The Taskforce on Nature-related Financial Disclosures (TNFD) has released the first beta version of its nature-related risk-management and disclosure framework, marking an important step by the market to tackle the risk of nature-loss to the global economy and reduce the impact on nature.
With half of the world’s GDP moderately or highly dependent on nature and its services, financial institutions and businesses can no longer afford to overlook nature in strategy, risk management and capital allocation decision making. Dependencies and impacts on nature are posing risks to businesses, investors, and lenders, but are also opening new business opportunities to contribute to nature-positive outcomes.
Today’s beta release is the first integrated approach to incorporating nature-related risk and opportunity analysis into the heart of corporate and financial decision making. The prototype framework marks the beginning of an 18-month process of consultation and development together with a broad range of market players and stakeholders. By following an open innovation approach, TNFD hopes to accelerate the framework’s development and steadily improve its relevance, usability, and effectiveness before releasing its recommendations in the 3rd quarter of 2023.
This first beta version of the TNFD framework comprises three components:
- Foundational guidance, including key science-based concepts and definitions, to help a wide range of market participants understand nature, and nature-related risks and opportunities;
- Disclosure recommendations aligned with the approach and language of the climate-related guidance developed by The Task Force on Climate-related Financial Disclosures (TCFD); and
- Practical guidance on nature-related risk and opportunity analysis for companies and financial institutions to consider incorporating into their enterprise risk and portfolio management processes.
In recognition of the interlinkages between climate change and nature loss, TNFD’s disclosure recommendations build on work done by the Task Force on Climate-related Financial Disclosures (TCFD), adopting the same four-pillars and aligning its high-level disclosure recommendations as much as possible. This is a response to calls from market participants for a consistent approach and language across sustainability reporting. The TNFD also hopes this strong alignment accelerates a shift towards integrated sustainability reporting combining climate- and nature-related risk disclosures.
The beta framework is also designed for future alignment with the global baseline for sustainability standards under development by the International Sustainability Standards Board (ISSB) while providing flexibility for those organisations that wish to, or need to, report to different materiality thresholds and regulatory requirements. The TNFD is in dialogue with a range of standards setting bodies and regulatory authorities and will follow further developments related to national, regional, and global approaches to sustainability reporting standards as they are developed.
Dependencies and impacts on nature are inherently local which is why consideration of location is an important feature throughout the TNFD Framework. The beta release of the framework proposes a new location-specific disclosure and provides guidance on how market participants can begin to incorporate location-based nature-related dependencies, impacts and risks into their enterprise and portfolio risk management processes.
The framework has been designed by the TNFD Taskforce comprising 34 individuals from financial institutions, businesses, and market service providers with assets under management of US$18.3 trillion and operations in over 180 countries. TNFD Co-Chairs David Craig and Elizabeth Mrema oversee the Taskforce. TNFD’s 13 core knowledge partners, which include leading science, standard and data bodies, also provided detailed input into the first beta version framework to ensure it is scientifically sound and builds on existing standards and data.
“Building an improved understanding of nature and nature-related risks and opportunities is a critical enabler of better corporate strategy, better capital allocation decisions, better governance, and better risk management and disclosure practices. With climate change and nature-related impacts and risks increasing, it is essential companies incorporate natural assets into their strategic planning and risk management if they are going to succeed.”
David Craig, Co-Chair, TNFD
David Craig, Co-Chair, TNFD, said: “The approach we are taking of developing this guidance with market participants through an iterative, open innovation process over the next 18 months will help to ensure our final recommendations are both science-based and practical to implement. We invite all market participants and stakeholders to review this first prototype of the framework and share their feedback.”
“The TNFD process is a unique collaboration between market participants and the world’s leading authorities in the science of nature and standard setting. The foundations we have laid are strong, driven by the market and grounded in the science.”
Elizabeth Mrema, Co-Chair, TNFD
Elizabeth Mrema, Co-Chair, TNFD, added: “My hope is that governments agree on an ambitious and effective post-2020 Global Biodiversity Framework, the negotiations of which are taking place this week in Geneva, that can then inform the metrics and targets work the Taskforce will continue to develop in the coming months. The process towards the Global Biodiversity Framework and the TNFD are two key initiatives, among others, that support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”
A further three iterations of the beta versions are planned for release in June 2022 (v0.2), October 2022 (v0.3) and February 2023 (v0.4). This will culminate in the final release of the TNFD’s recommendations (v1.0) planned for September 2023.