Aviva (LSE:AV) said it expects all companies to begin reporting against the Taskforce on Nature-related Financial Disclosures (TNFD) framework, due to be finalised in 2023.
- Aviva is asking companies in its portfolio to demonstrate alignment with a nature-positive ambition, as well as identify biodiversity risks.
- The investment manager is inviting businesses to act ahead of the enforcement of mandatory disclosure requirements.
- The new measure is in line with Target 15 of the Kunming-Montreal Global Biodiversity Framework, indicating the start of some movement on the biodiversity front.
In its annual letter to the chairs of its investee companies, Aviva reiterated its three stewardship priorities for the year: reversing nature loss, the cost-of-living crisis and transitioning to a low-carbon economy.
Increasing focus on nature
The investment giant, which holds £232 billion of assets under management, said that companies have a critical role in engaging governments to establish supportive regulatory regimes, with the view of aligning subsidies and fiscal policies to global biodiversity goals.
In the letter, chief executive Mark Versey said that companies need to demonstrate how they are aligning their internal policies and practices with a nature-positive ambition, as well as quantifying the financial risks and opportunities associated with their dependencies and impact on nature, providing decision-useful disclosures to investors. As such, Aviva expects all companies to begin reporting “within a reasonable timeframe” against the TNFD framework, due to be finalised in 2023.
In preparation, they should undertake the TNFD-recommended business model assessment process, referred to as LEAP. The framework has four core components: the first is locating interfaces with nature, whereby companies should begin by mapping the location of individual assets, business processes, value chains and downstream products to each ecosystem, to enable the appropriate prioritisation of issues and areas for assessment.
The second is to evaluate dependencies and impacts, so companies must identify and quantify all ecosystem services that support the generation of revenues, cashflows and enterprise value for each business process and location and measure the impact the business is having on nature. The third is assessing risks and opportunities associated with a business’s dependencies and impact on nature, outlining existing risk mitigation and identifying additional potential actions.
The fourth and final is repare to respond, as companies should build on the outcomes of the previous steps to define a comprehensive biodiversity strategy. This should include the setting of short-, medium- and long-term targets and action plans to reduce and reverse the impacts of the business on nature. Companies should then determine the scope and substance of financially relevant public disclosures to be made against the TNFD framework.
Tackling the cost-of-living crisis in the transition to a low-carbon economy
Versey also called on companies to explore all opportunities to deliver cost efficiencies, delay non-essential spending, and leverage their pricing power where appropriate – but not to the detriment of the most vulnerable stakeholders. Indeed, he said that companies have the responsibility to protect them in times of upheaval.
He added: “Multi-stakeholder management is not a zero-sum game; we will look unfavourably on any attempts to protect profitability and shareholder returns through the disproportionate and excessive transfer of costs to employees, suppliers and customers.”
Corporate accountability also emerged in the discussion on the green transition, as Aviva expects all companies to develop and publish robust and financially viable climate transition plans that will support global decarbonisation in a just and inclusive manner. The asset manager said it is a “strong” supporter of the UK Transition Plan Taskforce Disclosure Framework and expects its recommendations to be integrated into the International Sustainability Standards Board guidance.
Making progress on the nature front
Aviva’s statement on nature disclosure was welcome by responsible investment campaigner ShareAction, which said that the new measure is in line with Target 15 of the Kunming-Montreal Global Biodiversity Framework (GBF).
“Target 15 has huge potential to drive action to halt and reverse biodiversity loss. It requires all large and transnational businesses and financial institutions to assess and disclose their risks, dependencies and impacts on biodiversity,” said Katie Leach, head of biodiversity at ShareAction. “It will be important for nature risks to be reported in line with the Taskforce on Nature-related Financial Disclosures (TNFD) and for Aviva to prioritise companies in sectors that have the highest impacts and dependencies on biodiversity in the first instance.”
Aviva’s statement suggests that some industries are reacting to the GBF. The hope is that more competitors will follow suit, even though biodiversity disclosures are still in their infancy. As regulatory requirements become more stringent, however, companies should heed Aviva’s advice and act before regimes such as TNFD are enforced – even if they are not part of its investment portfolio.