In recent years, amid a heightened global focus on nature, biodiversity concerns have gained prominence. Since 2022, central banks and financial regulatory bodies worldwide have reached a consensus on bolstering financial institutions' efforts in identifying, managing, and disclosing nature and biodiversity-related risks. The Taskforce on Nature-related Financial Disclosures (TNFD) has gradually emerged as a widely recognized framework for risk management and assessment in the context of nature-related disclosures.
On May 16, 2024, HZGF organized the Symposium on Nature-related Financial Disclosures. Tony Goldner, Executive Director of TNFD, along with local financial institutions, enterprises, social organizations, and other stakeholders from Huzhou, was invited to share insights on the opportunities and experiences of biodiversity finance.
Since TNFD released the final recommendations for disclosing financial risks tied to nature, biodiversity, and ecosystems in September 2023, the team embarked on its first international tour to several countries, aiming to enhance global understanding of the framework and facilitate its implementation. Mr. Goldner's China visit started in Beijing, where he engaged in in-depth discussions with numerous experts. Huzhou, as the birthplace of the “Two Mountains” theory and a national pilot zone for green finance innovation and reform, has been proactive in establishing a green finance service system aligned with biodiversity conservation. It pioneered the issuance of the Implementation Opinions on Finance for Biodiversity Conservation in August 2022. Mr. Goldner visited Huzhou specifically, conducted the Symposium and undertook field researches. During the Symposium, he engaged in profound discussions with attendees on nature and biodiversity-related disclosures. Bai Yunwen, Vice President of IFS and President of HZGF, delivered the opening speech. This article summarizes some key insights to guide future endeavors.
Opening Speech
Bai Yunwen highlighted that over the past two years, it has become a global consensus for financial institutions to strengthen the identification, management, and disclosure of risks related to nature and biodiversity. This has led to the development of numerous frameworks, policies, and initiatives domestically and internationally. Consequently, the TNFD has seen rapid growth, with 320 institutions, including financial institutions and enterprises, committing by January 2024 to adopt TNFD's recommendations for disclosure by fiscal year 2025. She warmly welcomed Tony Goldner, emphasizing Huzhou's leadership in green finance reform and innovations, and its pioneering role in developing innovative biodiversity-related financial products. Bai Yunwen also looked forward to deeper collaboration, with this Symposium as an opportunity.
Keynote Speech
In the keynote speech, Tony Goldner expounded on the close relationship between green finance and the natural environment, emphasizing the pivotal role of natural capital in economic development. He stressed the urgent need to address other planetary boundaries, including biodiversity, in addition to climate change.
Vision and Mission of TNFD
Supported by the G20, TNFD is an international initiative striving to enable enterprises and financial institutions to identify, assess, manage, and disclose nature-related risks and opportunities. By formulating disclosure standards, TNFD fosters global sustainability. Moreover, it has launched 14 disclosure recommendations aimed at integrating nature-related risks and opportunities into strategic planning, risk management, and asset allocation decisions for enterprises and financial institutions.
Planetary Boundaries and Global Risks
Tony Goldner emphasized that the concept of planetary boundaries exposes the limits of Earth's ecosystem capacity, with climate change being just one of nine boundaries. Currently, global capital regards long-term nature-related risks as a paramount concern, indicating that the degradation of natural capital poses a substantial threat to economic activities. The world economy heavily relies on ecosystem services provided by nature, and disruptions to these services due to natural degradation directly lead to decreased enterprise revenues and reduced cost-effectiveness. Hence, enhancing nature's resilience is imperative for safeguarding economic stability and growth.
A Comprehensive View in Financial Markets
As central banks and financial institutions worldwide increasingly recognize that nature-related risks can spill over into the financial sector, disclosing such risks transcends the realm of enterprise social responsibility. TNFD offers a standardized framework for assessing and disclosing nature-related risks globally, and steers capital towards more sustainable projects. The 14 disclosure recommendations equip enterprises with tools to quantify their impacts on nature, encompassing key metrics like pollution, resource depletion, and ecological degradation, to facilitate their self-assessments and public disclosures. Moreover, satellite data and digital platforms, which monitor changes in natural assets, provide a technological underpinning for risk assessments.
Huzhou's Demonstrative Effect and International Cooperation
Confronting the pressing challenge of accelerating natural degradation, nations around the world are collaborating to advance green finance through policy formulation, market mechanisms, and international cooperation. Tony Goldner notably highlighted Huzhou as a pioneer and model in green finance innovation practices. He urged Chinese and global enterprises to seize the opportunities amid this transformative period, and contribute to a more sustainable future through innovation and collaboration.
Two Recommendations for Financial Institutions
First, financial institutions should distinguish between the concepts of conserving and restoring nature. Conserving existing natural resources is critical, but to achieve growth in natural capital, financial institutions must also drive nature restoration, as addressing the shortfall where conservation alone fails to provide sufficient resources to sustain development.
Second, beyond project-level risks, financial institutions should also prioritize assessing nature-related risks at the borrower level (organizational level). This entails evaluating environmental risk exposures for industries across sectors, including steel and textiles.
Huang Dingwei, Deputy Director of the Huzhou Municipal People’s Government Office and Director of the City's Green Finance Development Service Center, presented Huzhou's work on green finance reforms from a policymaker's perspective. In terms of standard setting, Huzhou has issued multiple national and provincial-level standards, and developed an ESG evaluation model tailored to local MSEs, providing benchmarks and guidance for various stakeholders in green finance reforms. On the institutional front, Huzhou has promoted the establishment of standards for specialized green financial institutions among regulatory bodies, financial management departments, and financial institutions, encouraging them to carry out pilot projects in Huzhou. For policy incentives, Huzhou has employed fiscal, monetary, and regulatory policies to offer tiered incentives for financing entities engaging in green finance activities, and enacted the Green Finance Promotion Regulation to systematically plan and build a comprehensive green finance promotion system through local legislation. Regarding product innovation, Huzhou has propelled financial institutions to actively develop a range of products, including green loans, green bonds, green insurances, and green funds, with the City's green credit ratio surpassing the national average significantly. In the matter of infrastructure, Huzhou leverages financial technologies, including "Green Credit" Platform and digital evaluation system, to precisely match financial services with funding entities, significantly enhancing service efficiency for MSEs. In the aspect of disclosure, it is required that listed companies disclose ESG reports, banking institutions undertake environmental disclosures, and major emitters conduct GHG emission audits. Moreover, Huzhou has also taken the lead in biodiversity finance, elevating its eco-environmental governance through approaches such as planning, cataloguing, product innovation, and project-specific biodiversity risk assessment. Moving forward, Huzhou will deepen its green finance reforms, strengthen biodiversity risk assessments and disclosures, and collaboratively promote high-quality economic development alongside high-standard environmental protection, fostering a harmonious coexistence between humans and nature.
Theme SharingⅠ
During the theme sharing on policies and market environments promoting biodiversity conservation and disclosure, Leng Fei, Coordinator of National Biodiversity Finance Initiative (BIOFIN) Programme of UNDP, delivered a speech around the Kunming-Montreal Global Biodiversity Framework (GBF) adopted at the fifteenth session of the Conference of the Parties (COP15) of the United Nations Convention to Combat Desertification (UNCCD), and the China National Biodiversity Conservation Strategy and Action Plan (2023-2030) released in January. She outlined the long-term ambition of closing the USD 700 billion annual biodiversity funding gap, and underscored the significance of Target 15 [1] and Target 19 [2]. Additionally, she drew attention to a suite of policies and mechanisms introduced by the State Council and the Ministry of Ecology and Environment, aimed at guiding and encouraging social capital in ecological conservation, refining a diversified investment and financing mechanism, reinforcing fiscal resource allocation, and facilitating the entry of biodiversity conservation projects into financial support reserve. Further, she underlined the importance of international cooperation, biodiversity finance, and the necessity to revise policies detrimental to biodiversity conservation.
Peng Ling, Deputy Director of the Green Finance Center of Huaxia Bank, gave a detailed account of the Bank's practices in biodiversity conservation. She noted that Huaxia Bank focuses on five areas, namely institutional mechanism building, standardization of financial support for biodiversity, biodiversity risk management, product innovation, and biodiversity disclosure. In terms of institutional mechanism building, as one of the early Chinese institutions to apply the global Principles for Sustainable Finance, Huaxia Bank has engaged in multiple international initiatives and collaborations. It took the lead domestically by becoming a TCFD supporter, co-initiating the Partnership of Biodiversity and Finance (PBF), and becoming a member of PBF. In the matter of standardization, the Bank identified around 40 subcategories of green loans related to biodiversity by reviewing business standards, and supported projects ranging from wetland conservation, forest cultivation to lake management. Notable success cases include the Dongtai Wetland in Jiangsu and Alligator Conservation in Huzhou. As for product innovation, Huaxia Bank experimented with plant variety rights pledge loans and explored marine carbon sink. Regarding biodiversity risk management, the Bank enhanced the evaluation system, incorporating biodiversity risks into the ESG risk management process for credit operations. About disclosure, a dedicated section for biodiversity disclosure was established in 2023. She affirmed that Huaxia Bank would deepen its independent research and practices in biodiversity conservation, especially in exploring methodologies for quantifying biodiversity assessments in disclosures.
Theme Sharing II
In the theme sharing highlighting favorable practices in promoting green finance and ecological civilization construction, Sun Wei from the Financial Survey and Statistics Department of PBOC Huzhou Branch presented the Bank's practices in biodiversity finance, including establishing a biodiversity finance support institutional framework, promoting the development of support systems among local financial institutions, and facilitating biodiversity-related practices. He highlighted the Xiazhu Lake Wetland Restoration Project, as a case study, demonstrated how measures such as source control, ecosystem purification, eco-friendly aquaculture model, and wetland carbon sink compensation trading, combined with mechanism innovations like fiscal subsidies and ecological compensation, supported wetland rehabilitation. He also addressed challenges in biodiversity finance, including inadequate market incentives, complex project identification, funding matching difficulties, and limited financial instruments.
Dai Wei, a researcher at HZGF, shared the researches and progresses of the Industrial and Commercial Bank of China (ICBC) Huzhou Branch regarding biodiversity risk management in investment and financing projects, including developing impact assessment methodologies, mapping priority conservation areas for biodiversity, screening industry risk levels, and establishing a risk management system. Leveraging industry risks and geographical information with area as a key driving factor, the risk management system integrates existing zoning control systems to ascertain the extent of a project's impact on biodiversity. He emphasized the importance of identifying and assessing a project's impact on biodiversity in risk management, and highlighted the feasibility, quantifiability, and replicability of such assessments enabled by digital tools.
Zheng Hua, Head of the Green Finance Business Department at ICBC Huzhou Branch, expressed that the Huzhou Branch has closely combined biodiversity conservations with business operations, giving utmost consideration to its far-reaching implications for the environment and society. As a pioneer green finance branch, since 2019, it has significantly increased green loans, enthusiastically supported local eco-friendly industries such as green aquaculture, forest cultivation, and the development of green infrastructure. It has embedded the principles of "Environmental quality bottom line" and "Ecological protection red line" into the credit decision-making process, and rigidly enforced an environmental protection "One ballot veto". By adopting stringent credit policies, the Branch guaranteed that projects meet environmental protection standards. Zheng further explained that Huzhou Branch has joined the "Financial Support for Biodiversity Research Group" under IFS. The Branch is actively exploring the development of localized risk management guidelines, and utilizing assessment tools to facilitate project selection and product innovation, thereby achieving a dual objective of promoting biodiversity conservation and economic growth. Zheng underscored that by employing quantified management tools, the Branch will more efficiently support eco-friendly projects, steer enterprises towards reducing environmental footprints, foster a "Beautiful Economy", and preserve the lucid waters and lush mountains of Huzhou.
A representative from the Huzhou Branch of Huaxia Bank introduced the Bank's explorations in biodiversity conservation, such as financing ecological management and low-carbon development via specialized funds, and piloting eco-friendly financial services. She shared specific cases like the conservation of Chinese alligators and crested ibises, as well as the ecological restoration of abandoned mines. She emphasized financial institutions should promote green finance development while striking a balance between economic interests and public welfare. Meanwhile, she stated that Huaxia Bank intends to further increase the support for biodiversity projects in 2024, through measures like policy preferences, targeted resource allocations, and disclosures guided by the TNFD framework.
Zhang Caiyan, Head of the Green Finance Business Department at Deqing Rural Commercial Bank, presented the Bank's tailored biodiversity conservation service system for Xiazhu Lake Wetland, including a suite of financial products such as Carbon Sink Loans, Green Loans, and Low-carbon Series Loans. She elaborated on the strategic cooperation with Xiazhu Lake Wetland in ecological and environmental protection, explaining how financial products and services support wetland ecological restoration and biodiversity conservation, fostering a positive interaction between economic development and ecological conservation. She particularly highlighted the Bank's innovative credit products like the Low-carbon Homestay Loans, designed to enhance tourism quality while harmonizing ecological and economic benefits.
Concluding the meeting, Huang Dingwei summarized the experts' speeches. He affirmed Huzhou's commitment to advancing efforts in biodiversity conservation, especially regarding nature-related financial disclosures. He expressed his anticipation for Mr. Tony Goldner and other experts to engage in further capacity-building activities tailored to Huzhou's context, and to jointly facilitate the City's exploration and development in biodiversity finance.
Notes:
[1] Take legal, administrative or policy measures to encourage and enable business, and in particular to ensure that large and transnational companies and financial institutions:
(a) Regularly monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity, including with requirements for all large as well as transnational companies and financial institutions along their operations, supply and value chains and portfolios;
(b) Provide information needed to consumers to promote sustainable consumption patterns;
(c) Report on compliance with access and benefit-sharing regulations and measures, as applicable;
In order to progressively reduce negative impacts on biodiversity, increase positive impacts, reduce biodiversity-related risks to business and financial institutions, and promote actions to ensure sustainable patterns of production.
[2] Identify by 2025, and eliminate, phase out or reform incentives, including subsidies, harmful for biodiversity, in a proportionate, just, fair, effective and equitable way, while substantially and progressively reducing them by at least 500 billion United States dollars per year by 2030, starting with the most harmful incentives, and scale up positive incentives for the conservation and sustainable use of biodiversity.
HZGF