Supporting the TNFD Recommendations

The TNFD is a global, market-led, science-based initiative established in 2021. It seeks to: 

• Develop and deliver a risk management and disclosure framework for organizations to report and act on evolving nature-related risks and opportunities.

• Balance the need for transparency and comparability for investors with simplicity and flexibility for report preparers.

• Support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.

Given the link to financial performance, finance teams will have a key role to play in delivering the TNFD recommendations.

Many organizations will already be making some nature-related disclosures – using the Global Reporting Initiative (GRI), for example. These disclosures are likely to focus on the impacts of the organization on nature, and cover areas such as the significant direct/indirect impacts on biodiversity as measured by the species affected, or total water withdrawal from all areas with water stress.  Further, for organizations covered by the EU’s Corporate Sustainability Reporting Directive (CSRD), reporting on nature-related impacts and dependencies will be mandatory. The TNFD framework, though, calls for broader disclosures that link to financial performance, following a similar approach to that adopted by the Task Force on Climate-related Financial Disclosures (TCFD). 

With policy makers, regulators, investors and businesses increasingly recognizing the risks posed by the collapse in ecosystems and biodiversity, as well as the opportunities from investing in nature, there is a significant focus on closing the disclosure gap. As a result, we expect that nature-related disclosures will soon become a business norm. This is driven by:

External drivers:

• Regulation – while the TNFD recommendations are currently voluntary, this framework for nature-related disclosures has strong government backing and, given the broad consultation process followed in its development and its alignment with the TCFD recommendations, is likely to inform regulatory adoption. The TCFD framework now informs mandatory climate regulations in a growing number of jurisdictions, and the TNFD is set to follow a similar path. In particular, at COP15, governments agreed to ensure that all large companies assess and disclose their risks, impacts and dependencies on nature by 2030 as part of the Global Biodiversity Framework (GBF). 

• Investors – the markets are calling for improved disclosures so that investors can make informed and robust capital allocation or lending decisions, with clarity, confidence and trust in the data related to nature-related risks. This means that following the TNFD recommendations can help organizations maintain access to capital. Further, some investors are linking engagement and voting actions to companies’ adoption of the TNFD recommendations. 

Internal drivers:

• Risk management – organizations are likely to carry nature-related risks that are not currently quantified, adequately managed or disclosed. Following the TNFD recommendations will lead to more informed strategic planning and better risk management. 

• Value creation – improved understanding of and information on nature will help build sustainable value and resilience in operations and supply chains and could support talent attraction and retention, as well as helping the organization to deliver on its climate commitments. 

Organizations therefore need to prepare now, ensuring they have the right skillsets within their finance teams. 

The TNFD framework consists of three elements:

1. A summary of concepts and definitions 
2. Guidance for corporates and financial institutions on the process of assessing nature-related issues and incorporating them into strategy and risk management 
3. Recommended disclosures 

1. Concepts and definitions

The TNFD definition of nature includes the atmosphere, and therefore the climate system, alongside land, ocean and freshwater realms of nature. 

2. Process

TNFD guides users on how to identify and quantify disclosures, using the LEAP approach it has developed:

• Locate an organization's interface with nature

• Evaluate dependencies and impacts

• Assess risks and opportunities

• Prepare to respond to nature-related risks and opportunities 

The material issues arising from this process should then be disclosed.

3. Disclosures

To maximize the speed and ease of take-up of TNFD, the structure, language and approach of the disclosures closely align with the TCFD recommendations.

The TNFD framework uses the same four pillars as TCFD: governance, strategy, risk management, and metrics and targets. There are also cross-cutting general disclosure requirements. These include a description of the organization’s materiality processes and how location has been considered in the assessment – a key element given the location-specific element of the majority of nature-related issues.

TNFD has sought to identify metrics that are science-based but are also practical for preparers and can be independently assured at a reasonable cost. To provide maximum user flexibility, there are two main categories of core disclosure metrics: 

1. Core global metrics are relevant to organizations across sectors and are reflected in global policy priorities.

2. Core sector metrics are sector-specific, enabling capital providers to make comparable assessments of businesses within a sector. These are currently open for consultation.

TNFD also recommends additional disclosure metrics, which an organization may choose to use where these metrics are particularly relevant to their business model and nature-related issues.

Disclosures should then be broken down, where relevant, into direct operations, upstream and downstream value chains.

TNFD also provides a range of supporting guidance, which includes guidance on sectors, biomes, target setting, scenario analysis and transition plans, along with case studies. 

Source: TNFD p64

The TNFD framework draws from, and feeds into, pre-existing frameworks, including the new standards from the IFRS’s International Sustainability Standards Board (ISSB) and the GRI Standards. By using pre-existing tools, definitions and metrics, TNFD aims to avoid duplication, and to support the creation of a coherent global framework for nature-related risk management and disclosure.

Source: TNFD p20

The TNFD’s recommendations have been designed to accommodate the different materiality preferences and requirements of a range of report preparers across jurisdictions. The framework recommends that organizations apply the ISSB’s approach to identifying information that is material for users of general purpose financial reports as a baseline, ie financial or single materiality. Those who choose to or need to (eg due to local requirements) may apply an impact or double materiality approach to identify information in addition to the ISSB’s baseline.  

They note that those seeking to align with Target 15 of the UN’s Global Biodiversity Framework – which requires large organizations regularly to monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity along their operations, supply and value chains and portfolios – will want to consider the application of an impact materiality lens to identify information that is incremental to the global baseline.  

Source: TNFD p19