What is the Taskforce on Nature-related Financial Disclosures (TNFD)?

The mission of the TNFD is to provide science-based insights on nature-related issues through corporate reporting. The hope is that with more actionable information, organizations can integrate environmental considerations into their business strategies, decision-making and reporting. With input and expertise from leading scientific and conservation organizations, the TNFD defines key concepts aligned with the global baseline for sustainability reporting.

On September 18, 2023, the TNFD published the final version of its framework for voluntary nature-related disclosures (the “TNFD Recommendations”). The TNFD Recommendations are designed to help organizations report and act on evolving nature-related issues, and ultimately move financial flows towards nature-positive outcomes.

The framework works in conjunction with existing ESG reporting frameworks and the growing body of international regulatory requirements. This includes the sustainability disclosures recently published by the International Sustainability Standards Board (ISSB) and the climate disclosures developed by the Taskforce on Climate-related Financial Disclosure (TCFD).

The TNFD Recommendations are designed for use across sectors, regions, jurisdictions and organizations of every size. So far, 320 organizations from over 46 countries have committed to provide nature-related disclosures in line with the TNFD Recommendations.¹

The TNFD Recommendations identify four nature-related issues that must be managed and potentially disclosed to stakeholders through reporting.

1. Dependencies: Refers to an organization’s dependency on nature.
2. Impacts: Refers to an organization’s impact on nature.
3. Risks: Refers to an organization’s risks stemming from their dependencies and impacts.
4. Opportunities: Refers to the opportunities for an organization to have a positive impact on nature.

The information hierarchy of the TNFD’s Recommendations can be broken down from top-to-bottom as: foundational pillars, general requirements, recommendations and guidance.

The TNFD structures its recommendations around the same four pillars that the TCFD framework does, but through the lens of nature:

Disclosing the organization’s governance of nature-related dependencies, impacts, risk and opportunities.

Disclosing the effects of nature-related dependencies, impacts, risks and opportunities on the organization’s business model, strategy and financial planning where such information is material.

Describing the process used by the organization to identify, assess, prioritize and monitor nature-related dependencies, impacts, risks and opportunities.

Disclosing the metrics and targets used to assess and manage material nature-related dependencies, impacts, risk and opportunities.

There are six general requirements included in the TNFD Recommendations. These are in addition to the provisions laid out in the ISSB’s standards, IFRS-S1 and IFRS-S2. The requirements are:

1. The application of materiality
2. The scope of disclosure
3. The location of nature-related issues
4. Integration with other sustainability-related disclosure
5. The time horizons considered
6. The engagement of Indigenous Peoples, local communities and affected stakeholders in the identification and assessment of the organization’s nature-related issues

The TNFD Recommendations outline fourteen disclosure recommendations for companies to include alongside their financial statements. These span all four pillars. Out of the fourteen recommendations, eleven mirror the TCFD’s disclosure framework and provide general guidance for implementation. However, the TNFD added three nature-related recommendations which call for:

• The organization’s human rights policies and engagement activities, and oversight by the board with respect to Indigenous Peoples in the assessment of nature-related dependencies, impacts risk and opportunities.
• Material and sensitive locations (or “priority locations”) of assets and/or activities affected by, or interfacing with nature.
• The organization’s processes for identifying, assessing and prioritizing nature-related dependencies, impacts, risks and opportunities in their upstream and downstream value chains.

The TNFD drafted additional guidance for market participants looking to identify and assess nature-related issues, conduct scenario analysis and better engage with Indigenous People, local communities and affected stakeholders.

The TNFD also put forth considerations when operating in certain sectors and biomes. Sector guidance spans nine industries, from oil and gas to food and agriculture, and provides recommendations based on the TNFD disclosures. Biome guidance looks at land, freshwater and ocean environments and provides recommended disclosures for each ecosystem.

Included in the TNFD framework is a four-stage approach for assessing and managing nature risks and opportunities. The methodology is referred to as the LEAP approach, which stands for:

Additional guidance can be found in the TNFD’s Recommendations, as well as individual reports.² As of writing this article, the TNFD’s sector-specific guidance is open for consultation until the March 29th deadline.

The TNFD Recommendations provide a comprehensive metrics architecture to reconcile the multitude of indicators associated with nature-related issues. Metrics are broken down into two categories: core metrics and additional metrics.

Core metrics are measured on a global and sector scale and are used to assess and manage material, nature-related factors. Working in tandem with the ISSB and TCFD recommendations, organizations are encouraged to report against all core metrics and include additional industry-specific metrics where relevant. The TNFD also recommends disclosure around nature-related target setting, which should be done in accordance with the Science Based Target Network’s guidance.³

In December 2022, nearly 200 governments committed to halt and reverse nature and biodiversity loss by 2030 under the Kunmig-Montreal Global Biodiversity Framework (GBF). Specifically, Target 15 of the GBF calls for busiensses to "monitor, assess and transparently disclose their risks, dependencies and impacts on biodiveristy.⁴ The next year, data released by CDP showed nearly 70% of companies disclosing data through CDP did not assess the impact of their value chain on biodiversity in 2022.⁵

Environmental and climate risks are the most significant threats executives face over the next decade, according to the World Economic Forum.⁶ They’re also the risks that executives are least prepared to deal with. There is a growing concern that companies, investors and lenders today do not understand their dependencies and impacts on nature despite the growing risks associated with nature loss. As a result, they may not be adequately accounting for nature-related risks and opportunities in their decision-making.

The TNFD's Recommendations offer businesses material information to refine their risk management strategy in the face of accelerating climate change and nature loss. Ideally, with better insights, organizations can shift the financial flow of global capital to more positive outcomes for nature and society.

In short, the livelihood of every living creature on Earth depends on nature.

According to the TNFD, nature is made up of four realms: land, ocean, freshwater and atmosphere. Each realm has its own ecosystem, or biome (such as tropical forests or deserts), with its own biological diversity and natural capital. These biomes provide “ecosystem services,” such as food, freshwater and natural medicines that are essential to maintaining a healthy, sustainable ecosystem.

And yet, nature is deteriorating at an unprecedented pace. The biodiversity of the planet is declining rapidly due to human activities like deforestation, and with it are the ecosystem services that society depends upon. This threatens not only people but economies on an existential scale, introducing financial risks that can cripple entire global supply chains.

Businesses and financial institutions can have a positive or negative impact on nature. The TNFD's framework for reporting and metrics reflects this. It goes beyond adverse impact mitigation and highlights opportunities to deliver nature-positive outcomes through market-led initiatives like conservation and restoration.