The fragmented universe of measurement standards and disclosure frameworks around greenhouse gas emissions are coalescing, with regulators from the UK to Singapore requiring corporates to report their carbon footprint in line with the recommendations of the Task Force on Climaterelated Financial Disclosures (TCFD).
Now, the next challenge is to measure nature, says Brian Kernohan, chief sustainability officer for private markets at Manulife Investment Management (MIM). “If we’re able to measure nature, both our impact and our dependencies on it, the next piece that all of these actors need to do is disclose [this information].”
Just like how carbon disclosures have been accepted or mandated by market players and regulators, participants must now do the same to embrace coming nature-related disclosures, Kernohan tells The Edge Singapore. “We have to be prepared to disclose and accept regulation around disclosure of nature in order to hold the whole system accountable.”
What gets measured gets managed — a refrain of environmental, social and governance (ESG) investing that Kernohan, too, repeats. “To me, it all comes back down to value. As an investment manager, obviously, that may be intuitive, but I think everyone in every organisation needs to also value it in order to kind of create the means by which it can be managed in an economic sense.”
Established in December 2015 by the Group of 20 (G20) and the Financial Stability Board, the TCFD released its final recommendations in June 2017, outlining 11 disclosures across four categories: governance, strategy, risk management, and metrics and targets.
The UK was the first G20 country to make TCFD-aligned reporting mandatory. The Singapore Exchange S68 % , too, expects climate disclosures from FY2023 for listed companies in the financial, agriculture, food and forest products, and energy industries. The materials and buildings, and transportation industries must do the same from FY2024.
See also: TCFD: Asia Pacific is the second-best region at reporting climate disclosures
Much like how the TCFD is receiving regulatory attention, Kernohan believes the Task Force on Nature-related Financial Disclosures (TNFD) will likely follow the same path. The 40-member TNFD is due to publish a finalised framework later this year, touted to help organisations “report and act on evolving nature-related risks” towards “nature-positive outcomes”.
Arguably, nature is more complex than climate change alone, says Kernohan. “They’re related, but they’re very different because climate is one part of nature; nature is all the living and non-living things in the world.”
While climate change is global and measurable with a single metric — greenhouse gas or greenhouse gas equivalents — nature, on the other hand, is local, says Kernohan. “It’s different everywhere you go; there is no single metric that one can use… What we have found is that it is hard for people to truly understand the connection of business to nature.”
See also: Singapore doubles down on carbon trading at COP27
Today, Manulife is reportedly the world’s biggest timberland investment manager; its Boston-headquartered subsidiary Manulife Investment Management Timberland and Agriculture — formerly Hancock Natural Resource Group — is manager of its “globally-diversified timberland and agricultural portfolios”.
Manulife hawks a “nature-positive agenda” for the six million acres (2.4 million ha) of timberland in the US, Canada, New Zealand, Australia, Brazil and Chile that it manages on behalf of investors. It also manages some 400,000 acres of farmland in the US, Canada, Chile and Australia.
To Manulife, “nature positive” means halting and reversing the loss of nature at a planetary level. It was one of the earliest firms to invest in timberland some three decades ago, says Kernohan, and the “nature-positive agenda” came to light when the Dasgupta Review on the Economics of Biodiversity emerged in February 2021.
Named after its author, Indian-British economist Partha Dasgupta of the University of Cambridge, the report shed light on the interconnectedness between nature and economics, says Kernohan. “It really woke up the global sustainability community to nature — not just climate change.”
Responding to the report then, DBS Group D05 % chief Piyush Gupta seconded the call to value “natural capital”. “As Partha Dasgupta rightly points out, our economic models for development focus on ‘produced capital’. Even the most fundamental measure — GDP — is a measure of output. These models were suitable for a time when reconstruction was critical, and natural resources seen as relatively abundant,” he says.
See also: Are carbon credits credible?
Gupta adds: “Unfortunately, this is no longer the case. It is now quite clear that mankind is currently living outside our planetary boundaries and therefore, as with any constrained resource, we now need to put a price on natural capital. Unfortunately, finding the ‘right price’ is easier said than done… It is critical that we agree on a way to measure the negative externalities from nature abuse and biodiversity loss, and modify our notion of value to incorporate these. As allocators of capital, banks need to be at the forefront of this exercise.”
Manulife’s “nature-positive agenda” shares this vision, says Kernohan. “It is really how to look at this beyond just our timberland and agriculture business, but through the lens of our investment management business in total, and how to help others see it as well.”
At Manulife, Kernohan is responsible for directing his firm’s private markets global sustainability strategy across timberland, agriculture, real estate, infrastructure equity and private equity and credit asset classes. Prior to joining Manulife, Kernohan was director of policy at Oregon-based financial advisory firm Forest Capital Partners and an ecological consultant. “It’s been a while coming to make sure that the financial world and the investment world understood it as well,” says Kernohan.
What’s in it for Manulife?
Beyond conservation, what is in it for Manulife? While fiduciary management remains the core focus, natural capital assets are “unique”, says Kernohan. “While you can manage them for financial return, which is what our clients come to us for; natural assets, if managed well and sustainably, have co-benefits or other ancillary benefits.”
For example, managing a forest sustainably for timber output also allows Manulife to monitor, measure and capture naturally-occurring carbon in those forests, says Kernohan. “We’ve long been reporting on the carbon stored in these forests, even before our clients were asking for it. We also can understand the emissions that the forests produce, and can therefore create that storyline around the nature-based solution, even in assets that are managed principally for financial return.”
In December 2022, MIM launched a US$500 million ($673 million) closed-end fund to buy forests with the goal of sequestering carbon — that is, keeping trees standing instead of cutting them down for wood products. The Forest Climate Fund will be made available to institutional investors around the world, subject to local regulations.
Protecting these standing forests also allows Manulife to sell carbon credits, and MIM will offer fund investors the option to receive cash or carbon offsets. The fund is the latest in a series of moves by MIM towards branding its timber activities in a sustainable fashion — the “storyline” Kernohan mentions.
In April 2022, MIM announced “new principles” for timberland and agriculture carbon projects, outlining plans to generate “high-integrity, high-quality carbon credits for investors and the environment”. This comes after the firm acquired 89,800 acres of timberland in Maine in August 2021. Speaking to the media then, Kernohan said logging would still occur, but sustainably. He declined to disclose return expectations or the expected carbon abatement.
Thomas Sarno, global head of timberland investments at MIM, acknowledges that demand for carbon offsets today is primarily driven by corporate net-zero commitments. “However, it is anticipated that voluntary carbon offset demand will increase by a factor of up to 100 times by 2050,” he says.
Sarno, who oversaw both MIM’s timberland and farmland operations until May 2020, believes high-integrity, verified carbon credits will be viewed as “premier decarbonisation instruments”. “In time, such carbon markets will eventually come to resemble that of more traditional commodities,” he adds.
Sales from carbon credits may remain a rounding figure for now, but a deeper push into sustainability could one day buffer Manulife’s bottomline from the vagaries of the global markets. Manulife reported net income of C$7.3 billion ($7.14 billion) for FY2022 ended December, up C$0.2 billion y-o-y. Over the year, Manulife’s global wealth and asset management arm recorded net inflows of C$3.3 billion, nearly a 10th of the previous year’s net inflows of C$27.9 billion.
In particular, net outflows in retail were C$1.6 billion, compared with net inflows of C$29.2 billion in the prior year. This reflected higher redemptions and lower gross flows due to decreased investor demand amid higher interest rates and equity-market declines in 2022, says Manulife.
Nature-based solutions for climate change will only prove more crucial in the coming years, says Kernohan. “We are already late, of course. But in these earlier years, while everyone is seeking a solution, coming to nature and looking at how we can employ those low-cost, ready-made solutions is really important.”
Those solutions take many forms, he adds. “Using forests, investing in forests, agriculture, wetlands, mangroves, swamps — things that have naturally absorbed carbon are out there. The importance has been to show how one can make investments in those solutions, which is kind of what we are able to do, because we understand forests.”
Photos: Albert Chua/The Edge Singapore