Nine things you need to know about the TNFD
This article will introduce and provide a snapshot of the Taskforce on Nature-related Financial Disclosures (TNFD) and the key information that business leaders, advisers and financial institutions should be aware of. Our Technical Director Rossa Donovan says, “This framework will revolutionise how companies and financial institutions integrate nature into their decision-making. The success stories of the next decade will be those businesses that embrace this.” Keep reading to find out more about what the TNFD framework means for you and your organisation.
1. What is the TNFD’s mission?
The Taskforce on Nature-related Financial Disclosures, more snappily known as TNFD, is on a mission to shift the way that organisations interact with nature. Many companies don’t realise that nature loss can pose major risks for their business or that transitioning to nature-positive investments can offer many opportunities. The TNFD is developing a risk management and disclosure framework for organisations to report and act on evolving nature-related risks. Its overall aim is to support a change in the global financial flow to more nature-positive outcomes.
2. Who is involved in the TNFD?
The TNFD is funded by governments and philanthropic partners and is backed by G7 and G20 leaders. The taskforce consists of 34 individual members, representing financial institutions, corporates and market service providers. These are in turn supported by the TNFD Forum, TNFD knowledge partners, TNFD consultation groups, the TNFD Stewardship Council and the TNFD Secretariat. Nature Positive is proud to be part of the TNFD Forum. This means that we get the opportunity to provide feedback on draft guidance at an early stage, as well as testing the framework with companies before final release.
3. What is the difference between the TNFD and the TCFD?
While the biodiversity crisis and the climate crisis are fundamentally interlinked, there are two separate disclosure frameworks for climate and nature.
The Task Force on Climate-related Financial Disclosures (TCFD) covers climate-related risks, opportunities and disclosures. The TCFD framework is at a much more developed stage and since April 2022, has become mandatory for many UK businesses to disclose against. It is expected that much of the world will follow suit. In 2021, there were over 2600 supporters of TCFD, 1069 of which were financial institutions (TCFD, 2021).
The TNFD framework covers nature, biodiversity and the risks and opportunities these pose. The TNFD takes its inspiration and approach from the TCFD and both seek to use the power of risk management and disclosure to achieve more sustainable business outcomes. The TNFD is mindful to avoid repetition between the two frameworks and to ensure that they are comprehensive and compatible to enable an integrated approach to climate- and nature-related financial risks. It is anticipated that the TNFD framework will also become mandatory for UK business, so companies that are prepared for these disclosures will be in a stronger position. These businesses will be well placed to make efficient disclosures while minimising the risks and maximising the opportunities that come from nature.
4. What is the TNFD framework?
The TNFD framework describes nature as a construct of four realms – land, ocean, fresh water and atmosphere, which society interacts with and across. There are three main components to the TNFD beta framework: draft disclosure recommendations; foundational guidance, including science-based concepts and definitions; and practical guidance on nature-related risks and opportunities (the LEAP assessment approach).
The core disclosure elements of the framework follow the TCFD’s four pillars of governance, strategy, risk management and metrics and targets. The specific metrics are still in development and are expected to be defined in later versions of the framework.
The foundational guidance is to enable greater understanding from those using the framework. The guidance gives an overview of nature, dependencies and impacts, risks, opportunities and the relevance of nature to financial risk and company and investor performance.
LEAP is a general approach recommended by the TNFD as an integrated assessment process for nature-related risk and opportunity management. This voluntary process is designed to help participants understand and respond to nature-related risks and opportunities. There are four steps involved in taking a LEAP approach: Locate, Evaluate, Assess and Prepare (to respond and report).
5. Why is the TNFD framework needed?
In the Dasgupta review (2021), the author concluded that “nature is a blind spot in economics that we ignore at our peril”. The global economy is underpinned by nature and more than half of the world’s economic output is highly or moderately dependent on nature. Worldwide, nature is deteriorating at a faster rate than at any previous time in human history. Despite our economies being embedded within nature, not outside it, most organisations are failing to consider nature in their business decisions. Research from Nature Positive found that more than half of FTSE 100 companies do not fully understand their relationship with nature. The TNFD framework seeks to rectify this.
6. Who will use the TNFD framework?
The TNFD framework will be relevant to a wide range of sectors and markets, including investors, businesses, banks, insurance companies, analysts, corporates, regulators, stock exchanges and accounting firms. These markets will benefit from greater visibility and management of nature-related risks, which disclosures under the TNFD framework will provide. For example, banks may be able to make better informed lending and financial decisions owing to a greater confidence in the data relating to nature-related risks.
7. When is the TNFD framework due to be published?
The final framework is due to go live in September 2023.
8. What stage is the framework at currently?
In June 2022, the TNFD launched a second iteration of the beta framework. This features TNFD’s approach to metrics and guidance for market participants to start pilot testing. This second version provides early insight into the architecture used for metrics and targets, an illustrative set of assessment metrics for dependence and impact analysis, guidance on the identification of priority locations for nature, an overview of proposed sector classifications and enhancements to the assessment approach for financial institutions. A further two iterations of the beta framework that will be open for market consultation are planned for November 2022 and February 2023.
Alongside this, the TNFD recently launched the Nature-related Data Catalyst to respond to data challenges and gaps identified in early feedback. During a series of workshops, contributors will identify shortcomings in current nature-related data, analytics and tools. By seeking these contributions from existing providers of sustainability data, analytics and workflow tools, the aim is to improve the ease, speed and scale of adoption of the TNFD framework once launched.
9. Who can help businesses with understanding what disclosing under the TNFD framework would involve?
Ahead of the release of the final TNFD framework, Nature Positive is looking to engage and support proactive businesses that want to incorporate nature into their business strategies and reporting. Although we are awaiting the final framework, our team of environmental, sustainability and business specialists are well placed to help your business understand your nature-related risks and get ahead of the curve by starting to incorporate nature into business strategies and reporting now. Please get in touch to find out how we can help you start.
*Banner photo by Austin Neill