After what has been a solid month for equities and bond investors, month end flows have probably play their part in the price action overnight, US equities have lost momentum, UST have led a rise in core global bond yields and the USD is stronger. US and European inflation releases favoured the notion the Fed and ECB are done with their respective tightening cycles.
Taking the next natural steps in the transition
Organisations can build on today’s climate transition work to better identify the risks and opportunities nature-based assets provide as new reporting standards come into play.
The global transition to net zero has already thrown the spotlight on how greenhouse gas emissions are impacting the health of the environment through climate change.
But now this momentum is also driving a greater awareness of the role the rest of nature plays across the economy in a shift which explicitly values environmental factors as “natural capital” on the balance sheet.
“Being able to place a monetary value on nature-based assets like soil, air, water and biodiversity helps to inform decisions on both the impacts and dependencies on nature across the value chain,” NAB’s Natural Capital specialist Lili Pechey says.
“It’s important to be able to put nature on a par with the other forms of capital that underpin our economies, because many of the natural ecosystem services we depend on, and benefit from, are otherwise ‘invisible’ and unpriced in traditional markets.”
As society faces into the realities of climate change, the World Economic Forum says more than half of global GDP – or US$44 trillion economic value generation across industries – is moderately or highly dependent on nature1. This comes amid ongoing reports of environmental degradation and biodiversity loss, with a million species reportedly threatened with extinction2.
Pechey says an important next step in reversing this trend comes with the upcoming release of global reporting standards for natural capital aimed at directing finance towards “nature-positive” outcomes that enhance resilience rather than to economic activity that degrades the environment.
The Taskforce on Nature-related Financial Disclosures (TNFD) is due to release its full framework in September this year to help organisations in their strategic planning and decision-making around environmental factors.
The TNFD aims to sit alongside the work of the earlier Taskforce on Climate-related Financial Disclosures (TCFD) in bringing nature-based sustainability metrics to financial reporting standards globally.
In 2011 NAB was the first Australian bank to sign up to the Natural Capital Declaration and has since been building its expertise in this area for more than a decade. The declaration is a global statement which recognises nature as a factor with significant risks and opportunities for the financial sector.
Pechey says while natural capital may be a relatively new term, for many organisations it’s already part of the way they consider sustainability and environmental, social and governance (ESG) issues.
“The good news is a lot of the work being done today on climate builds a strong foundation for thinking about nature more broadly,” she says. “It means many businesses are really not starting from zero in the natural capital discussion.”
Pechey says organisations developing transition plans today have an ideal opportunity to consider how the natural environment can help in mitigating and adapting to climate change.
Trees can have a cooling effect in urban areas for instance, while forests, seagrasses and soil can all help with carbon sequestration at scale and for relatively low cost, she says.
“As you’re thinking about transition plans, think about the solutions the natural world provides to strengthen your plan to become more resilient. Nature-based climate solutions can really turbocharge efforts to adapt and mitigate the effects of climate change.”
Carbon offset projects are already a transition opportunity for agribusiness that NAB is helping with as the Safeguard Mechanism drives demand from emitters seeking to meet interim targets.
Other work being done to respond to climate change which may also enhance natural capital include water management or improving biodiversity on land associated with renewable projects and other transition activities.
Pechey says competitive advantages from factoring nature into decision-making may include revenue growth and protection, maintaining supply chain relationships, achieving cost efficiencies as well as improved stakeholder and community relations.
NAB Executive, Corporate Finance, Connie Sokaris says there are a variety of ways interested customers can invest in natural capital as part of their strategic growth and transition planning.
“There’s a growing awareness and demand today for improved environmental outcomes, which fits well with the current work around decarbonisation,” Sokaris says. “This is an opportunity to bring these two pieces together to build greater resilience for the future.”
NAB has already arranged multiple green and sustainability-linked loans and bonds for its corporate and institutional customers, she says.
A recent example is NAB’s sustainability-linked loan for North Queensland Airports which includes Cairns and Mackay airports. The loan is structured with key performance which relate to climate change, biodiversity and opportunities for Australia’s First Nations peoples.
As Australia’s largest lender to agricultural businesses, NAB also launched Agri Green Loans in 2022 to help support agribusiness customers investing in eligible projects that deliver specific environmentally sustainable outcomes. These may include nature-based outcomes like enhancing biodiversity and improving land resilience.
Natural capital in focus
Sokaris welcomes the increased focus on natural capital as another important tool to support the transition.
While measurement and valuation remain a challenge, she says for those starting out a first step is to review and consider industry best-practice using sector-specific guidance from initiatives like the TNFD which can help add a financial layer to their analysis.
Sokaris says at a practical level, customers could consider what data they are already collecting to help build a picture of their direct and indirect nature-impacts and dependencies.
Like climate change, supporting biodiversity and protecting our natural assets, cannot be addressed by one company alone and NAB is seeking to contribute to meeting the challenge through research partnerships and industry initiatives. NAB has recently helped pilot the TNFD framework as it applies to freshwater across parts of the bank’s portfolio in Australia – including agriculture and mining – through the United Nations Environment Programme Finance Initiative.
NAB has also recently completed a successful investigation into the feasibility of using existing regional-scale environmental accounts to screen for nature-risk as a way to support the implementation of the TNFD with Accounting for Nature and the Minderoo Foundation. Another project with the CSIRO and other partners has found opportunities for sustainable finance to support forest-based natural capital in Tasmania.
“We have many customers whose businesses involve the environment,” Sokaris says. “Our focus is on supporting these customers as they respond to opportunities and risks that climate change and other environmental challenges present.
“As a provider of finance, we want our customers to be resilient and sustainable into the long term. To do so it’s important to see nature as an asset to protect and invest in.”
1 WEF New Nature Economy Report 2022 (weforum.org)
2 Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) Global Assessment Report on Biodiversity and Ecosystem Services (ipbes.net)
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Climate change is a significant risk to the planet and a major challenge for society to address. At the same time, opportunities are emerging as the transition to net zero occurs.
NAB is supporting customers to decarbonise, build their climate resilience and help achieve the goals of the Paris Agreement.