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The Taskforce on Nature-related Financial Disclosures (TNFD) is an international initiative that builds upon the approach developed by the Taskforce on Climate-related Financial Disclosures (TCFD). Essentially, the TNFD adapts and extends the TCFD's method of integrating climate data into financial reporting, but with a focus on nature-related information. It offers a structured framework that allows companies to identify and manage environmental risks and opportunities, helping to steer investments and business activities towards actions that have a positive impact on the environment.
In September 2023, the final framework was published, representing a significant step forward in integrating nature-related considerations into financial practices and risk management processes.
What is the Taskforce on Nature-related Financial Disclosures (TNFD)? Why was it created and what does it aim to achieve?
The Taskforce has developed a risk management and disclosure framework for organisations to report and act on issues relating to nature, with the ultimate aim of redirecting global financial flows away from negative nature-linked outcomes towards more environmentally positive ones
The Taskforce is made up of 40 different members. Each member represents a financial institution, corporation or market service provider.
In addition to the expertise that the Taskforce Members bring, the TNFD also receives support from an impressive team of experts, including:
In July 2020, it was announced that a task force on Nature-related Financial Disclosures would be created. This was in response to the growing call to consider the impact of nature on financial and business decisions.
After this initial announcement, what followed was a preparatory phase involving a working group made up of 75 members, including financial institutions and corporate organisations, 8 governments, and 18 different consortiums. Together, and with the support of a technical expert group, they worked to define the scope and work plan of the TNFD.
When the TNFD was formally launched one year later in 2021, it was met with support from market participants as well as political endorsement from the G7 Finance Ministers and the G20 Sustainable Finance Roadmap.
Nature loss and damage to our ecosystems represent both risk and opportunity for businesses.
Stopping and reversing the decline of natural capital and mitigating and managing nature-based risks is only possible where businesses of all sizes and financial organisations across the board work to identify, assess, manage, and disclose nature-related dependencies, impacts, risks, and opportunities.
Unfortunately, as it stands, companies and financial bodies don't always have the necessary information to allow them to understand how nature impacts their financial performance, and existing risk management approaches often fall short of identifying nature-related factors. The issue is that by failing to assess nature-related issues, companies, and financial firms make themselves vulnerable to material risks.
The TNFD wants to address this information gap. It believes that by providing information to these companies and financial bodies, they will be able to better consider evolving nature-related dependencies, risks, and opportunities as part of their strategy and resource allocation processes.
👉 Discover why biodiversity loss is bad news for humankind over on our blog.
The TNFD will impact a wide range of market participants. For example investors and financial institutions, analysts, corporations, regulators, stock exchanges, accounting firms, credit rating agencies, and financial service providers.
Although the framework is voluntary, it's likely that its recommendations will be adopted by regulators across a growing number of countries. Just as we've seen with the TCFD Framework.
There are seven founding principles that are central to the TNFD's work and that have shaped the content of the framework. These are outlined as:
We've already talked about how the goal of the TNFD is to provide a framework for organisations to report on nature-related risks and opportunities. Which will in turn improve the availability of data and allow organisations to consider nature-based risks and opportunities more effectively. But how exactly will this be achieved?
The TNFD hasn't created a new standard, it's simply built on existing ones. In order to develop its integrated framework, it adopted what it calls an “open innovation approach”. This means that they welcomed the participation of market participants, leading scientists, and data bodies.
In March 2023, the TNFD released the fourth iteration of its beta framework. This was followed by the release of the final version of the framework on September 18th, 2023.
The framework is designed for use across sectors, by companies and financial bodies of different sizes, and in any country across the world. The main aims of the framework are identified as:
The framework is designed to support the alignment of the global baseline of sustainability disclosures currently being created by the ISSB (International Sustainability Standards Board) with best practice standards and tools.
It also builds on and aligns with the disclosure requirements created by the Taskforce on Climate-related Financial Disclosures (TCFD), which formed the basis of globally aligned environmental disclosure standards.
Hold up, you're probably wondering what the difference between the TNFD and the TCFD framework is. Well, while the TNFD framework adopts the same pillars as the TCFD and they both aim to provide financially relevant, decision-useful data, the TNFD focuses on nature-based risks and opportunities, while the TCFD focuses on climate-related disclosures.
Climate vs nature - what exactly do we mean by climate-related risk and nature-related risk? Well, risks relating to nature encompass biodiversity loss and ecosystem degradation, for example, soil fertility, pollution, and pathogens. Climate-related risks are those related to the physical impacts of climate change such as extreme weather, heat waves, rising sea levels etc.
To learn more about the TCFD standards head over to our article.
The TNFD's framework is designed for use regardless of jurisdiction. It's flexible in order to accommodate the varying regulatory requirements in different countries across the world.
The TNFD's framework encourages companies and financial organisations to take action by reporting on nature-related dependencies, impacts, risks, and opportunities.
The framework recognises that the consideration of nature-related issues may be new to a lot of organisations, and so it aims to encourage disclosure ambition within these organisations over time.
The recommended disclosures are structured around four pillars:
Another crucial component of the TNFD Framework is what's referred to as the LEAP process. The LEAP process introduces a practical ‘step-by-step' nature-related risk and opportunity assessment process. The LEAP guidance isn't a disclosure recommendation or mandated process, it's voluntary guidance designed to help organisations on a practical level as they begin to evaluate their nature-based risks and opportunities.
The LEAP process has four main components:
Each of the four components is also supplemented by further sub-guidance that can be found on the TNFD's website.
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