Finding the opportunity in nature impacts disclosure

Nature impact reporting is now firmly on the radar for a growing number of real asset owners, investors, and developers. While much of the attention is probably being paid to the risk and negative externalities aspect, a key part of the framework developed by the Taskforce on Nature-related Financial Disclosures (TNFD) is also nature-related opportunities.

The overall framework is a major leap from business-as-usual thinking, because for decades now, the concept of impacts on nature from urban development has largely been focused on risks to endangered species on specific sites, loss of forests and woodlands, or visible impacts such as degradation of waterways and marine pollution issues like plastics harming ocean creatures.

The new nature focus is about much more than the headline issues, which is why organisations including the World Green Building Council and member local Green Building Councils have begun publishing discussion papers around the topic. For example, the Green Building Council of Australia is currently developing a Nature Roadmap for the Built Environment.

Regulations shaping the agenda

World governments are also moving into action mode, following the UN Biodiversity COP 15 in 2022 that resulted in the international Kunming-Montreal Biodiversity Framework agreement. This global initiative commits governments to take steps to protect biodiversity, which includes mitigating the harm caused by extractive industries, development, pollution, and land clearing.

The rights of Indigenous Peoples and the importance of First Nations’ stewardship of nature and ecological knowledge is also recognised in the Framework, and the TNFD requirements reflect this too with inclusion of both the voice and rights of Indigenous Peoples as an impact area that should be addressed.

The mandatory reporting frameworks such as the International Sustainability Standards Board (ISSB) requirements for corporate disclosures will also look at integrating nature risks, impacts and opportunities into reporting requirements.

In the EU, the European Corporate Sustainability Reporting (CSR) Directive now incorporates nature impacts, and in the UK, the Biodiversity Net Gain legislation came into force in 2024 and applies to many types of development. The regulations mandate a biodiversity net gain of 10% of habitat increase or improvement as part of the delivery of a project. Because not all projects will be able to achieve this within the development site, the Biodiversity Net Gain Hierarchy must be applied.

The first preference is for Biodiversity Net Gain (BNG) to be achieved on site, or through a mix of direct action by the developer on-site and off-site on other land they own. Purchasing off-site biodiversity units via the open market is also an option to top up to achieve the 10% increase - but only to supplement actions on land owned by the developer.

The last resort, if a developer cannot (or will not) achieve BNG on their own land is to purchase statutory biodiversity credits from the government. This is similar to the way mandatory state-based biodiversity offset schemes in Australia operate in New South Wales and Victoria.

This is all relating to new developments, however, whereas the push for nature impacts reporting via the TNFD encompasses the entire asset lifecycle and the asset supply chain.

This aligns with the approach taken by the Science-Based Targets Initiative (SBTi) for carbon emissions reduction pathways. Footprint calculations incorporate both on-site emissions sources and those associated with offsite sources including procurement, business activities and in some cases the end-user, for example, the emissions generated by tenants in a building.

Now, the same approach is being proposed by the Science-Based Targets for Nature Initiative of the Global Commons Alliance. Due to the multiple factors that comprise ‘nature’, however, there are stages associated with specific dimensions of nature, commencing with an organisation setting targets around land and water.

Another push for the disclosure and mitigation of nature impacts has been developed by a multilateral coalition, including the UNEP, UN FAO. World Bank, World Resources Institute, European Investment Bank, and major commercial and civil organizations. The initiatives resulting from this, the ‘Capitals Coalition‘, include the Natural Capital Protocol.

Similar to other initiatives such as the Principles for Responsible Investment and the Principles for Responsible Banking (PRB), the aim is to align finance and commercial activity with global agreements, including the 1992 Rio Conventions on biodiversity, climate change and combating desertification, and the UN Sustainable Development Goals.

The common core for these trend-shapers is the understanding that nature, specifically soil, water, air, climate, habitat, and biodiversity, is fundamental to economic viability for human societies. It is, effectively, another form of capital, and just as the investment community stewards its financial capital, so too natural capital should be stewarded.

For property, both the act of creating new assets and the ongoing operation of existing assets has impacts on each of the major elements of natural capital, as the UN PRB sector mapping and guidance shows. The UN and partner organisations are also developing an effective system of environmental and economic accounting, called the Natural Capital Accounting and Valuation of Ecosystem Services (NCAVES) project.

What this means for real asset investors and stakeholders

Because nature impacts and biodiversity are a new and complex topic, the property sector and investors are keen to understand what it means for them and what the solutions are.

The major challenge for the property sector is shifting from a line-item view to a holistic one that can map and value the relationships between actions and outcomes in a multifaceted way.

For example, the supply chain impacts of a construction project using concrete include nature impacts from sand extraction, aggregates, concrete batching plants, concrete trucks and more, making it incredibly challenging to picture the environmental footprint and calculate relevant data.

On the opportunity side of the balance sheet, when a masterplan incorporates green infrastructure such as vegetated swales, ponds, reed beds, wildflowers, and trees as part of a stormwater management and urban heat mitigation strategy, the result can be nature positive.

Tangible ways to gain value from nature

Flooding, in more frequent and unpredictable ways, will grow as climate change increases over time. Utilising natural flood management techniques is a key method to stop this. Increasing the soil quality of floodplain fields that shield built-up areas will increase their ability to absorb water run-off.

Recent scientific studies, such as those cited in the documentary Roots So Deep, have shown how increasing the organic matter in the soil can reduce water run-off, while also sequestering carbon within the soil. Run-off channels for flood- and stormwaters could also be incorporated in such a way that they form a cohesive part of an urban masterplan, instead of the water spilling across the entire area.

Urban shading will be key as the impacts of climate change escalate; and one of the foremost issues will be extreme heat. The urban heat island effect will magnify these conditions even more – and more people will be at risk with the projected increasing proportion of humanity forecast to live cities. The World Bank predicts an increase in global urban population by a factor of approximately 1.5, meaning we may be reaching around six billion urban residents by 2045.

Areas of the world that are not used to designing for heat, such as the UK, will need to learn from areas that have long designed for this, such as Madrid. A shift in societal awareness will also be key; while a Sicilian may know how to stay safe in heatwaves as a matter of course, a Norwegian may not, simply because they have never had to. As the climate changes, society must change as well.

Responding to conditions is just as necessary for nature. While climate-tolerant planting can be specified, it can often only go so far. Planting that will survive British winters, for example, may not always survive future heatwaves that reach 40°C for week-long periods. Using urban shading will protect urban greening below the canopy and in the immediate vicinity area of lowered temperatures, just as it will for human users of that space.

In the context of buildings, utilising natural-based materials is proven to have an intrinsically positive effect on the occupants’ mental state of being. An improved mental state can lead to higher productivity in an office, higher satisfaction amongst occupants in a residential development, or better educational outcomes in a school. This can logically contribute to a more commercially valuable real asset, optimising the monetary investment.

In addition, by utilising more natural-based materials, we will build a more substantial business case for sustaining and protecting nature.

This article was originally published by GRESB Insights