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The Taskforce on Nature-related Financial Disclosures (TNFD) was established in 2021 to provide corporates with a framework to measure, manage, and report on their financial nature-related risks and opportunities. Like the TCFD before it, the framework aims to answer a perceived gap in financial reporting (in this case focused on nature) and reduce negative impacts on the environment. In September, the TNFD released its finalised Version 1.0, setting out the most comprehensive guidance on nature in the market.
The TNFD recommendations have started their life as voluntary. As did the TCFD recommendations, which are now a mandatory part of the FCA’s (Financial Conduct Authority, the UK’s financial regulatory body) listing rule. The TNFD is expected to follow a similar trajectory, with many expecting the recommendations to influence the ISSB thematic standards as they are developed.
The recommendations are also aligned to other frameworks at standards, some of which are regulated. The most prominent being biodiversity and ecosystems environmental reporting standards that form part of the EU’s CSRD legislation.
In short, the TNFD is an influential framework, and aligning to its recommendations is expected to be a no-regrets step to take for organisations unsure of what to do on nature.
If you already follow the TCFD reporting structure, this will be very familiar. TNFD is structured under four pillars:
1. GOVERNANCE
How are you structuring accountability and management of nature risk and opportunity internally?
2. STRATEGY
How do material, nature-related dependencies, impacts, risks and opportunities impact the organisation’s business model?
3. RISK & IMPACT MANAGEMENT
How does your organisation identify, assess, prioritise and monitor nature-related dependencies, impacts, risks and opportunities?
4. METRICS & TARGETS
This is where you publish your metrics and targets related to your risk and impact management.
It is understood that organisations may not be able to report against every disclosure recommendation in their first year. Companies are expected to begin pragmatically, and improve their performance annually. As such, TNFD is designed to be more than a framework for disclosures. Think of it as a manual for what you need to understand and then act on, both for your business and nature. It asks users to engage with the process, ensuring it reflects both good practice and the context — resource, sophistication, exposure to and impact on nature — of the company.
One of the breakthrough elements of TNFD is the LEAP approach. This was designed over two-years for internal teams to be able to discover what to report on. It develops on, and is consistent with, existing assessment frameworks.
Some organisations have taken a pilot approach this year, helping to shape TNFD’s recommendations. This ranges from working through all the steps, to only completing the locate and evaluate, to working through all the phases for a defined scope (e.g. direct operations). So the approach is tried and tested.
The expectations of how far you take the recommendations will be influenced by industry, size and, often, investor pressure. Larger organisations, or organisations that operate in an industry with exposure to nature - such as agriculture, apparel or mining, or if your register is applying pressure for action - will be expected to cover more in their reporting.
Let’s break it down:
LOCATE your interactions with nature.
This phase is all about site filtering and prioritisation. Identifying your potentially material sources of nature-related dependencies, impacts, risks and opportunities, so that you focus on them during the evaluate and assess phases.
EVALUATE your dependencies and impacts.
During the step, the aim is to develop an understanding of your organisation’s dependencies and impacts on nature. Identifying what the sectors, processes or activities are to be analysed, and the scope of our dependencies and impact.
ASSESS any risks and opportunities.
This phase takes the dependencies and impacts identified before, and asks what the risks and opportunities are to interact with nature. Seeking to understand what should be disclosed by the organisation, and also prioritise what actions to take to mitigate risk or which opportunities are worth acting on.
PREPARE to report and respond.
This phase is about deciding what to do with all the information you’re gathering. You’ll decide how to respond to nature-related issues, and if necessary, what goals and targets you’ll set. Discuss and decide what strategies to put in place in light of your assessment, and determine how you’ll disclose everything.
You can find the full LEAP guidance here.
So far, we’ve covered the 4 pillars making up the TNFD structure, and how to go about gathering inputs needed for reporting using the LEAP framework. Now, let’s look at what you’re actually expected to disclose.
The TNFD has taken a leading indicator approach, starting with a set of ‘core global metrics’ that apply to all sectors. These enable the assessment and disclosure of both positive and negative impacts, and should be disclosed on a comply or explain basis.
These are broken down in detail in Annex 1 of the TNFD’s guidance, available here. To give you an example, let’s look at Land/freshwater/ocean-use change. The TNFD guidance says you should measure:
There is also a set of ‘core sector metrics’ being developed targeting sector-specific issues. This is currently available for:
The TNFD framework is a line in the sand. It is, by far, the most thorough and thought out nature-reporting guidance available. It is currently optional, however, we expect that—like TCFD—aspects will likely be integrated into regulatory standards. As such, TNFD is a great way to prepare for reporting standards, like ISSB and CSRD.
The TNFD suggest exploring six areas first:
Climate reporting and carbon accounting came with challenges. Nature reporting will too. Unlike climate, nature-related issues are multidimensional and location specific. Measuring them on an ongoing basis will be complex and challenging. It will take time to structure data collection, and build a clear plan of action to ensure you are improving against metrics and targets you may come to set and report.
Start now to ensure that you can meet, and then exceed regulatory requirements and the expectations of your stakeholders year-on-year.
If you’re interested in finding out how the TNFD recommendations can be integrated into your organisation please get in touch.
Identify where you should prioritise your efforts, understand your nature impacts and dependencies, disclose to stakeholders and take action.
See how it works...
