TNFD: Advancing Nature-Related Financial Disclosures for Sustainable Corporate Practices

On September 2023, the Taskforce on Nature-related Financial Disclosures published the “Recommendations of the Taskforce on Nature-related Financial Disclosures”, these guidelines help organizations of all sizes and sectors understand and disclose nature-related risks and opportunities, potentially influencing strategy, capital decisions, and compliance.

The Taskforce on Nature-related Financial Disclosures (TNFD) aims to create a framework for organizations to report and act on nature-related issues. It was formed in 2021 after a preparatory phase. The TNFD involves various stakeholders, including governments, financial institutions, corporations, and NGOs. It has received support from multiple governments and organizations.

The TNFD’s recommendations are designed for organizations of all sizes and sectors, assisting them in understanding and disclosing nature-related risks, dependencies, and impacts. These recommendations are intended to inform corporate strategy, support capital allocation decisions, and facilitate regulatory compliance.

The TNFD recommendations align with global sustainability reporting goals, particularly the Global Biodiversity Framework (GBF), and are structured similarly to the Task Force on Climate-Related Financial Disclosures (TCFD). They can be adopted voluntarily by organizations, influence voluntary standards, and potentially shape government regulations.

The TNFD’s metrics architecture is still evolving, similar to the early stages of climate-related reporting. The recommendations include guidance on how to get started, identify and assess nature-related issues, set targets, and engage with stakeholders, particularly Indigenous Peoples and Local Communities.

The TNFD aims to encourage early action and learning among organizations and support the ongoing improvement of nature-related reporting. It offers additional guidance materials and sector-specific support to enhance voluntary adoption across various sectors and geographic contexts.

The TNFD disclosure framework comprises the following key components:

Conceptual Foundations: This forms the basis for nature-related disclosures, providing a conceptual understanding of why and how organizations should report on nature-related issues. The heart of the TNFD recommendations revolves around four interconnected principles:

Encouragement for organizations, especially major global corporations and financial institutions, to gradually enhance the scope and quality of their corporate reporting to align with GBF Target 15 and the International Sustainability Standards Board (ISSB).
Organizations should disclose significant information regarding their nature-related dependencies, impacts, risks, and opportunities based on materiality.

The TNFD recommendations accommodate various materiality preferences and requirements among report preparers. Organizations should use the ISSB’s baseline approach for identifying material information. Those who wish to adopt a different materiality approach can consider using an impact materiality lens, guided by regulatory authorities in their reporting jurisdiction(s). This aligns with GBF Target 15.

To ensure a robust grasp of potential risks and opportunities, the TNFD recommends identifying and assessing all four types of nature-related issues: dependencies, impacts, risks, and opportunities. Organizations should clarify these four types of issues and articulate their interconnections in their reporting.

General Requirements: These are the foundational principles and criteria that organizations should adhere to when disclosing nature-related information. The TNFD recommendations add six general requirements to the ISSB’s International Financial Reporting Standards IFRS-S1 Standard. These requirements are meant to ensure consistency in disclosed information and apply to all four disclosure pillars: governance, strategy, risk and impact management, and metrics and targets. They cover aspects such as:

Materiality
Disclosure scope
Location of nature-related issues
Integration with other sustainability disclosures
Timeframes considered

Engagement with Indigenous Peoples, Local Communities and affected stakeholders in identifying and assessing nature-related issues.

Recommended Disclosures: These are detailed disclosures organized around four key pillars, with a total of 14 recommendations:

Governance: Disclosures related to the governance structure and oversight of nature-related issues within the organization. One of the recommendations: Board oversees its nature-related dependencies, impacts, risk and opportunities.

Strategy: Information about the organization’s strategies and objectives regarding nature, including how they integrate nature into their overall business strategy. One of the recommendations: nature-related dependencies, impacts, risks and opportunities identified over short, medium and long terms.
Risk and Impact Management: Disclosures concerning how the organization identifies, assesses, and manages risks and impacts related to nature. One of the recommendations: organization’s processes for managing nature-related dependencies, impacts, risks, and opportunities.
Metrics and Targets: Details on the specific metrics and targets related to nature that the organization tracks and aims to achieve. One of the recommendations: disclose organization’s metrics for assessing and managing dependencies and impacts on nature

This framework draws inspiration from and aligns with the approaches of the Task Force on Climate-Related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB). It provides a structured and comprehensive approach for organizations to report on nature-related matters.