How regulators have relinquished their work to corporate executives

Greetings from New York, where the frenzy around the UN General Assembly and Climate Week is heating up with the arrival of US president Joe Biden and Ukrainian leader Volodymyr Zelenskyy (among others) in New York. However, away from the police motorcades and staged UN speeches, interesting developments are also occurring on the fringe.

Take an event I attended at the New York Stock Exchange for the Taskforce on Nature-Related Financial Disclosures. When this initiative was set up a couple of years ago, modelled on the better-known Task Force on Climate-Related Financial Disclosures, it attracted interest mostly from diehard sustainability activists. But this week, when the TNFD unveiled its final recommendations, the NYSE room was completely packed with a crowd of investors, corporate executives and regulators.

With companies such as GSK already embracing it, the launch is a startling sign of change; not long ago, there were few corporate boards or central banks that professed passion around the fate of bumble bees, dolphins or forests. But as Simon discusses below, the TNFD approach faces objections that are well worth debating.

Also in today’s newsletter we highlight another striking development: Mia Mottley, the hard-charging premier of Barbados, is now cheering on Ajay Banga in his new position as the World Bank president. In truth, Banga has yet to deliver tangible progress in terms of persuading the bank’s shareholders to unleash new lending or blended finance projects, and the gossip in New York is that this is unlikely to emerge before COP28. But Mottley’s tone suggests that deals are being done. Watch this space — and let us know what you think. — Gillian Tett

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The elephant in the nature reporting room

The military term “task force” has of late taken on a new lease of life — used to describe groups of corporate and financial executives that draft standards on behalf of their regulators. While the motivation behind these initiatives might appear admirable, they provide real cause for concern, which is receiving far too little attention.

In New York this week, hundreds attended a launch event for the final recommendations of the Taskforce on Nature-Related Financial Disclosures, set up to create a framework that companies will use to report on nature-related risks and impacts, from drought to species loss to deforestation.

In a post on social media site X, the TNFD laid out some key numbers: “40 taskforce members. Holding $20.6tn in assets. 3,400 pieces of feedback analysed.”

These numbers are impressive but also troubling. All of the TNFD’s 40 members are executives from big corporations and financial institutions, selected more for their employers’ economic clout, it seems, than for their expertise in biodiversity.

There’s nothing wrong with business executives forming a body to design and lobby for a particular model of reporting standards, or any other sort of regulation. But if that body’s output is generally accepted as the global foundation stone for disclosure rules in this space, then there are obvious and serious questions about representation, accountability and conflict of interest.

Is that acceptance by regulators and other stakeholders happening here? It seems to be the aspiration of the TNFD’s co-chairs, who are not formally “members” of the body, but have served as its main public faces.

Elizabeth Maruma Mrema — who is also deputy executive director of the UN Environment Programme — has reportedly suggested that governments should require companies to file disclosures using the TNFD framework.

Her fellow co-chair David Craig reiterated that message on Friday, telling me “we’re quite optimistic” that regulators will incorporate the TNFD’s framework into their corporate reporting requirements, as they did previously with the Task Force on Climate-Related Financial Disclosures. The TCFD’s framework for climate-focused reporting, produced in 2017 by a group of 31 financial and corporate executives, has been made mandatory by regulators from London to Tokyo.

While governments have not yet made clear whether they plan to take the same approach to the TNFD, the initiative has received millions of dollars in funding from the Australian, Dutch, French, German, Norwegian, Swiss and UK governments — as well as from the UN, and from charities including the Children’s Investment Fund Foundation.

This is money that could have been used to fund a multi-stakeholder body, led by academic experts, civil society and community representatives, regulators and government officials, as well as voices from business and finance.

Craig, previously the founder and chief executive of financial data company Refinitiv, stressed to me that the TNFD had invested considerable time and effort in a consultation process with diverse groups all over the world. He also highlighted the role of the initiative’s 19 “knowledge partners”: a diverse collection of bodies and associations that contributed various forms of expertise.

But the key decisions on the TNFD’s recommendations have been taken by its corporate members, who are strikingly unrepresentative of the global population. For example, while they have worked closely with co-chair Mrema, who is Tanzanian, not one of the TNFD’s 40 members is black.

These concerns have not deterred WWF and Global Canopy, two of the world’s most prominent environmental nonprofits, from throwing their weight behind the initiative as official “partners”.

Other nonprofit groups have been far more critical. Sixty-two organisations in May signed a letter to the TNFD’s co-chairs, warning that the initiative was “distracting from, and undermining, real and sustainable solutions”.

They highlighted problematic features of the TNFD’s early draft recommendations, some of which survive in the final document published on Monday. Notably, the groups — including Rainforest Action Network, Global Witness and Greenpeace — argued that the TNFD’s framework cut companies too much slack on their disclosure of nature-related grievances filed against them, and on transparency around the location of their operations and suppliers. Such flaws would facilitate “greenwashing” and hamper efforts to hold companies accountable for damage done to nature, they warned.

The TNFD’s co-chairs and members are right to highlight the need for comprehensive reporting on corporate interactions with nature, and their work has helped galvanise movement towards it. But regulators should treat it as one input among many for some serious work of their own, rather than a blueprint for how to proceed.

While it is a valuable, carefully considered contribution to this space, this week’s publication by the TNFD should be seen for what it is: a document produced by a group of corporate and financial executives, which must inevitably reflect their interests and priorities. It cannot be a legitimate foundation for a massively important new area of regulation, which will have implications for every person and species on the planet. (Simon Mundy)

A revealing showdown in New York

Mia Mottley, the pugnacious premier of Barbados, has often been the poster child for the developing world’s criticism of the World Bank — pushing tirelessly for a new global financial architecture to channel funding into poor countries. But at the UN opening session on the Sustainable Development Goals, held on Monday in the UN General Assembly Hall, some detente was on display.

Sitting next to Ajay Banga, the World Bank’s new president, she declared that “this man has scored a century — and I say this as someone who has been a major critic of the World Bank”. For those unfamiliar with cricket, this is a big compliment. “The course correction he has brought has been critical,” she added. “But what I always say to him is that if you are running fast, and the dog behind us is running faster, you will still get bitten.”

What this means is that Mottley — like many others from developing countries — fears that even if Banga can persuade the Bank’s shareholders to embrace radical reform in the coming months, this may not happen quickly enough to rescue emerging countries that are drowning in debt and other woes.

She also called for a new initiative not only to promote more lending from the multilateral development banks, but to change the mindset of private creditors too.

“We cannot have SDGs without a mechanism to finance them . . . I am [also] hoping that we can have a joint effort between the World Bank, the IMF in particular and the UN to be able to bring to the table the credit rating agencies and the markets,” Mottley said. “Regrettably we value short-term lending, but do not understand that if countries are going to invest in education and healthcare they need 30- and 40-year money to do so.” 

Banga, for his part, said that after his first 100 days on the job, he remained committed to “expanding the mission of the bank” to tackle not only poverty and prosperity, but also the wider interrelated problems of climate, war and healthcare. And he championed the idea of expanding the bank’s balance sheet and leverage, noting that “we cannot [support the SDGs] unless we are sweating our existing balance sheet as much as we can”. 

However, he also stressed that over the next decade, all the new money pledged from MDBs will amount to amount to about $250bn.

“This is important but it does not solve the magnitude of the challenges we are facing. We need partnership with philanthropy and the private sector. We can leverage our AAA rating to create a magnifying effect . . . to find a way to extend our lending and concessional finance” — that is, support blended finance. 

He also stressed the urgent need to bring together global creditors to “sort out” the mounting issue of emerging market debt — and called for an overhaul of national subsidies to fuel and agriculture: “$7tn a year is going into subsidies, and impact of subsidies, so money is available [for development], but the question is where is that money available?”

This detente is unlikely to deliver any tangible new projects this week; the gossip in the UN is that blended finance initiatives will emerge at COP28 in December, probably with financial backing from the conference’s Emirati hosts. But the shift in tone suggests that Banga’s arrival is strengthening the impetus for reform. (Gillian Tett)

Smart listen

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