Building Biodiversity: Australian nature credit markets beyond the TNFD

On Monday, 18 September, the Taskforce on Nature-related Financial Disclosures (TNFD) was launched in New York together with a series of guidelines and resources.

Clayton Utz has partnered with thought leadership agency The Action Exchange to launch a report on Building Biodiversity: Australian nature credit markets beyond the TNFD. This report explores the way the Taskforce on Nature-related Financial Disclosures (TNFD) is likely to shape emerging voluntary Australian biodiversity credit markets that will fund nature protection and restoration. It includes an examination of the risks, opportunities and legal considerations businesses will need to consider to manage the financial impacts they face from degradation of the natural environment.

Download the full report

The release of the TNFD framework is a significant milestone. It will help governments, financial institutions and companies adopt an informed and structured approach to identify and manage biodiversity risks and nature positive opportunities.

It is also a tipping point in the development of transparent and functional voluntary biodiversity credit markets that finance nature positive gains. The TNFD’s nature risk disclosure and reporting guidance will provide baseline information that investors, issuers and businesses need to make informed decisions in this emerging market. Australia is uniquely positioned to capitalise on any biodiversity credit market growth for nature positive outcomes. It is a large, developed, megadiverse country with a robust legal system and financial services sector, and it has experience in developing mandatory biodiversity offset compliance markets where negative impacts on biodiversity in one location can be ‘offset’ or compensated for by purchasing biodiversity units in another location. But markets don’t grow themselves. Businesses and governments must be willing to openly collaborate if the TNFD is to catalyse functional domestic biodiversity credit markets that attract both domestic capital and global investment. This report aims to help spark such action in Australia and focuses discussion on the next steps required to harness the TNFD’s momentum.

Key findings

• Australian companies need to act fast on TNFD. Those that move quickly to integrate climate and nature reporting will have a first-mover advantage.
• Biodiversity credit markets are nascent. But a tipping point has been reached where companies and investors are prepared to invest in market-based solutions.
• The structures, regulatory environment and data solutions needed to underpin nature markets are emerging. Improved levels of funding, policy development, and corporate cooperation will be needed, together with robust accounting and verification regimes, to grow this opportunity.
• Getting started will lead to solutions. No one has ideal data or disclosure at such an early stage of market development. Those who can invest using clear strategies, due diligence, and verification will help develop solutions to these challenges.
• Climate change and nature are inherently linked. Nature-based solutions will become a vital environmental risk management tool for mitigating biodiversity risk, climate adaptation risk, and boost domestic and global food security.
• Carbon and biodiversity markets will begin to overlap. This will make for an increasingly complex investor landscape as parties seek to maximise the value of sales and purchases, and minimise their risks.
• Innovation and partnerships are critical. New instruments and structures beyond biodiversity credits that meet different investor needs will be required if Australia is to become a world-leading biodiversity market.
• Agriculture is a foundation for Australian nature credit markets. Project proponents need to consider how to maximise the value of their landholdings to achieve holistic nature positive, carbon reduction, and food supply outcomes.