Executive Summary
On Tuesday, September 19th, the Taskforce on Nature-related Financial Disclosures (TNFD) released its final recommendations and guidance on nature-related risk reporting. The TNFD aims to provide companies and financial institutions with a framework for identifying, assessing, managing, and disclosing their nature-related dependencies, impacts, risks, and opportunities.
Developed in partnership with industry and investors, the TNFD recommendations are currently being reviewed by the ISSB for potential alignment opportunities, and CDP has stated its aim to align with the TNFD by 2024. Prior to the release of the final TNFD recommendations, BlackRock had already cited natural capital as a 2023 engagement priority and noted TNFD as a potentially valuable disclosure framework.
Given this early interest in TNFD, we expect that the TNFD’s recommendations may ultimately become a core ESG reporting framework, with a potentially similar trajectory for adoption as recommendations released by the Taskforce on Climate-Related Financial Disclosures (TCFD) in 2017.
Highlights of the TNFD Recommendations
- Impacts and Dependencies: The disclosure of specific dependencies and impacts is critical to nature-related reporting and is applicable for all industries. The TNFD defines dependencies as ecosystem services businesses rely on, such as clean water and pollination, while impacts refer to changes in the state of nature with a direct or indirect link to a business activity.
- LEAP Approach: Core to the framework is the identification of dependencies and impacts on nature and the assessment of accompanying risks and opportunities, using the LEAP methodology:
- Locate interfaces with nature across geographies and value chains;
- Evaluate dependencies and impacts on nature;
- Assess nature-related risks and opportunities;
- Prepare to respond to and report on nature-related risks and opportunities.
- Reporting Alignment: The TNFD was developed in alignment with existing standards and frameworks to enable integrated sustainability reporting, namely the TCFD and the ISSB.
HXE Partners’ Take
Biodiversity is transitioning from a peripheral ESG issue to one that is increasingly perceived by stakeholders and investors as material to business performance. Investors are beginning to engage with biodiversity beyond their contributions to the TNFD framework, including and beginning to and nature-related risk assessment methodologies. As nature-related risk management gains traction, businesses in all sectors should begin to consider their dependencies and impacts on nature and how to integrate the recommendations of the TNFD with other business and sustainability-related disclosures to provide stakeholders with a holistic picture of an organization’s financial and non-financial risks and opportunities. To implement effective risk management, organizations can prioritize evaluating existing policies, processes, or data related to nature and building internal awareness, knowledge, and capabilities on biodiversity issues.
HXE Partners continues to provide guidance and support to our clients in the evaluation, management, and reporting of nature-related risks and opportunities in their value chain. We are committed to helping our clients navigate nature-related risk management as they align sustainability goals and ESG goals with stakeholder expectations and industry best practices.