The Taskforce on Nature-related Financial Disclosures (TNFD) is upon us. In recognition of the reality that cash flow depends on the inherent ability of nature to provide ecosystem flows to the business, the TNFD has developed a set of disclosure recommendations and guidance for organisations to report and act on evolving nature-related dependencies, impacts, risks and opportunities.
The environment's call to action is resoundingly clear. As The Stockholm Resilience Centre reports, we have already breached six of the nine planetary boundaries – a concept that represents a set of processes that regulate Earth's stability and resilience, and the boundaries within which humanity can continue to develop and thrive for generations to come. These transgressions suggest that Earth is now well outside of the safe operating space for humanity. While climate change is one of the planetary boundaries, a global focus on climate change alone is insufficient when it comes to creating increased sustainability. Rather, understanding the interplay of boundaries, especially climate and loss of biodiversity, is key.
Corporate stakeholders are now also recognising the associated nature-related risks to financial and economic stability, and the need to protect our natural asset base. Nature underpins the global economy – our economies are embedded in nature, not external to it. Yet most corporates, investors and lenders today are inadequately accounting for nature in their decisions, and ecosystem services are not being appropriately priced by business and financial markets.
The TNFD has thus defined key concepts, aligned with the global baseline for sustainability reporting, as the foundation of a market-accessible language system for understanding nature.
Developed off the back of the Task Force on Climate-Related Financial Disclosures (TCFD) framework, the TNFD uses the same format or pillars and recommends the same 11 disclosures put forward by the TCFD (as adapted to the 'nature' context). But, the TNFD goes further and adds three additional and critically important disclosures which recognise current-day ESG tensions. These are:
- Governance: Describe the organisation's human rights policies and engagement activities, and oversight by the board and management, concerning indigenous peoples, local communities, and affected and other stakeholders, in the organisation’s assessment of, and response to, nature-related dependencies, impacts, risks and opportunities.
- Strategy: Disclose the locations of assets and/or activities in the organisation's direct operations and, where possible, upstream and downstream value chain(s) that meet the criteria for priority locations.
- Risk and impact management: Describe the organisation's processes for identifying, assessing and prioritising nature-related dependencies, impacts, risks and opportunities in its upstream and downstream value chain(s).
These additions inform the pivotal focus areas of human rights and stakeholder engagement; location-setting to acknowledge region-specific issues; and value chain risk and impact management.
The TNFD has also published a "getting started" guide, as well as guidance on the identi fication and assessment of nature-related issues using the LEAP approach:
- Locate the organisation's interface with nature;
- Evaluate its dependencies and impacts on nature;
- Assess its nature-related risks and opportunities; and
- Prepare to respond to, and report on, material nature-related issues, aligned with the TNFD's recommended disclosures.
LEAP is designed to be used to gather the data for internal assessments that will inform what is eventually reported on as external disclosures.
Additional take-home points on the TNFD include that:
- it remains a voluntary framework, and adopts the 'comply or explain' methodology to disclosures;
- it is sector-agnostic. Sector-specific disclosures will come in time, although additional guidance for financial institutions has already been published by the TNFD;
- it offers a flexible approach to materiality. Organisations should be informed by and apply the definition of materiality prescribed by their jurisdiction's regulatory authorities. In the absence of such prescriptions, either the International Sustainability Standards Board’s (ISSB) approach to materiality – being financial materiality – or the Global Reporting Initiative’s (GRI) approach to materiality – being impact/double materiality – should be used. The materiality lens adopted by report preparers should be informed by their specific reporting requirements and the information needs of their report users; and
- it is not data-heavy, and many of the recommended disclosures are qualitative in nature.
The TNFD trusts that its close alignment with the TCFD will promote its voluntary adoption and make it easy for organisations that are already familiar with the TCFD framework to integrate the TNFD into their existing strategic and financial decision-making processes. Sanlam is South Africa's first corporate adopter of the TNFD. TNFD intends to announce all early adopters at the Annual Meeting of the World Economic Forum, Davos in January 2024.
In time, the TNFD also hopes that report preparers will integrate their climate-related (TCFD) and nature-related (TNFD) disclosures. An illustrative example of such integrated reporting (which does not yet include the assurance of reported data) has been published here.
Finally, the TNFD framework is expected to inform future regulation on nature-related reporting and disclosure. The TNFD framework underpins global policy – in this case, the Global Biodiversity Framework, which was adopted under the Convention on Biological Diversity at COP15 (the UN's Biodiversity Conference) in December 2022. This is the policy equivalent of the Paris Agreement adopted under the UN Framework Convention on Climate Change. Under this framework, reporting standards will eventually be developed to align with the TNFD – the ISSB and GRI have already signalled their support of the TNFD framework – and such reporting standards will, in the future, be adopted in domestic laws and regulations. For example, South African policy in the financial regulatory space has already adopted the TCFD recommendations and ISSB reporting standards in its recently published draft guidance notes for banks and insurers on climate-related disclosures and risk practices. The same will likely happen with the TNFD in the future. Such developments may chart the course for future legislative amendments too, such as in the environmental, corporate and financial regulation spheres. The UK Environment Act 2021, for example, will require new developments to deliver at least a 10% biodiversity net gain from January 2024.
As COP28 takes centre stage, it is critical that nature is integrated into climate transition plans and that investments are directed to nature-based solutions. New paths are being charted to deliver nature and climate goals through science-based targets, reporting, and analysis. Among its other benefits, the TNFD has been touted as an opportunity for companies to take integrated approaches to supporting the global goal of halting and reversing nature loss by 2030 and advancing on net-zero commitments, thereby moving beyond net zero to nature positive.
The TNFD is a monumental step forward for encouraging strategic and financial planning which takes nature-related risks and nature-based solutions into account. Also worth commending is the fact that the TNFD engagement and piloting processes included Global South participation and partnerships. All corporate organisations are encouraged to consider and adopt the TNFD by simply asking the question: "How is my business dependent on nature?"
