Finance for Biodiversity updates nature target-setting framework for investors

The Finance for Biodiversity (FfB) Foundation has launched an updated version of its nature target-setting framework for asset managers and asset owners. 

Developed with FfB members, the guidance follows a beta version released in November, and seeks to help investors align financial flows with the Kunming-Montreal Global Biodiversity Framework to halt and reverse biodiversity loss by 2030.

The Finance for Biodiversity Pledge was launched in 2020 and boasts 177 signatories, including Amundi, Fidelity International, Legal & General Investment Management and Federated Hermes. Signatories commit to collaborate, engage, set targets and report on biodiversity before 2025.  

In 2021, the FfB Foundation was set up to “support a call to action and collaboration between financial institutions via working groups as a connecting body for contributing signatories and partner organisations”.  

Financial institutions that have signed the pledge can become members of the foundation if they want to be active in the working groups. There are currently 76 members. 

Among the updates to Wednesday’s document surround the types of nature targets for investors to set. 

Target reshuffle

The beta version outlined four types of targets: initiation, sector, engagement and portfolio coverage. 

The latest guidance proposes three types: initiation targets, optional monitoring targets and portfolio targets. 

The initiation targets would still see investors committing to assessing and disclosing their exposure to nature-related impacts, dependencies, risks and opportunities in line with the Taskforce on Nature-related Financial Disclosures recommendations.

It also recommends setting targets on governance. For example, an investor could commit to ensuring board or executive-level oversight of the management of nature-related factors by a certain year. 

Turning to the optional monitoring targets, these are designed to ensure investors monitor sector-relevant KPIs “across priority sectors and implement stewardship actions to address the identified key impact drivers on nature”. 

An example of a monitoring target would be the percentage of companies with a deforestation and conversion-free policy, while a stewardship action could see the investor determine the engagement universe of companies to target on nature. 

Finally, for the portfolio targets the Foundation suggests a two-pronged approach: setting portfolio sub-targets, as well as stewardship sub-targets. 

An example of a sub-portfolio target could be that by 2030 a percentage of firms from relevant sectors will have committed to implement a validated Science-Based Target for Nature.

A stewardship sub-target could see an investor commit to engaging with a certain number of companies per year on each of the relevant pressures on nature. 

“The portfolio and stewardship sub-targets are complementary and indissociable as the latter is the lever through which the investor will influence companies to reduce their pressures on nature thereby achieving the required reduction to meet KPI thresholds,” according to the document. 

Unified approach

Another key change since the beta version is the removal of beginner and advanced tracks, which had different timelines for achieving targets. 

Instead, the foundation now advocates for a unified approach to applying these targets over time.

“This adjustment ensures that all targets are set to be achieved by 2030, in alignment with the GBF’s mission to halt and reverse biodiversity loss. However, investors retain the flexibility to target shorter timeframes according to their specific goals,” it said. 

Currently the framework remains limited to listed equity and corporate bonds – additional asset classes, including sovereign debt, will be integrated into the guidance in future iterations. 

The foundation said it is also planning to create guidance on how to set positive impact targets. 

ENCORE update 

In related news, the ENCORE nature tool has had a major update.

Launched in 2018 to help financial institutions and companies understand how their activities rely on nature, ENCORE is a collaboration between Global Canopy, the UNEP Finance Initiative, and the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC).  

Previous updates included in 2019 when its functionality was extended to enable institutions to also assess their impacts on nature. 

One of the latest expansions is growing its previous list of 92 “production processes” to 271 “economic activities”.

These economic activities, ranging from livestock farming to the manufacture of chemicals and nuclear power production, “offer a more detailed breakdown on economic sectors”. 

It has also added information on key value chain links, covering two tiers of suppliers and two tiers of consumers for each economic activity, “enabling users to see their indirect nature-related impacts and dependencies”. 

“The release of an enhanced ENCORE methodological structure and knowledge base is more than just a procedural update,” said Neville Ash, director of UNEP-WCMC.

“The improvements come in response to pioneering users’ appetite to better understand how nature underpins their operations, and we encourage the business and financial community to use the tool to drive their decision-making towards a sustainable future – for economies, consumers and the planet.”