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From shipping routes to seafood supplies, the world’s oceans underpin vast swathes of the global economy. But as the environmental costs of marine degradation mount, so too do the financial risks for companies with direct or indirect links to the ocean.
For businesses, especially those with ocean-dependent operations or supply chains, the health of the seas is no longer just a sustainability concern. The blue economy (see box) is now a material financial issue.
‘Financial institutions are uncomfortable with the exposure that may exist’
‘Companies that fail to identify, assess and transparently disclose their exposure to marine-related impacts may face legal challenges, consumer backlash and investor scrutiny,’ says Lucy Blake, a partner at law firm Jenner & Block. ‘Brand value can be quickly eroded if a company is seen as contributing to marine degradation, either directly or via its supply chain.’
The blue economy
The blue economy refers to ‘the sustainable use of ocean resources to promote economic growth, social inclusion and the preservation or improvement of livelihoods, while at the same time ensuring environmental sustainability of the oceans and coastal areas’, according to the World Bank.
It includes sectors such as:
- shipping and logistics
- offshore oil, gas and renewable energy
- fisheries and aquaculture
- coastal tourism
- marine biotechnology.
Financial exposure
Launched in 2021, the Taskforce on Nature-related Financial Disclosures (TNFD) is a framework for organisations to assess and disclose their nature-related financial risks. It has sharpened that focus with a new discussion paper on measuring ocean-related issues that recommends organisations consider their nature-related impacts across four realms: ocean, freshwater, land and atmosphere.
Ocean transparency, metrics and disclosure ‘have lagged behind the other environmental realms’, says Oliver Tanqueray, head of ocean at CDP, an international non-profit organisation that helps companies disclose their environmental impact. ‘Some of that is because it is a particularly complex biome to try and understand, and inevitably a lot of activity at sea is out of sight.’
Tanqueray adds that CDP is now seeing ‘massive demand’ from financial institutions for better quality ocean-related data. ‘They are nervous and uncomfortable with the degree of exposure that may exist, but don’t know where it is and how significant their risk is. From a financial institution perspective, it is out of sight but not out of mind.’
Data gaps
The TNFD aims to help organisations identify, assess and report on their dependencies, impacts, risks and opportunities on marine ecosystems – everything from plastic pollution, chemicals and wastewater to biodiversity loss.
Laura Clavey, the TNFD’s lead for measurement and ocean, says data gaps make it difficult for businesses to measure their pollution impacts on the ocean in certain sectors and locations where it can be challenging accessing data. ‘The clear message we heard is that there is good high-quality data for organisations to get started but that they tend to be a bit more sporadic,’ she says.
‘Ocean impact is diffuse, hard to trace and often shared across jurisdictions’
The challenge is that ocean impact is diffuse, hard to trace and often shared across multiple jurisdictions. For instance, industries such as seafood have fragmented supply chains that go through several stages of sale, resale, processing and distribution.
‘That makes it very difficult to trace things back to source to figure out what catch methods are being used, what bycatch might be implicated in that operation,’ Tanqueray says.
There can also be overlays of different types of pressure on specific areas – an offshore windfarm, significant shipping routes and fishing – which make it hard to pinpoint an organisation’s risk exposure.
Impact drivers
But companies’ ‘understanding of their interactions with the ocean are starting to get a lot more pragmatic’, says Josh Hasdell, KPMG’s global blue economy services lead.
Despite the challenges in measuring ocean chemistry – how much carbon is sequestered at the bottom of the ocean – Hasdell says ‘there are some initiatives and technologies that can be accessed now’. Businesses can track what the TNFD calls ‘impact drivers’, such as the quantity of polluting chemicals produced that impact water and marine sources.
‘There is a lot of data available to understand interactions with the ocean’
Hasdell says impact on animal migration pathways can also be accurately calculated by using satellite imagery and AI. This data can be fed to freight transporters and cruise liners so they can avoid densely populated areas at a certain time of year.
‘That is one of the ways in which you can start to identify your impacts,’ Hasdell says. ‘There is a lot of data available to companies to understand their interactions with the ocean. And that is what the TNFD is doing, helping identify what those main impact drivers are.’
Reporting
To help businesses understand their dependencies and impacts on nature, the TNFD has designed the LEAP approach, based on four phases: locating the organisation’s interface with nature, evaluating its dependencies and impacts, assessing nature-related risks and opportunities, and preparing reports on material nature-related issues.
‘It is not designed to be done in isolation for just nature-related risks,’ explains Clavey. ‘It is designed to be embedded in the existing risk management and materiality process and financial decision-making.’
The TNFD designs its reporting regime to align with others, notably the EU’s Corporate Sustainability Reporting Directive (CSRD) and the IFRS Sustainability Disclosure Standards.
‘If marine impact isn’t integrated into your risk registers, you’re flying blind’
While the CSRD is built around the principle of double materiality, requiring companies to disclose both the financial impacts of environmental issues and their own impacts on people and the planet, the TNFD provides a flexible approach, leaving preparers to decide which approach to follow, with the ISSB's financial materiality approach as a baseline.
‘You have to do a high-level assessment of how important marine biodiversity is to your business,’ says Alex Hindson, partner and head of sustainability at Crowe. ‘Until you’ve got a high-level view of materiality you don’t know where to put your resources.’
Finance professionals sit right in the middle of this, translating risk into language the board can act on, and ensuring that what is disclosed externally is grounded in what is happening day to day.
‘If marine impact isn’t integrated into your risk registers, supply chain audits or compliance reviews, you’re flying blind,’ says Francisco Gaffney, CEO and chairman of Trinity SES, which operates a compliance and sustainability platform. ‘If marine impacts are captured in strategy but not in procurement, waste tracking or capital allocation, then they’re not being governed, they’re being parked. And in a post-TNFD-informed world, that’s a risk few can afford to take.’
More information
For resources and advice, visit ACCA’s sustainability reporting hub: creating and using decision-useful information
