Nature is essential to our society's overall resiliency as well as our economy and financial stability. However, the biological diversity of our globe is disappearing at a rate that has never been seen before, putting corporations at substantial risk. According to the UNEP's State of Finance for Nature study, the USD 4.1 trillion finance gap in nature must be bridged by 2050 if the world is to reach its climate change, biodiversity, and land degradation targets. Currently, the public sector provides the majority of the funding for initiatives that benefit nature. The private sector must step up and enhance its financing of nature in order to fill the funding shortfall.[i]
A collection of disclosure recommendations and guidelines for organisations to report and take action on changing nature-related dependencies, impacts, risks, and opportunities have been developed by the Taskforce on Nature-related Financial Disclosures (TNFD).[ii]
The second iteration of the beta framework for managing and disclosing nature-related risk and opportunity has been released following more than 500 feedback submissions from over 130 market participants and stakeholders from 37 countries/jurisdictions and all five continents. This is in response to the first iteration of the beta framework that was released in March this year. While the TNFD draft disclosure recommendations, fundamental ideas, and LEAP (Locate Evaluate Assess Prepare) assessment approach from March haven't changed dramatically, this second iteration of the framework adds a number of improvements and other components, such as:
· A draught of metrics and goal architecture, as well as an example set of evaluation metrics to aid pilot testers.
· Additional advice on how to carry out dependency and effect evaluation and the LEAP approach's priority location determination.
· A description of the Taskforce's strategy for creating future guidelines for market participants, including sector classifications that follow the International Sustainability Standards Board (ISSB) approach.
· Improvements to the LEAP methodology for financial institutions (LEAP FI), which was first issued in March.[iii]
1. You don’t need to start from scratch
Operations data, such as water usage, or value chain information, such as raw material input volumes, can be used to gather a lot of information about the environment. Looking at the information you have previously gathered or plan to collect for other disclosure requirements will help you determine where further information is genuinely needed.
2. There is a lot of overlap with TCFD
The Taskforce on Climate Related Financial Disclosures (TCFD) framework served as the foundation for the creation of TNFD. There are seven TNFD disclosures that are identical to TCFD, four that have been modified from TCFD, and three that are new. Find quick wins by figuring out what your business can do to satisfy the TCFD and TNFD standards.
3. TNFD will release sector-specific guidance, including tools
Sector-specific advice from TNFD is available; it was created in conjunction with the taskforce by industry leaders. The framework for all sector recommendations is the same, and examples from v0.4, such those for food and agriculture, are available. Tools that are currently accessible through the TNFD tools library and that are aligned to each sector and level of LEAP will be included in the final release.
4. Maturity matters: examine the core and additional TNFD disclosure metrics
Everyone should aim to disclose in accordance with the TNFD's fundamental disclosures, which also include extra measures for more experienced users. It's crucial to discuss your ambition level and maturity level with relevant stakeholders before starting your TNFD journey.
5. The LEAP approach is there for guidance only
LEAP stands for Locate, Assess, Evaluate, and Prepare. For nature-related risk and opportunity management, the TNFD recommends the LEAP four stage method (five if you count the scoping stage), which can assist organisations in meeting TNFD disclosure requirements. It is provided for informational purposes only; compliance with all disclosure laws is not required. Not every detail discovered by LEAP evaluations has to be made public, and steps under LEAP do not have to be carried out in order.[iv]
The WWF, a founding partner of the TNFD, naturally welcome the announcement.
Aaron Vermeulen, Global Finance Practice Lead, WWF International, said:
“As a founding partner of the Taskforce for Nature-related Financial Disclosures (TNFD), WWF welcomes the release of its recommendations. Having a science-based framework that enables companies and financial institutions to disclose nature-related dependencies, impacts, risks and opportunities is a major milestone in forging a nature-positive global economy. As a forum member, knowledge partner and member of its Stewardship Council, WWF will support the TNFD to continue strengthening the framework, and we encourage its widespread adoption by the private sector.”[v]
Elizabeth Aceeituno, Sustainable Finance Expert, WWF International, said:
"As a market-led initiative, the TNFD will boost the integration of nature into financial and business decision-making and help accelerate the shift of global financial flows toward nature-positive outcomes. Companies and financial institutions should adopt the framework, disclosing not only the nature-related risks they face but also embracing 'double materiality' and addressing their impacts on nature and society. Beyond voluntary disclosure, we also need a range of private and public sector measures that scale action for nature."[vi]
Elizabeth Aceeituno also highlighted in an opinion piece that there must be action from government to support businesses in order to achieve the best possible results.
· Reimagining subsidies that are bad for the environment: these are worth $1.8 trillion annually, or 2% of the world's gross domestic product. Governments should encourage business strategies and portfolios that operate with nature rather than against it in order to create millions of green employment.
· Investigating more market-based systems that give nature a monetary value: though they are not currently scalable, reliable biodiversity credits could be a key tool for releasing capital for outcomes that benefit nature.
· Making inclusive, resilient development and financing for the environment the focal points of MDB reforms: this entails updating the governance of the International Monetary Fund and the World Bank to recognise the economic strength of emerging markets, make better use of their capital to attract more private sector investment from organisations already establishing just nature markets, and scale instruments like debt-for-nature swaps and sustainability-linked loans and bonds, among other things. While using it sustainably would help countries reach wealth, depleting natural capital will only impede progress and worsen poverty.[vii]
[ii] TNFD- Getting started with the TNFD Recommendations
[iii] KPMG-Nature-related risk and opportunity management and disclosure
[iv] PWC- Five things you should know about the TNFD
[vi] Ibid
[vii] Devex- Opinion: Nature-related disclosure is a milestone for a greener economy
Oscar is a recent graduate with a background in earth science. He is currently studying an MSc focussing on disaster responses, emergency planning and community resilience. His postgraduate research project will assess the link between climate crisis risk perception and attitudes to green energy projects. “Adapting to the climate crisis through the pursuit of net zero requires community engagement and understanding. Zero Carbon Academy’s goals closely align with this approach and I’m excited to have the opportunity to research and communicate a variety of topics relating to our environment and sustainability”.
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