The Taskforce On Nature-Related Financial Disclosures Releases Final Version Of Disclosure Framework - Corporate Governance

The Taskforce on Nature-related Financial Disclosures (the "TNFD") recently released the final version of its nature-related disclosure framework (the "TNFD Framework"). The TNFD Framework is the first framework designed to integrate nature-related risks and opportunities analysis into corporate decision-making, providing companies, investors and financial institutions with guidance to identify, assess, manage, and appropriately disclose nature-related dependencies, impacts, risks, and opportunities. The TNFD Framework offers capital providers an integrated climate- and nature- related reporting approach designed for consistency with the recommendations of the Task Force on Climate-related Disclosures (the "TCFD") and the sustainability and climate-related disclosure standards issued by the International Sustainability Standards Board (the "ISSB").

Although the use of the TNFD Framework is voluntary, it has gained considerable momentum from market participants, central banks, financial supervisors and governments. The Kunming-Montreal Global Biodiversity Framework (the "Global Biodiversity Framework") and the Network for Greening the Financial System have recently reiterated the need for the global economy to reach sustainable goals and targets to prevent and reverse nature loss by 2030. The TNFD's membership is comprised of senior executives from 40 companies across the world representing more than U.S. $20 trillion in assets under management and with operations in more than 180 countries.

The publication of the TNFD Framework marks the culmination of nineteen months of refinement of the initial version. Our reviews of previous drafts of the framework, including a comprehensive initial overview that surveys how the framework fits into the broader disclosure landscape, can be found here and here.

What is included in the TNFD Framework?

The final TNFD recommendations consist of four main sections:

Foundations for understanding nature and business: The foundations emphasize the importance of understanding nature and its role in business operations, as well as the need for businesses to account for nature and biodiversity in their decision-making processes. This section outlines concepts for connecting nature and people, as well as a glossary of key terms related to nature and business.
Recommendations and Guidance: These are recommendations for businesses in relation to nature-related disclosures, all of which are designed to encourage and support the meeting of climate reporting and previously established disclosure standards. There are 14 recommendations that fall under 4 disclosure pillars.
Measuring of Nature-related Dependencies, Impacts, Risks and Opportunities: The measuring of nature-related dependencies outlines the metrics that should be used in corporate reporting. This section aims to harmonize metrics for nature-related reporting, which in turn will enhance coverage of reporting on nature-related issues and make the data more comparable and useful for capital providers and other stakeholders.
Additional Guidance: Concurrently with the release of the TNFD Framework, the TNFD published a suite of additional cross-sector guidance to support the TNFD Framework's adoption which provides information that is consistent, comparable and helpful for corporate decision-making. Guidance can be found here, which includes the LEAP approach and guidance on specific sectors, biomes, scenarios, and the engagement of Indigenous peoples, local communities, and other affected stakeholders. The LEAP approach is a methodology for identifying and assessing nature-related issues and was briefly covered in a previous post.

The TNFD Framework seeks to tackle the risk of nature-loss to the global economy in a similar way to the TCFD's framework for climate risks. As with the TCFD's framework, the TNFD Framework is structured around four disclosure pillars that are intended to help reporting entities assess, manage, and report on nature-related risks and opportunities in their operations.

The TNFD's recommended disclosures have the purpose of facilitating the production of clear, comparable and consistent information for use by investors and other providers of capital. The TNFD Framework also draws upon the TCFD's 11 disclosure recommendations, replicating each of them as part of its 14 overall recommended disclosures.

For companies already reporting in accordance with the TCFD's recommendations or preparing to report under the ISSB's sustainability and climate-related financial disclosures standards (for which our review can be found here), the TNFD Framework has been developed in a complementary and deferential way that allows for integrated reporting.

Importantly, the TNFD's recommendations are also aligned with the requirement of Target 15 of the Global Biodiversity Framework, which calls for assessment and disclosure of nature-related risks, impacts, and dependencies, enabling companies to align their corporate reporting with global policy goals as they are now doing on climate related disclosure.

The TNFD Framework's Pillars and Recommended Disclosures

The four pillars and the 14 nature-related disclosure recommendations for organizations are as follows:

Pillar I – Governance: Disclose the organization's governance of nature-related dependencies, impacts, risks and opportunities.

Governance Structure: Describe the board's oversight of nature-related dependencies, impacts, risks and opportunities.
Integration into Governance Processes: Describe management's role in assessing and managing nature-related dependencies, impacts, risks and opportunities.
Management Accountability: Describe the organization's human rights policies and engagement activities, and oversight by the board and management, with respect to Indigenous Peoples, Local Communities, affected and other stakeholders, in the organization's assessment of, and response to, nature-related dependencies, impacts, risks and opportunities.

Pillar II – Strategy: Disclose the effects of nature-related dependencies, impacts, risks and opportunities on the organization's business model, strategy and financial planning where such information is material.

Nature-Related Goals: Describe the nature-related dependencies, impacts, risks and opportunities the organization has identified over the short, medium and long term.
Strategic Planning: Describe the effect nature-related dependencies, impacts, risks and opportunities have had on the organization's business model, value chain, strategy and financial planning, as well as any transition plans or analysis in place.
Business Models: Describe the resilience of the organization's strategy to nature-related risks and opportunities, taking into consideration different
Priority Locations: Disclose the locations of assets and/or activities in the organization's direct operations and, where possible, upstream and downstream value chain(s) that meet the criteria for priority locations.

Pillar III – Risk and impact management: Describe the processes used by the organization to identify, assess, prioritize and monitor nature-related dependencies, impacts, risks and opportunities

Risk Identification: Describe the organization's processes for identifying, assessing and prioritizing nature-related dependencies, impacts, risks and opportunities in its direct operations.
Risk Assessment: Describe the organization's processes for identifying, assessing and prioritizing nature-related dependencies, impacts, risks and opportunities in its upstream and downstream value chain(s).
Risk Mitigation: Describe the organization's processes for managing nature-related dependencies, impacts, risks and opportunities.
Risk Management: Describe how processes for identifying, assessing, prioritizing and monitoring nature-related risks are integrated into and inform the organization's overall risk management processes.

Pillar IV – Metrics and targets: Disclose the metrics and targets used to assess and manage material nature-related dependencies, impacts, risks and opportunities.

Metrics Selection: Disclose the metrics used by the organization to assess and manage material nature-related risks and opportunities in line with its strategy and risk management process .
Data Sources: Disclose the metrics used by the organization to assess and manage dependencies and impacts on nature.
Targets: Describe the targets and goals used by the organization to manage nature-related dependencies, impacts, risks and opportunities and its performance against these.

Use of Metrics – A Leading Indicators Approach

The measurement approach adopted under the TNFD Framework is the leading indicators approach. This approach leverages the best available science and cross-references metrics already in use by market participants, and incorporates both cross-sector and sector-specific metrics to provide a flexible approach for disclosure reporters and a basis for comparative analysis by report users. The leading indicators approach is designed to reconcile the large number of indicators associated with nature-related issues and the needs of market participants for a relatively small set of indicators that can be compared and subjected to third-party assurance on an annual basis.

The Bottom Line

The publication of the TNFD's final recommendations under the TNFD Framework is the latest development in ESG-related disclosures which provides guidelines and standards to help companies, investors and financial institutions understand, assess and manage nature-related risks and opportunities, improve transparency, and make informed decisions related to nature and biodiversity conservation. This not only aligns with the reiterated goals of the Global Biodiversity Framework and drives on compelling institutional and political support but also helps companies gain a competitive edge in an increasingly sustainability-focused world.

Building on global climate-related reporting standards and market evolution over the past decade, the TNFD Framework, the ISSB standards and the TCFD framework provide highly complementary frameworks which offer a coherent and integrated global sustainability, climate- and nature- related reporting approach. This integrated approach allows companies to more efficiently communicate their ESG-related disclosures, while being consistent with the Global Reporting Initiative's standards and providing stakeholders with a comprehensive overview of their sustainability efforts and impacts.

As corporate disclosure practises continue to evolve into a "new normal" of increased transparency with clear, consistent and comparable information, those who do not proactively engage may eventually experience reduced access to capital, supply chain resilience and long-term viability.