Late last year, First Sentier Investors (FSI) announced it was setting its first nature targets as an adopter of the Taskforce on Climate-related Financial Disclosures (TNFD). These targets relate to governance, assessment and training as recommended by the framework, with the firm intending to achieve them by the end of this year.
FSI launched a Climate Action Plan (CAP) based on the TNFD framework in 2022, and has regularly reported on its progress against net-zero commitments at firm and investment team levels. It has also committed to net zero emissions by 2050 for its investment portfolios, and by 2030 for its business operations.
PA Future spoke to Joanne Lee, responsible investor specialist at FSI, about updates to the firm’s progress toward these goals, how becoming a signatory of Finance for Biodiversity (FfB) has improved the firm’s approach to nature-related issues, and Lee’s predictions for nature-related impacts.
Can you first outline the three nature targets FSI has set?
As a TCFD adopter and a signatory to FfB Pledge, FSI has set three types of nature targets. These targets follow the recommended framework laid out by the FfB, relating to governance, assessment and training, and they will aid in our goals to reduce FSI’s impacts on nature and biodiversity.
Firstly, by the end of 2025, FSI will disclose a clear firm-wide governance structure for nature outlining board oversight and management responsibilities in an integrated manner with the existing governance structure for broader ESG issues.
Secondly, in the same timeframe, a dependencies, impacts, risks and opportunities assessment for our in-scope investments (listed equities and corporate bonds) will be conducted and publicly disclosed.
And finally, all of our relevant employees will have completed training on the relation between nature loss and investment.
Our governance and training targets cover all asset classes, while the assessment target initially covers listed equities and corporate fixed income. We will, however, continue to seek guidance in relation to the assessment target covering private markets and short-term investment.
These initial targets have set a clear direction for our firm’s future, and they have built on the progress we have made already in these areas whilst aligning with the TNFD’s recommendations. They are an extension of the firm’s work to date, and reflect our belief that investors have a role to play in directing global financial flows toward positive nature outcomes.
What was the motivation behind these targets and why is it important now to establish them, especially as a TNFD adopter?
It’s important for us to continue our role as responsible active stewards of our client’s capital, and these targets were a natural step forward for us in doing so. The pledge we made when we became a signatory of the FfB in 2021, and our participation in its target-setting working group, put us on course to deliver five commitments by 2030 – one of which was setting and disclosing targets to increase significant positive impacts on biodiversity, while reducing potential negative impacts.
These targets, together with our pledge to provide transparent disclosure of metrics, affirm our commitment as a TNFD adopter to improving nature reporting and ongoing engagement with investee companies to reduce nature-related impacts, mitigate risks, identify and value dependencies, and seize opportunities.
Can you talk through the firm’s implementation programme and how you hope to roll out these targets in real time?
In terms of our governance target, we have already established board oversight and management responsibilities within our ESG and climate governance structure, so we will look to integrate nature related oversight into this to ensure our target is met.
Our responsible investment team will also revise our current ESG governance structure following training and discussion sessions, so we can support both board and senior management teams in relation to our nature-related responsibilities. This will put us in a good position to disclose a clear firm-wide governance structure for nature by the end of 2025.
Progress has also been made in meeting our assessment target, as we have disclosed our sector-level impacts and dependencies across our listed equities investment. We have also disclosed this, together with our exposure and approach to nature in the 2022 and 2023 responsible investment reports, alongside the Investors Can Assess Nature Now (ICANN) guide we published in 2023. To further this, we used ISS’s Biodiversity Impact assessment tool to conduct a quantitative assessment of our impacts and dependencies for in-scope investment portfolios in 2024.
In 2023, FSI launched a Nature and Biodiversity toolkit, developed together with responsible investment representatives from different investment teams, allowing employees to easily familiarise themselves with our work on nature (which formed the basis to develop the ICANN guide for clients).
Following this, we have also conducted in-depth training for all employees, as well as provided tailored guidance and advice to our specific investment teams. We will continue our implementation this year, working towards our goal of ensuring all relevant employees will have completed training on the linkage between nature loss and investment.
How has becoming a signatory of the Finance for Biodiversity (FfB) improved your approach to nature-related issues?
Since becoming a signatory to the FfB Pledge in 2021, we have aligned our approach to nature-related issues against the five FfB commitments of collaboration and knowledge sharing, engaging with companies, assessing impacts, setting targets, and reporting publicly.
To support investors in setting credible and robust targets, FfB Foundation’s Target Setting Working Group, which FSI is a member of, launched the second edition of the ‘Nature Target Setting Framework for Asset Managers and Asset Owners’. The Framework notes that financial institutions that signed the FfB Pledge before 2024 are required to set ‘Initiation Targets’ before December 31, 2024. Our Initiation Targets have been guided by the recommendations in the Framework.
Specifically, as we were encouraged to enhance our collaboration via our FfB pledge, we have made a commitment to continue to improve our active collaboration with the industry on relevant initiatives on nature and biodiversity.
For example, as a member of the Responsible Investment Association Australasia’s (RIAA)’s nature working group, we led the development of a section on risk assessment in Nature Investor toolkit, launched in October 2024. The toolkit is an important resource and guide for investors, offering practical actions and case studies.
Or, another example is our contribution to review the development of a publication called Scaling Finance for Nature: Barrier breakdown, launched in October 2024. This built on our work as a member of the Nature-related Finance Steering group at the Cambridge Institute for Sustainability Leadership.
What do you predict are the main challenges when setting these targets and outlining a roadmap to achieving them?
We are confident that our focus on nature and biodiversity since 2021 has set us up for success to achieve our initial nature targets. This includes our employees’ involvement in nature-focused trainings and our development of a nature and biodiversity working group, where we published the ICANN guide. This preparation is crucial in building awareness of what is expected when setting nature targets.
Setting follow-up targets beyond the Initiation Targets and implementation could present some challenges. FfB’s next proposed target is to set ‘monitoring targets’ which requires investors to commit to monitor certain nature-related KPIs, and to also set ‘portfolio targets’, which requires setting portfolio-wide targets on the monitored KPIs. Implementing ambitious yet realistic, time-bound targets on investment portfolios could be challenging.
Lastly, what are your future predictions for nature-related impacts? Do you have a timescale in which you’d like to see progress?
My first prediction is an increasing familiarity and improvement in transparency. There is a need for greater industry understanding of nature-related risks. As nature is a very complex system, investors need to be more open and ready to learn new aspects of assessing companies.
Industry-wide collaboration and knowledge sharing is critical to advancing this space. As more investors start applying the TNFD recommendations, there will be more cases and examples to learn from. By 2028, I hope to see most large-cap companies and large-scale investors disclosing some nature metrics and data.
Another prediction is data innovation. Investors typically rely on voluntary company disclosure for ESG data, but location-based data is rarely disclosed by companies. However, recent new ways to collecting such nature-related data are emerging from third parties, including using satellite images, GPS and Artificial Intelligence (AI).
With this, investors may gain access to company’s nature-related data independent from company’s disclosure. Such data will also be used by NGOs and watchdog groups to monitor company’s claims and progress, which could further improve transparency. By 2030, I hope to see more financial institutions have greater coverage of supply chain data mapped to their holdings, as this can offer a more accurate view on their impacts and dependences.
