Getting a head start on nature-related disclosure and reporting

As biodiversity is a systemic challenge: a collective action, especially by public listed companies, is essential.

In this article, we discuss the intention of the Taskforce on Nature-related Financial Disclosures (TNFD) to deliver a framework that will encourage companies, investors and financial institutions to measure and address financial risks derived from biodiversity loss, and redirect financial flows from destructive activities and toward nature-positive investments and solutions. Read more to find out what you need to know to get a head start on nature capital-related disclosure reporting.

It’s no shock or surprise when we are informed about the huge impact that humanity is having on the environment. According to estimates by the World Economic Forum, more than half the world’s economic output – US $44tn of economic value generation – is mostly dependent on nature. Governments and companies have a pivotal role to play in tackling this emergency.

Building on the success of the Task Force on Climate-Related Financial Disclosures (TCFD), the similarly named Taskforce on Nature-related Financial Disclosures (TNFD) will deliver a framework for organisations to report and act on evolving nature-related risks. 

The launch of the TNFD marks an important step in protecting the natural world and encouraging financial decision making based on nature. It was introduced in July 2020 and is key to ensure a standard within the marketplace to protect our natural ecosystems and reduce their degradation.

Its launch is an important milestone in the delivery of the UK Government’s Green Finance Strategy. Finance ministers from the Group of Seven (G7) of the largest economies, including the UK, have endorsed the launch of the TNFD too. 

The TNFD aims to give the finance sector a complete picture of environmental risks. The work on nature-related risks will work hand in hand with the work already done on the TCFD framework, on climate-related risks. Just like the TCFD framework, the TNFD will support the development of more reliable and comparable nature-related data, which is critical to promote sustainable investments.

Since September 2020, the Informal Working Group, composed of 74 members (49 financial institutions and corporates, 8 governments and 17 consortiums) have been working on the scope and workplan of the TNFD. The framework will be tested and refined in 2022 before its launch and dissemination in 2023.

You can use the TNFD framework to incorporate environmental and natural capital-related information in your financial reporting, alongside data on climate. This will provide a holistic view of how climate change and natural capital can affect your company’s performance and the necessary actions your company could take to address the risks and opportunities.

Your investors can make informed and robust capital allocation decisions based on clarity, confidence and trust in natural capital and environmental opportunities and risks disclosed by your company, alongside climate change.

Within the sector, analysts can be better equipped to utilise environmental and natural capital-related information in determining impacts on future cash flow and, ultimately, company valuations.

To get a head start, you could review your company’s current compliance against disclosing nature-related information.

As the TNFD intends for its outputs to be integrated into existing frameworks and standards, such as those published by GRI, SASB, CDSB and the forthcoming IFRS Sustainability Board, you could start by looking at your compliance against these frameworks.

Governance: What competence and expertise does the board feel it needs in order to consider and address the challenges posed by biodiversity and nature loss?

Strategy: What opportunities and risks concerning nature-related issues are most relevant to your company’s business model and strategy?

Risk management: What systems and processes are in place for identifying, assessing and managing nature-related risks?

Metrics and targets: What information is most relevant to monitoring and managing the impacts of nature-related issues? How were these identified and how do they link to the strategy and business model?

We can work with you to review your current compliance in this area, as well as provide recommendations on how to improve your current nature-related disclosures. For more information, get in touch.

For more information about the TNFD’s work, see a summary of the proposed scope, governance, work plan, communication and resourcing plan of the TNFD here.