Today, most companies and investors do not adequately account for nature-related risks and opportunities in their assessments. But at the same time, the environment and its biodiversity are being destroyed at unprecedented, alarming rates.
Research has shown that over half the world’s total GDP – nearly 44 trillion USD of economic value generation – is highly or moderately dependent on nature and its services. Which makes one thing clear: organizations that don’t factor nature-related risks into their business decisions and activities are setting themselves up to fail.
Luckily, help is available. The Taskforce on Nature-related Financial Disclosures (TNFD) was established in 2021 as a response to the growing need to factor natural hazards into business risk management. Ever since its establishment, the TNFD has received huge international political support from all around the world, and the final version of the framework is expected to be released in late 2023.
It’s safe to bet that the TNFD framework will make a big impact on market participants all over the world, which means it’s high time to get familiar with it.
This blog will tell you everything you need to know about the framework, its requirements, and how to get your business aligned.
What is the TNFD framework?
The TNFD is currently developing a science-based risk management and disclosure framework that organizations of all sizes and sectors can use to identify, manage, and disclose their nature-related risks and opportunities. The aim is to help drive coherence, comparability, and consistency in how organizations complete their nature-related reporting, as well as to encourage and guide organizations to begin reporting on these matters.
The TNFD framework builds upon the TCFD framework
To ensure a consistent and integrated approach to sustainability reporting, the TNFD framework builds upon the already-existing TCFD framework. The TCFD, or the Task Force on Climate-related Financial Disclosures, is a guiding framework that establishes principles for how organizations should provide information on their risks and opportunities associated with climate change. This consistency from framework to framework is a welcome relief for market participants, who have long called for a more coherent sustainability reporting landscape.
Will the TNFD be mandatory?
Although the TNFD will initially be voluntary and market-led immediately after it’s published in 2023, whether or not (and when) that will change remains uncertain. The TNFD framework has already received international political support, such as its endorsement by the G7 Finance ministers, and considering its predecessor (the TCFD) is already mandatory in some jurisdictions, there is a significant chance that the TNFD framework will go down the same road.
What are the benefits of the TNFD framework?
- Build resilience and long-term value in your operations and supply chain
- Better prepare for the growing number of regulations and stakeholder demand on nature-related risk assessments
- Ensure credibility among investors, consumers and other stakeholders and protect yourself from greenwashing
Which companies is the TNFD framework designed for?
The TNFD framework provides recommendations and guidance on how to carry out enterprise or portfolio nature-related risk assessments to a broad range of market organizations, including investors, financial institutions, and corporations.
Which sectors in particular should consider the TNFD framework?
There are certain industries that pose a higher risk of natural hazards and degradation, and who need to stay on top of nature-related risks to be resilient, such as agriculture, food and beverages, tourism and hospitality, construction, and insurance. However, most modern businesses are exposed to nature-related risks through their supply chains, portfolio companies, and subsidiaries – often without even realizing it. Setting up a proper risk management process, such as the TNFD, helps businesses spot their risks before it’s too late.
On the flip side, some organizations play a catalytic role in the transition away from nature-negative finance to nature-positive, and should for that reason be prone to consider the TNFD framework. Asset managers, lenders, and large corporations can influence the organizations they work with and invest in, and can require them to report on these matters. After all, organizations are 2.3 times more likely to disclose on nature-related themes when financial institutions request them to do so.
What exactly should organizations report?
The TNFD framework encourages organizations to disclose information on the four key pillars of the TCFD framework, which covers both nature-related risks and business opportunities. These are:
- Governance: The organization’s governance around nature-related dependencies, impacts, risks and opportunities.
- Strategy: The actual and potential impacts of nature-related risks and opportunities on the organization’s businesses, strategy, and financial planning, where such information is material.
- Risk & Impact Management: How the organization identifies, assesses, and manages nature-related dependencies, impacts, risks, and opportunities.
- Metrics & Targets: The metrics and targets used to assess and manage relevant nature-related dependencies, impacts, risks, and opportunities where such information is material.
(Source: the latest draft (v3) of the TNFD framework)
What is the LEAP approach to the TNFD?
Each organization is at a different stage in their sustainability journey, and while some have already implemented a working strategy and process around nature-related risks – this simply isn't a reality for all.
To ensure that any business – regardless of size, annual turnover, or sustainability maturity – is able to disclose according to the TNFD framework, the TNFD also developed a risk and opportunity assessment process: the LEAP approach.
The LEAP approach is a step-by-step risk assessment developed by the TNFD to guide companies on how to carry out their TNFD framework disclosures. Think of it as the “how” to succeed with your nature-related risk disclosures on Governance, Strategy, Risk & Impact Management, and Metrics & Targets.
Aligning your reporting to the LEAP approach is not mandatory, but rather a “helping hand” to ensure companies are carrying out a risk assessment that is science-based, structured, and valid.
The LEAP approach involves four core phases of analytic activity:
- Locate your interface with nature;
- Evaluate your dependencies and impacts;
- Assess your risks and opportunities; and
- Prepare to respond to nature-related risks and opportunities, and to report to investors.
Did you know you can locate, evaluate, and prepare risk reports related to your own activities (and those up and downstream your value chain!) all in Worldfavor? We'll show you how!
Start preparing for the TNFD framework in Worldfavor
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