TNFD Taskforce Publishes Final Draft Disclosure Framework

The Taskforce on Nature-related Financial Disclosures (TNFD) released the fourth and final beta framework for nature-related risk management and disclosure on March 28, 2023. The framework includes a tiered approach to disclosure metrics, which will allow companies to tailor their disclosures to their specific circumstances. The TNFD hopes that the framework will help companies to better understand and manage their nature-related risks and opportunities, and ultimately to direct capital flows into nature-related investment. A final set of recommendations is expected in September 2023.

The Taskforce on Nature-related Financial Disclosures (TNFD) is an international initiative that aims to develop a risk management and disclosure framework for organizations to report and act on nature-related risks and opportunities. The TNFD framework is modelled on the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). The TNFD consists of 40 members, including financial institutions, corporations, and markets service providers. It is assisted by a forum of more than 750 members and 18 scientific organizations and standard-setting bodies.

The framework is expected to be released later in 2023. It will provide guidance to organizations on how to identify, assess, and manage nature-related risks and opportunities. The framework is also expected to help organizations to communicate their nature-related risks and opportunities to stakeholders.

The TNFD is a significant initiative that could have a major impact on the way organizations manage nature-related risks and opportunities. The framework is expected to help organizations to better understand and manage these risks, and to direct capital flows into nature-positive investments.
The fourth iteration of the TNFD framework outlines its approach to disclosure metrics for the first time. The TNFD is striving to ensure that these metrics are both science-based and practical for market participants to use as part of their reporting cycle. “Like the TCFD, the TNFD is developing a global framework for risk management and disclosure, not a standard. The final draft draws from, and is designed to inform, relevant standards including those from the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI), both knowledge partners to the TNFD.”

The Task Force on Nature-related Financial Disclosures (TNFD) proposes three tiers of disclosure metrics:

• Core Global Disclosure Metrics are relevant broadly to organizations across sectors and are reflected in global policy priorities, including the Global Biodiversity Framework (GBF). These metrics are designed to provide a common language for organizations to communicate their nature-related risks and opportunities.
• Core Sector Disclosure Metrics enable capital providers to make comparable assessments of businesses within a sector. These metrics are tailored to the specific nature-related risks and opportunities faced by businesses in a particular sector.
• Additional Disclosure Metrics enable report preparers to include metrics that might be particularly relevant to their business model and nature-related issues. These metrics can be used to provide a more comprehensive picture of an organization's nature-related risks and opportunities.

The disclosure-metrics approach seeks to “provide report users, as the providers of capital, with comparability across and within sectors; while at the same time providing report preparers with flexibility, acknowledging the differences in nature-related issues across sectors and business models.”

The TNFD draft framework also includes the following new components:

• An adaptation of the system of greenhouse gas emission “scopes” (Scope 1, 2 and 3) to nature-related disclosures, using the labels “direct,” “upstream,” “downstream” and “financed” operations.
• Guidance on the taskforce’s proposed approach to the use of scenario analysis of nature-related issues that is aligned with the TCFD approach.
• Proposed guidance on engagement with affected stakeholders.
• Proposed guidance targeting the agriculture and food, mining and metals, energy and financial institutions industries.
• Proposed guidance for four biomes, including tropical forests.

The Task Force on Nature-related Financial Disclosures (TNFD) is continuing to gather market feedback ahead of its final recommendations in September 2023. The TNFD's goal is to help businesses identify, assess, and disclose their nature-related risks and opportunities. The fourth iteration of the draft framework follows the adoption of the historic “Kunming-Montreal Global Biodiversity Framework” by nearly 200 countries at the 15th Conference of Parties to the UN Convention on Biological Diversity (COP15) in December 2022. The GBF sets forth four goals in furtherance of a 2050 Vision for Biodiversity as well as 23 targets for 2030.

As observed by TNFD Co-Chair Elizabeth Mrema, an increasing number of businesses will need to ensure that they regularly monitor, assess, and transparently disclose their risks, dependencies, and impacts on biodiversity. They will also need to provide information needed to consumers to promote sustainable consumption patterns, and report on compliance with access and benefit-sharing regulations and measures.

In addition to voluntary initiatives like the TNFD, legislators and regulatory authorities are also starting to include biodiversity considerations into climate-related policy initiatives. For example, the EU has imposed stricter national targets relating to the preservation of natural ecosystems known as carbon sinks. This is aligned with the EU’s biodiversity strategy for 2030.

As the regulatory and self-governance landscape around sustainability continues to evolve, it makes sense for companies, as well as their boards and executive leadership, to broaden their sustainability focus to consider (alongside climate change-related risks and opportunities) the potential impact of nature-related developments on their business, as well as their own contributions—positive and negative—to biodiversity preservation.

Author: Kerry Plowright
CEO/Executive Director, Aeeris Limited (ASX:AER)