The ENCORE tool can help with the long-anticipated TNFD Recommendations, which aims to shift global financial flows away from nature-negative outcomes and toward nature-positive ones.
We are totally dependent on the natural world - for our lives and livelihoods. Our economic system relies on nature, with around half of our global GDP $44 trillion moderately or highly dependent on nature. The natural world is by far our greatest asset.
If nature becomes less resilient, this can cause significant financial risks to business and finance.
This is why the long-anticipated launch of the final Taskforce on Nature-related Financial Disclosures (TNFD) Recommendations, modelled on the Task Force on Climate-Related Financial Disclosures (TCFD) is a huge step forward. Specifically, the TNFD’s emphasis on location is needed and hugely welcome.
Up until now, there hasn’t been a single unified framework allowing companies and financial institutions to disclose and act upon their nature-related risks and opportunities.
Increased pressure to act
The aim of the TNFD is to shift global financial flows away from nature-negative outcomes and toward nature-positive ones. This drive has been both market-driven and policy-led, with the agreement of the Kunming-Montreal Global Biodiversity Framework and related package of decisions at CBD COP15 setting clear expectations moving forward.
In recent years, the pressure on the finance sector to act has increased, yet many financial institutions are still at the very start of their journey. With the launch of the TNFD recommendations, they now have a framework to begin and tools to help assess their impacts and dependencies on nature.
ENCORE - a key tool for LEAP
ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) is one of the key tools that can help financial institutions assess their dependencies and impacts at a portfolio level. Developed by the ENCORE partnership consisting of Global Canopy, UNEP FI and UNEP-WCMC, ENCORE covers the entire economy and guides organisations through the early stages of their nature-positive journey. It can help financial institutions take their first steps towards understanding their dependencies and impacts on nature. Many financial institutions start their nature journey with ENCORE.
Central to the TNFD Recommendations is the LEAP approach, which follows four key areas: Locate your interface with nature; Evaluate dependencies and impacts; Assess material risks and opportunities; Prepare to respond and report.
ENCORE can provide support to financial institutions specifically during the Evaluate phase by helping them refine their focus and prioritise key companies in relevant sectors. A financial institution might look at the ENCORE base level information for these sectors, or go into more detail examining the level of financial exposure due to investments in these sectors through loans, investments and underwritings.
A high-level assessment may take less than ten minutes, but a more detailed assessment, where a financial institution brings in their own data to compare with ENCORE data, might need a few days or a week, depending on the levels of investment. These findings can then be taken into the Assess and Prepare steps.
ENCORE currently has more than 4,000 registered users and has been used by a large number of financial institutions including BNP Paribas, ING, HSBC, and Robeco. In particular, over the past two years, ENCORE has been used extensively in the piloting processes that have helped hone the beta frameworks of the TNFD.
Read more about Robeco’s experience in this case study.
ENCORE has also been used by a number of central banks to assess and quantify the exposure of their national banking systems to nature-related financial risks.
ING’s report on their lending portfolio stated “these findings on impacts and dependencies help us to better manage biodiversity-related risks and opportunities.” The Dutch asset manager Robeco, in collaboration with WWF, used ENCORE to assess their portfolio’s impacts on nature, concluding that ‘biodiversity is a highly material topic for investors and that action is needed across the financial industry’.
Next steps for ENCORE
ENCORE is continually being developed and in 2021 a new biodiversity module was added. The tool is further being updated to align with the TNFD, including drawing in the most relevant data and classification systems, including the list of ecosystem services identified in the framework.
Over the next year, ENCORE will also increasingly become better at providing the links between where a company may be operating and the natural capital assets and ecosystem services affected. New and improved qualitative data and references, and quantitative data related to materiality ratings will also be added.
The launch of the TNFD framework and recommendations can be the catalyst that drives action - levelling the playing field and placing the same expectations on all within the sector. Financial institutions have the opportunity now to recognise their impact on nature, and instead drive forward a more nature-positive future.