TNFD: Shifting Global Financial Flows from Nature-negative toward Nature-positive Outcomes
Taskforce on Nature-related Financial Disclosures (TNFD) is an international initiative building on the model developed by the Financial Stability Board (FSB) Taskforce on Climate-related Financial Disclosures (TCFD). The formation of TNFD was first incentivised in July 2020, with the aim to develop and deliver a nature-related risk management and disclosure framework. An Informal Work Group consisting of 75 members from financial institutions and corporates, governments and consortiums spent the next 11 months in a preparatory phase scoping out TNFD's workplan before it was formally launched in June 2021. The two-year workplan outlines how TNFD will adopt an innovative approach to developing a final nature-related risk management and disclosure framework by late 2023. This article outlines the key aspects and what we can expect of the TNFD framework.
Considering the nature-related risks and opportunities of business operations
As previously stated, the TNFD is on a mission to develop a risk management and disclosure framework for organisations across the financial and non-financial sectors to report and act on evolving nature-related risks. It seeks to align with Convention on Biological Diversity's (CBD) zero-draft Global Biodiversity Framework of no net loss by 2030 and net gain by 2050 and support the shift in global financial flows from nature-negative to nature-positive outcomes. As more than half of the world's economic output is moderately or highly dependent on nature, it is important to understand the nature-related risks and opportunities that organisations are currently facing and will face in the future. The TNFD framework will work to provide the information needed for organisations to understand their impacts and dependencies on nature and its subsequent impacts on their immediate and long-term financial performance. This information will allow organisations to incorporate nature-related risks and opportunities within their strategic planning, risk management, and asset allocation decisions.
Adopting TCFD's four pillars
The TNFD framework is set to adopt the same structure as the TCFD, using the four-pillar approach covering an organisation's governance, strategy, risk management, metrics and targets. However, the TNFD will adopt a broader definition of the term "risk and opportunities" within each pillar to recognise the challenges around measuring nature, broader policy and market development, and the systematic nature of risk.
The intended use of the TNFD framework
The TNFD is not intended to be a new disclosure rather an integrated risk management and disclosure framework combining the best tools and materials. It will align and draw from existing initiatives, frameworks, and standards to avoid duplication, building on the important work previously undertaken on nature-related risks and opportunities. The intention is that TNFD outputs will be integrated with existing frameworks and standards such as GRI, SASB and CDSB. The TNFD and TCFD will be complimentary in their usability by market participants and together provide comprehensive coverage of climate and nature-related financial risk.
Intended TNFD users
The Framework is intended to be used by financial institutions and non-financial companies to internally understand and manage, as well as externally communicate, their exposure to financial risks through impacts and dependencies on nature. It will assist research by rating and data providers and standard-setting bodies seeking to use disclosures on the materiality of environmental factors in a systematic fashion. Additionally, it will be useful for financial supervisors and macroprudential authorities who seek to use disclosures to understand and analyse the exposure to nature-related financial risks within the financial systems to support the development of policies.
Next steps
The TNFD just released their Beta v0.1 of the framework for public consultation in March. They are further aiming to release three more refined versions of their beta framework in June 2022 (v0.2), October 2022 (v0.3), and February 2023 (v0.4), before final recommendations are expected to be released in September 2023.
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References:
TNFD Nature in Scope: A summary of the proposed scope, governance, work plan, communication and resourcing plan of the TNFD – Available from https://tnfd.global/wp-content/uploads/2021/07/TNFD-Nature-in-Scope-2.pdf
TNFD Proposed Technical Scope: Recommendations for the TNFD – Available from https://tnfd.global/wp-content/uploads/2021/07/TNFD-%E2%80%93-Technical-Scope-3.pdf