Preparing asset managers for nature-related reporting

Pressure is mounting on financial institutions to educate their employees and clients on the importance of nature-related reporting.

By Lois Bennett

5 minute read time

Climate-focused reporting has become an industry norm – with terms such as net zero, carbon emissions and the Paris Agreement now part of everyday language – but nature-related risks are only just starting to gain widespread attention.

“Climate is much closer to being embedded in those business-as-usual conversations with clients,” says Holly Faulkner, Climate and ESG Lead at RBS International (Part of NatWest Group).

But, she adds: “The link between our climate and the rising nature-related risks resulting from depletion of natural ecosystems and resources is undeniable.”

Regulation is now beginning to come into effect, forcing asset managers and AIFs to take note. Adopters of the voluntary Taskforce on Nature-related Financial Disclosures (TNFD) increased by a third in the first half of 2024, and countries including the UK and Canada aim to set out their plans to integrate nature into their International Sustainability Standards Board (ISSB) reporting in 2025. Policies such as the UK’s Biodiversity Net Gain are also pushing investors to examine how their assets affect the natural world.

Early adopters and sector nuances

But institutions’ appetite to adopt nature-related disclosures depends on their activities and size.

“There is a delta between clients that are fully engaged and have a nature-positive, regenerative strategy, and then clients who are largely centred on climate and have less nature disclosures in place,” Holly says. “It really depends on the sectors and the assets that the clients are focused on, and how immediately material they perceive that nature impact to be.”

Foresight Group, a sustainable investment firm active in forestry, agriculture and renewables, is at the forefront of adapting to nature-focused regulations.

Louis Bromfield, Lead Sustainable Investment Manager at Foresight Capital Management – Foresight Group’s business division investing into listed securities – says: “The TNFD disclosures will become really important... that’s, I think, going to become everyone’s bread and butter.”

Foresight Group has developed what it calls the Nature Recovery Blueprint, a practical action plan that not only aligns with regulatory expectations but serves as a resource for industry-wide best practice.

“We can go out and say, ‘by the way, our company has done this, have you considered these things? Here's some best practice to take away,’ – I think there's a genuine ability for us to engage and do good,” he adds.

Education and internal knowledge building

Many in the industry still view nature as an ‘abstract concept’, according to Holly.

“There is a big piece of educational work to be done around developing an understanding of nature and why it is equally as important. It needs to be considered in tandem with climate considerations as you can’t achieve net zero without nature,” she says.

“It’s perceived as quite a niche field of academic research and knowledge when actually we need to start building that base layer so that everybody is comfortable having that conversation.”

To demystify nature and prepare firms for upcoming regulations, NatWest Group is prioritising education – both internal and client-facing. For example, the bank’s partnership with the University of Edinburgh offers employees voluntary educational resources on nature and biodiversity.

Data and technology hurdles

While upcoming regulation and emerging frameworks are broadening the conversation, access to relevant data remains a significant hurdle for many AIFs.

“The absolute headline challenge is data, both its accessibility and our understanding of that data,” Holly says.

Unlike climate data, which centres on CO₂ emissions, nature data is inherently more complex to collate and heavily location-specific.

“A square kilometre of land looks very different in a city like London to how it would look on an island or in a landlocked country,” she adds.

The answer to this challenge lies in technologies such as AI, drones and satellite imaging, which are essential for accurate biodiversity monitoring and measurement. These are still evolving but Holly is optimistic about the potential of tech to advance progress.

“In the same way that we’ve seen the boom in the green technology market, I anticipate we’ll see similar in nature,” she explains. “This will see new companies requiring investment to develop the technology to do this very challenging measurement and monitoring.”

Investment in energy transition technologies is growing but remains below the target required to reach net zero by 2050. There are also currently few investment opportunities that allow investors the scale to capitalise on this growth and many still perceive such investments as higher risk.

Louis says: “I don’t think that there are that many opportunities within capital markets to invest in genuine technology drivers and changemakers within a biodiversity perspective… those companies are not really listed yet; they’re in the private equity space.”

He points to the critical role of banks in financing nature-related technologies and projects: “Banks create products that will hopefully leverage capital financing into the right place and that’s so important.”

Business as usual

As nature-related regulations become clearer, asset managers and AIFs will face growing pressure.

“Education will be step one, then regulation and, finally, technology,” Holly says. “Hopefully, if we were to have a similar conversation in a few years’ time we would be talking about nature not as a new buzzword or technical, nuanced, gate-kept concept but as something that is embedded in our activities… as business as usual.”

Posted in:

Keywords:

Preparing asset managers for nature-related reporting

By Lois Bennett

5 minute read time

Latest insights

Is nature ready to move into the mainstream?

Preparing asset managers for nature reporting

How sectors are tackling nature-related risks