Climate- and Nature-related Financial Disclosure

Due to observations that the planet's natural resources are greatly under jeopardy by anthropogenic activities, i.e. lost at breathtaking speeds, and its impacts on social and economic elements of human society, the term ‘sustainability’ is presently one of the master key words applied verbally throughout the globe.

© copyright Marco Semadeni

Environmental sustainability as one part of sustainability relates to a sustainable use of natural resources, protect the quality of water, soil and air, mitigate climate change and enhance biodiversity, maximize the circularity of economic activities, increase energy efficiency and thrive on sustainable finance (climate- and nature-related financial disclosures regarding risks and opportunities) and correspondingly responsible investments (compare for instance the comprehensive work of the Task Force on Climate -related Financial Disclosures (TCFD) and the Task Force on Nature-related Financial Disclosures (TNFD)).

To ensure our quality of life on our planet, it is important to build up natural resources in form of natural capital, instead of exploiting these through one-directional economic activities. Natural resources must be available also to later generations - for sustainable use. Essential to mankind are ecosystem services for regenerating natural resources and protecting biodiversity; the latter also being essential for the resilience of ecosystems to withstand severe disruptions (systemic resilience). Finding appropriate metrics for valuating natural capital of the different types of areas and landscapes of a country is a very big challenge, hence the request of developing international standards for valuating natural capital, and for market-based instruments to incentivize its regeneration.

As TNFD pointed out in their post on LinkedIn regarding ‘London Climate Action Week 2023’ and the question of joining forces between climate- and nature-related challenges, these would - in my opinion - be two essentials for transforming the economy towards more sustainability. The process of corresponding financial disclosures is one element to increase the comprehension of institution, corporations, and other market participants to minimize climate- and nature-related risks, along with engaging in opportunities for improvements. For a successful transformation of an economy, externalities impacting the environment must be internalized into the economic system. In other words, activities reducing environmental impacts and restoring environmental compartments, natural resources and biodiversity must be incentivized to gain monetary value from it, e.g. through selling generated certificates, while economic actors would have to buy tradable allowances for consuming or degrading natural resources or environmental goods. A multitude of instruments would be needed to set up such a system. Simplified and standardized metrics would be needed to base the instruments on solid grounds.

Looking at the incredible complexity of interaction between ecosystems, natural resources, and anthropogenic activities, how will it ever be possible to proceed setting up a two-directional resource economy as part of establishing circular economy. Somehow this vaguely triggers archaic memories of the time when mankind invented money to replace the ever-increasing complexity of having to exchange physical goods.