively drive the systemic changes needed to resolve major challenges and ensure the long-term prosperity of business and society.