The Taskforce on Nature-related Financial Disclosures (TNFD)

The Taskforce on Nature-related Financial Disclosures (TNFD) is an international initiative that builds on a model created by the Taskforce on Climate-related Financial Disclosures (TCFD). Its goal is to provide a framework to help organizations address environmental risks and opportunities with the aim of directing investment and opportunities into positive action. 

 👉What is the Taskforce on Nature-related Financial Disclosures (TNFD)? Why was it created and what does it aim to achieve?

🥜 In a nutshell, the Taskforce on Nature-related Financial Disclosures is a global initiative that aims to provide financial institutions and companies with a complete picture of their environmental risks as well as opportunities.

The TFND is made up of 40 different Taskforce 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: 

• The TNFD Forum - providing consultation from over 800 institutional supporters
• The TFND Knowledge Partners - a collective of 18 leading scientific bodies and standard-setting organisations
• TNFD Consultation Groups - informal bodies based in select countries to expand outreach and engagement
• The TNFD Stewardship Council - representatives of the founders and those funding the work of the TNFD
• The TNFD Secretariat - manages and coordinates the Taskforce, the Forum and the Knowledge Partners

In July 2020, it was announced that a task force on Nature-related Financial Disclosures would be created. This was in response to the increasing need 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 organizations, 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.

The loss of biodiversity and damage to our ecosystem represents both risk and opportunity for businesses.

Stopping and reversing nature loss, mitigating and managing nature-related risks is only possible where businesses of all sizes and financial institutions across the board work to identify, assess, manage and disclose nature-related dependencies, impacts, risks and opportunities. 

Unfortunately, as it stands at the moment, companies and financial bodies don't always have the necessary information to allow them to understand how nature impacts their financial performance, or the long-term financial risks that may arise as a result. 

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 nature-related risks and opportunities as part of their strategic planning and risk management decisions. 

We’ve already talked about how the goal of the TNFD is to provide a framework for organizations to report on nature-related risks and opportunities. Which will in turn improve the availability of data and allow organisations to consider nature-related risks and opportunities more effectively. But how exactly will they do this? 

👉 The TNFD is not creating a new standard, but simply building on existing ones. In order to develop this integrated framework, the TNFD has adopted what it calls an “open innovation approach” and it welcomes the participation of market participants, leading scientists, and data bodies. 

The TNFD believes that by encouraging participation and constructive feedback they can improve the framework's relevance, usefulness, and ultimately, its effectiveness. It also means that their work is scientifically supported and ready to be implemented by companies and financial institutions. 

There are seven founding principles that are central to the TNFD’s work and that will inform the content of the framework. The TNFD outlines these as: 

• Market usability - the TNFD aims to develop a framework that is easy to use and valuable to market participants such as corporations and financial institutions. 
• Science-based - the TNFD will take a science-based approach and will use well-established and emerging scientific evidence as a grounding to their work. 
• Nature-related risks - the framework will embrace nature-related risks including financial risks, nature dependencies and impacts, and organizational and societal risks. 
• Purpose driven - the TNFD’s purpose is to reduce risks and increase nature-positive action. 
• Integrated and adaptive - the TNFD will build measurement and reporting frameworks that can be easily integrated into and complement already existing disclosures and standards. 
• Climate-nature nexus - the framework will adopt an integrated approach to nature-related risks, scaling up finance for solutions. 
• Globally inclusive - the framework must be valuable and relevant across the globe, regardless of territory. 

So what exactly is the TNFD Framework? 

 👉 In March 2023, the TNFD released the fourth iteration of its beta framework. The final version of the framework is scheduled for release in September 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: 

Alignment

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 is forming 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 TFND framework adopts the same pillars as the TCFD and they both aim to provide financially relevant, decision-useful data, the TNFD focuses on ensuring that nature related risks and opportunities, while the TCFD focuses on climate risks. 

👀 Climate vs nature - what exactly do we mean by climate-related risks and nature-related risks? Nature-related risks 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. 

Adaptability

The TNFD’s framework is designed for use regardless of jurisdiction and so it has to be flexible in order to accommodate the varying regulatory requirements in different countries across the world. 

Action

The TNFD’s framework encourages companies and financial institutions to take action by reporting on nature-related dependencies, impacts, risks and opportunities.

Ambition

The framework recognizes that the consideration of nature-related issues may be new to a lot of organizations, and so it aims to encourage disclosure ambition within these organizations over time.

The final version of the framework is scheduled for release later in 2023, but the existing beta versions give us a good indication of what will be included. In fact, they’ve already detailed 4 core components of the TNFD Framework. So what exactly are these?

Over the last decade, we’ve become increasingly familiar with climate change terminology, but there’s a bit of a gap when it comes to discussing nature. So, if all this talk about nature-related risks and opportunities has left you wondering what exactly all these terms mean, not to worry because the TNFD Framework seeks to address this by outlining the definitions of these core concepts.  

The TNFD’s beta Framework outlined a set of draft disclosure recommendations on nature-related risks and opportunities. The recommendations are based on the idea that transparency of data and information - through the disclosure of this information by companies and organisations - better facilitates risk and capital allocation. 

These disclosure recommendations are focused on governance strategy, risk management, and metrics & targets. The beta framework includes examples of recommended disclosures for each of these categories. For example, under governance, it's recommended that an organisation disclose and detail the company board’s oversight of nature-related risks and opportunities. Another example is under strategy, where it’s recommended that an organisation discloses the nature-related risks and opportunities that the organisation has identified over the short, medium and long term. These are just a couple of examples, but you can find the rest on the TNFD’s website.

The LEAP Process

The TNFD’s beta Framework introduces a practical ‘step-by-step’ nature-related risk and opportunity assessment process (ie. the LEAP process). The LEAP guidance isn’t a disclosure recommendation or mandated process, it’s voluntary guidance designed to help organizations on a practical level as they begin to evaluate their nature-related risks and opportunities. 

The LEAP process has four main components: 

• Locate - Companies should locate their interactions with nature
• Evaluate - Companies should evaluate their dependencies and impacts on nature
• Assess - companies should asses their nature-related risks and opportunities
• Prepare - Companies should prepare to respond to nature-related risks and opportunities

Each of the four components is also supplemented by further sub-guidance that can be found on the TNFD’s website.

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 will be voluntary, it’s likely that their recommendations will be adopted by regulators across a growing number of countries. Just as we’ve seen with the TCFD Framework.

The TNFD has only released beta versions of the Framework, and the final version isn’t due for release until September 2023. But that doesn’t mean that organizations can’t start preparing. 

In fact, the more that organizations do to educate and plan, and evaluate their nature-related impacts and dependencies, the easier the transition will be when the final framework is released. 

At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required. 

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