Assessing a company’s climate and nature-related risks is commonplace among today’s investors. However, while investors are hungry for this information, metrics and standards are lagging behind. A recent article from ESG Investor discusses the tension between the desire for standardization and the need for meaningful metrics. The article states that:
“There is mounting concern that some popular climate and nature metrics have oversimplified the underlying reality. While they can be applied more easily across different sectors, portfolios, asset classes and investment strategies, they may not sufficiently account for the depth and nuance many climate- and nature-related themes demand.”
When metrics are standardized, investors can more easily compare companies’ performance. However, climate and nature-related risks are complicated, and metrics that may be a bellwether in one industry may not as easily apply to another. Possible solutions of sector-specific metrics are currently being developed by the Taskforce for Nature-related Financial Disclosures (TNFD) who recently published draft guidance for oil and gas, metals and mining, forestry and paper, food and agriculture, electric utilities and power generation, chemicals, biotechnology and pharma, aquaculture, and financial institutions.
By focusing metrics on specific sectors, investors may be able to access information that is more relevant. This is a reminder that the climate crisis and ecological breakdown do not have a “one size fits all” solution. Because of that, it is likely other disclosure frameworks will follow the TNFD’s lead and produce further sector-specific guidance.
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