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September 18, 2023

Businesses urged to adopt TNFD recommendations without delay

The TNFD published 14 recommended disclosures at Climate Week NYC (Photo: Matt Cardy/Getty Images)
The TNFD published 14 recommended disclosures at Climate Week NYC (Photo: Matt Cardy/Getty Images)

Recommendations by the Taskforce on Nature-related Financial Disclosures were widely welcomed at their launch, but many experts agreed this was only the first step on a long road of bringing corporate activities in line with international nature protection and restoration commitments

Companies should act now to get their house in order regarding reporting on nature-related financial disclosures and not wait for legislation. This was the clear message from the Taskforce on Nature-related Financial Disclosures, lawyers and sustainable finance experts, as the TNFD launched its long-awaited recommendations at Climate Week NYC.

After two years of design and discussions, the TNFD published 14 recommended disclosures and additional implementation guidance, with few changes compared with earlier drafts. A discussion paper on sector metrics was also launched as part of the package, with the task force planning to produce sector specific guidelines around the time of COP28 this November.

The recommendations are built on those of the Task Force on Climate-related Financial Disclosures and are consistent with the global sustainability standards of the International Sustainability Standards Board and the impact materiality approach used by the Global Reporting Initiative and incorporated into the European Sustainability Reporting Standards, said the TNFD.

The recommendations are designed to work across the materiality requirements — single and double — of different jurisdictions, clarified Tony Goldner, the task force’s executive director.

Sue Lloyd, vice-chair of the ISSB, welcomed “the high-level of consistency within the finalised TNFD recommendations and the ISSB standards, which both incorporate the architecture of the TCFD recommendations”.

The ISSB would “consider the TNFD’s work — subject to the outcome of our recent consultation on future priorities — as we strive to simplify the disclosure landscape to deliver consistent, comprehensive sustainability-related disclosure for investors”, said Lloyd.

As the ISSB “further develops its sustainability-related reporting standards, we see a strong case for [it] to develop a thematic disclosure standard on nature, informed by the TNFD’s work”, commented Sacha Sadan, director of ESG at the Financial Conduct Authority.

Care has also been taken to align the recommendations with the Kunming-Montreal Global Biodiversity Framework, said the task force.

In December 2022, the biodiversity framework agreed 23 targets to be achieved by 2030, including conservation measures for 30 per cent of land, sea and inland waters, the restoration of 30 per cent of degraded ecosystems and the reduction of subsidies harmful to nature by $500bn every year.

“Nature loss is accelerating, and businesses are inadequately accounting for nature-related dependencies, impacts, risks and opportunities,” said David Craig, co-chair of the TNFD and founder and former CEO of Refinitiv, a financial markets data company, at the launch of the recommendations.

“Nature-risk is sitting in company cash flows and capital portfolios today,” warned Craig. “The costs of inaction are mounting quickly. Businesses and financial institutions now have the tools they need to take action.”

Four pillars

The recommendations are based on the same four conceptual pillars as the TCFD, namely:

  1. Governance — the processes, controls and procedures an organisation uses to monitor and manage nature-related issues.
  2. Strategy — the approach an organisation uses to manage nature-related issues.
  3. Risk and impact management — how an organisation identifies, assesses, prioritises and monitors nature-related dependencies, impacts, risks and opportunities.
  4. Metrics and targets — how an organisation assesses and manages material nature-related dependencies, impacts, risks and opportunities.

No time like the present

For now, the adoption of the recommendations by companies will be voluntary. As is the case with the TCFD, the TNFD will track voluntary market adoption on an annual basis and publish an annual status update report beginning in 2024.

“We anticipate that in due course the TNFD will be incorporated into international standards, such as those of the ISSB, and then duly implemented into national legislation,” Fiona Ross, a lawyer with Pinsent Masons, told Sustainable Views.

This process will not happen overnight, however, and Ross advised companies “not to wait for legislation, but to consider the TNFD framework now and be well placed operationally when mandatory nature related financial disclosures are implemented”.

The TNFD framework was a “pivotal moment in the drive to fully rewire the economic, social and financial system by 2030 to allow natural systems to recover”, Nina Seega, director of the Centre for Sustainable Finance at the University of Cambridge, told Sustainable Views. “Businesses and financial firms need to act now to start analysing, managing and mitigating nature loss.”

The impact of the TNFD framework “must not be understated”, said Guy Williams, executive director at climate change investment and advisory firm Pollination. But he insisted this was “not a ‘once and done’ situation”, with most businesses having a long way to go before their activities were not in conflict with goals to protect and restore nature.

“Most businesses are fundamentally nature-negative, as if sailing a titanic towards an iceberg,” said Williams. “But there is so much that every business can do now to start [to] turn their ship towards nature positive. The sooner that businesses get to grips with their nature-related dependencies, and the sooner they can reduce their nature-related impacts, the better for us all.”

The TNFD said it anticipated that companies would start announcing their intention to adopt the recommendations this week.

Pharmaceutical giant GSK pledged at the launch event to publish its first TNFD disclosures from 2026, based on 2025 data.

The TNFD said it planned to announce an inaugural list of companies that have indicated their intention to start adopting the recommendations at the World Economic Forum at Davos in January 2024.

According to the task force’s Goldner, a wide range of companies and financial operators, including asset managers and banks, from countries as varied as Kenya and Brazil, have showed their interest in becoming early adopters.

Business nature nexus

Reporting on nature “isn’t nice to have; it’s existential for our economy,” Jenny Davis-Peccoud, a partner at Bain & Company and global head of the consultancy’s sustainability practice, told Sustainable Views.

“Most businesses don’t realise just how dependent they are on healthy nature,” said Davis-Peccoud, noting that 75 per cent of crops are at risk from pollinator losses, and 15 per cent of global rice, wheat and maize production, worth $96bn, are lost annually due to invasive species. She also highlighted water reliance as a key concern for businesses, with 30 to 50 per cent of global metal production, for example, occurring in areas with high water stress.

Richard Mattison, vice-chair of S&P Global Sustainable1, said its research showed that “85 per cent of the world’s largest companies have a significant dependency on nature across their direct operations”.

In addition to frameworks and policies, “robust data” was needed to monitor and report on progress, which until recently has been “a major obstacle” for businesses working on biodiversity, said Kat Bruce, founder of NatureMetrics, a biodiversity monitoring company.

While the TCFD could use the single, well established, universally agreed metric of greenhouse gas emissions, measuring nature is rather more complex, as the task force’s Goldner acknowledged. He said the final recommendations had been “extensively market tested” and “well received” — including the the focus on negative, “less bad” and positive impacts of various activities.

Jessica Smith, Nature Lead at UNEP Finance Initiative, said disclose was “one piece of the puzzle combined with incentives and regulation that will help to rewrite our economies for a just and sustainable future in harmony with nature’s physical limits”.

She also urged wider economic changes to enable “lower cost of capital and higher rewards for nature positive companies and activities”, and called for more innovation to be “channelled towards solutions in line with a liveable planet where all human beings can fulfil their rights”.

Meanwhile, non-profit CDP said it would align its corporate environmental disclosure platform with the TNFD framework.

A service from the Financial Times