
Nature target setting framework for asset managers and asset owners
The framework seeks to create a shared understanding and common language for investors on target setting, while steering private financial flows in alignment with the mission of the Global Biodiversity Framework to halt and reverse biodiversity loss by 2030. It focuses on listed equity and corporate bonds.
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OVERVIEW
Introduction
The Nature Target Setting Framework is designed for asset managers and asset owners to address the material systemic risks posed by biodiversity loss. Developed collaboratively by the Finance for Biodiversity (FfB) Foundation and other key partners, the framework aims to align financial flows with the Kunming-Montreal Global Biodiversity Framework (GBF) to halt and reverse biodiversity loss by 2030. Recognising nature loss as a critical risk, the framework focuses on listed equity and corporate bonds, with plans to include other asset classes like sovereign bonds in future iterations.
Theory of change for investor action on nature
The framework uses a phased, ratcheting approach to:
- Build knowledge on nature-related impacts, dependencies, and risks.
- Conduct sectoral impact assessments.
- Set nature-related targets incrementally over time, integrating monitoring and improving data quality as science advances.
This iterative model ensures alignment with the GBF, particularly Targets 14 and 15, which mandate alignment of financial flows with biodiversity goals and require transparent reporting on nature-related impacts. It also underlines the link between biodiversity and climate, promoting integration between nature targets and net-zero commitments to address the “climate-nature nexus.”
Alignment with key global frameworks
The framework aligns with:
- GBF, emphasising a collective mission to halt biodiversity loss by 2030.
- TNFD (Taskforce on Nature-related Financial Disclosures), aiding risk management and disclosure.
- SBTN (Science-Based Targets Network) for establishing nature targets.
- Net-zero frameworks to integrate climate and biodiversity targets cohesively.
The Nature Target Setting framework
Key principles
- Impact: Prioritise actions to halt biodiversity loss.
- Rigour: Use the best available science.
- Practicality: Ensure broad applicability.
- Accessibility: Simplify methodologies.
- Accountability: Provide clear definitions and metrics.
Scope and application
- Initial focus: Listed equities and corporate bonds.
- Sector prioritisation: Start with 10 high-impact sectors, addressing key drivers like land use change, pollution, and resource exploitation.
Types of targets
- Initiation targets: Focus on understanding nature-related impacts, integrating these insights into governance and strategy.
- Monitoring targets (Optional): Deploy resources to track sector-specific KPIs and plan stewardship actions.
- Portfolio targets: Set thresholds for KPIs to guide investments towards reducing biodiversity harm and increasing positive impacts.
Sectoral approach and KPIs
Prioritisation
Key sectors include energy, chemicals, mining, food products, and pharmaceuticals. The framework identifies five primary drivers of biodiversity loss: land and sea use change, resource exploitation, pollution, invasive species, and climate change. Tools like the ENCORE database and FfB Drivers of Loss matrix are used to assess these impacts.
KPI typologies
KPIs are categorised into:
- Disclosure KPIs: Track company disclosures.
- Management KPIs: Identify companies with relevant nature policies.
- Performance KPIs: Monitor impact evolution.
- Phase-Out KPIs: Focus on eliminating harmful practices.
Data limitations
The framework acknowledges challenges with data availability and quality. It emphasises the need for phased KPI implementation while leveraging available data sources (e.g., CDP Water, MSCI) and methodologies. Improved disclosures, supported by regulations like the European Sustainability Reporting Standards (ESRS), are expected to enhance data quality over time.
Stewardship actions and stakeholder engagement
Investors are encouraged to:
- Engage with companies on sustainability practices, using escalation pathways (e.g., proxy voting, divestment).
- Collaborate with policymakers to promote transparency and supportive regulations.
- Advocate with data providers to improve the quality of nature-related data.
- Stewardship strategies should expand beyond initial plans to maximise positive outcomes. Example initiatives include Nature Action 100 and Valuing Water Finance Initiative.
Monitoring and portfolio targets
Monitoring involves:
- Identifying priority sectors.
- Selecting KPIs for key impact drivers.
- Structuring stewardship actions to complement KPI monitoring.
Portfolio targets focus on measurable reductions in biodiversity impact and stewardship sub-targets to influence corporate practices. Fictional case studies (e.g., EarthWise and NatInvest) illustrate practical applications of these targets.
Communication and reporting
Transparency is critical. Financial institutions must disclose progress through sustainability reports, detailing KPIs, target evolution, and stewardship outcomes. A detailed reporting framework ensures stakeholders understand methodologies, challenges, and progress toward biodiversity goals.
Looking ahead
Future iterations will:
- Incorporate spatial data and expand sectoral coverage.
- Align with emerging regulatory requirements.
- Promote holistic approaches addressing all biodiversity drivers and integrating indigenous and local community perspectives.