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The Taskforce on Nature-related Financial Disclosures (TNFD) has developed a set of disclosure recommendations and guidance for organizations to report and act on evolving nature-related dependencies, impacts, risks, and opportunities. The TNFD has made it clear that nature is no longer a corporate social responsibility issue, but a core and strategic risk management issue alongside climate change.
Key Disclosure Framework
The TNFD recommendations retain all four pillars of the TCFD, as do the ISSB’s IFRS Standards and the jurisdictional regulations of the EU’s Corporate Sustainability Reporting Directive (CSRD). The TNFD replicates all 11 TCFD recommended disclosures for nature-related issues, only adding additional recommended disclosures where there is a clear rationale to do so.
The TNFD recommendations can be interpreted through two materiality lenses:
Meeting the material information needs of capital providers consistent with the ISSB’s IFRS Standards and the TCFD recommendations, with a focus on risk management and how dependencies and impacts on nature create risks and opportunities for an organization’s financial position and prospects; and
Meeting the material information needs of stakeholders focused on impacts, aligned with a broader materiality approach, reporting against both the ISSB and the GRI standards.
Align with the global policy goals and targets of the Global Biodiversity Framework (GBF), agreed by almost 200 countries in December 2022, and enable corporate reporting as required by Target 15 of the GBF.
The recommendations and guidance are relevant to a wide range of market participants and market enablers:
1. Corporates: Applying the recommendations can help inform better corporate strategy, governance, and risk management decision-making, and the incorporation of nature-related risk assessments alongside, and ideally integrated with, climate-related risk reporting.
2. Investors and financial institutions: The information disclosed can support more informed and robust capital allocation decisions and stewardship activities based on clarity, confidence, and trust in data relating to nature-related issues. Large asset owners, asset managers, lenders, and development finance institutions can play a significant role in driving nature-related financial disclosures and strengthening the management of nature-related issues in the organizations they finance. Corporations are more than twice as likely to disclose across climate, forests, and water themes when financial institutions request them to do so.
3. Regulators: The recommendations and guidance can support existing and new disclosure mechanisms, standards, and other jurisdiction-specific regulatory requirements.
4. Stock exchanges: The recommendations can inform consideration of new voluntary and mandatory listing requirements linked to nature-related risks, as well as nature-related opportunities for newly listed equity offerings.
5. Assurance and accounting firms: The disclosure guidance can inform audit and assurance of nature-related corporate reporting and help to enhance the internal risk management functions of client organizations.
6. Data providers, credit rating agencies, and financial service providers: The recommendations and guidance can provide data providers, credit rating agencies, and financial service providers with criteria for consistent and robust data and insights on an organization’s nature-related issues and how they are managed.
The Taskforce plans to expand its coverage to other sectors that have been identified as having significant dependencies and impacts on nature. Organisations in sectors not yet covered can seek guidance from industry best practice and guidance from organisations such as GRI or SASB. The current sectoral coverage with proposed sector-specific metrics are as follow (consultation until February 29, 2024.):
It is material for companies to get ready for nature-related disclosures as compliance pressures piles on, and mometum for sustainable investment. GC Insights is closely monitoring the potential gap among corporate reporting against the latest natural and biodiversity frameworks. We are convinced that TNFD recommendations will generate more followers looking to disclosure on nature-related information. Though quality disclosure remain challenging such as data collection on metrics for total spacial footprint, etc., There are plenty of databases and tools for understanding biodiversity risks and spacial footprint. Contact us to learn more on seting up a nature-related disclosure framework and get ready for nature-related disclosures today.