The development of a set of disclosure recommendations for nature-related risks and opportunities is built on the premise that transparency of information through disclosures facilitates better risk and capital allocation decisions by corporates, investors and lenders. As this occurs, understanding of the financial implications of the nature-related dependencies and nature impacts that materially shape enterprise risks and opportunities will grow. This will enable financial markets to channel capital away from nature-negative outcomes, and towards nature-positive solutions, opportunities and business models, ultimately supporting more efficient allocation of both risk and capital, and the functioning of stable markets.

The TNFD draft disclosure recommendations are designed to:

  • help provide better information to support strategy and risk management at the board and management level, and ultimately improve capital allocation and asset valuation decisions by corporates;
  • promote more informed investment, credit and insurance underwriting decisions by financial institutions; and
  • enable a stronger understanding of the concentrations of nature-related risk and opportunities, based on insights into nature dependencies and impacts.

The TNFD draft disclosure recommendations may also be used by public authorities to assess and manage systemic nature-related risks and inform macro-prudential policies and responses.

Key design considerations

Consistency with the emerging global baseline

Market participants have been clear that they are seeking an integrated and globally consistent baseline of sustainability disclosure requirements. The current prevalence of different approaches, voluntary standards and variable metrics imposes significant time burdens, transaction costs and interpretive uncertainty on preparers and users. With those considerations front and centre, the TNFD has sought to maximise the consistency and language of our approach with existing climate-related disclosure recommendations from the TCFD.

The TNFD has sought to maximise the consistency and language of its approach with existing climate-related disclosure recommendations from the TCFD.

Throughout the TNFD’s consultation and iterative framework development phase, the Taskforce will continue to work closely with standards setters, such as the new ISSB and international and national regulators, including IOSCO, the SEC and the European Commission, as well as international accounting bodies. This will align the TNFD’s recommendations as closely as possible to the emerging global baseline for sustainability reporting.

Enabling integrated disclosures in mainstream financial reports

The TNFD supports moves towards sustainability disclosures that are fully integrated into the mainstream financial reports issued by preparers. The TNFD actively encourages moves towards an integrated approach as quickly as possible, and by aligning the TNFD’s recommended disclosures closely to those of the TCFD, the TNFD hopes to facilitate early adopters to move towards integrated disclosures.

Recognising the inseparable feedback loops between climate- and nature-related risks and the importance of an integrated approach to risk management and disclosure, the TNFD’s proposed draft disclosure recommendations refer to the TCFD for specifics on disclosure of climate-related risks and opportunities. In line with this approach, the TNFD’s recommendations do not include specific language related to greenhouse gas emissions, on the assumption that the TCFD or other relevant frameworks and standards will be used by preparers for those specific disclosures.

The importance of location in nature-related disclosures

A corporate or financial institution should undertake a location-based assessment of its dependencies on nature and nature impacts in order to identify its risks and opportunities, recognising that dependencies and impacts occur in specific locations. For financial institutions, it is not primarily their assets and operations, but their investments, loans and securities, that need to be informed by a location-based assessment.

Organisations will need to consider location in the full set of their material impacts and dependencies across their direct operations and related upstream and downstream activities when making disclosures. Location-based analysis is required for a robust identification of material nature-related risks and opportunities.

A focus on opportunities alongside risks

Nature-related opportunities are included in the TNFD framework alongside nature-related risks. While recognising that organisations have no obligation to disclose specific growth and investment opportunities related to sustaining or building their competitive advantage, the TNFD draft disclosure recommendations encourage preparers to describe the nature-related opportunities they have identified over the short, medium and long term, as well as the metrics and targets used to assess future performance in pursuing those opportunities. This approach aligns with that of the TCFD.

Approach to materiality

The TNFD expects organisations to disclose the full set of material risks and opportunities related to the impacts and dependencies of their operations and their upstream and downstream value chains. For financial institutions, this means both direct operations, on-balance-sheet financing (e.g. lending, investing, insuring) and other business activity (e.g. advisory). In all cases, disclosures should be guided by the concept of materiality, recognising the specific challenge for financial institutions in aggregating and consolidating across large portfolios.

The TNFD recommends that organisations follow an enterprise value approach aligned with the global baseline standards under development by the ISSB, and aligned with the relevant jurisdiction in which reporting is performed. The TNFD recommends that organisations consider medium- to long-term timeframes. Disclosing risks and opportunities across multiple time horizon requires organisations to consider a broader set of dependencies and impacts, as some that are not material in the short-term may lead to additional risks and opportunities that are material for enterprise value over time. Aligned with the time horizon of many institutional investors, a long-term perspective on enterprise value creation highlights that the value created, preserved or eroded by an organisation (and its providers of financial capital) is inextricably linked to other stakeholders, society and the natural environment.[1]

Approach to timeframes and use of scenarios

The TNFD recommends that organisations disclose how they define short-, medium- and long-term time frames, and how those timeframes align with the organisation’s strategic planning horizons and capital allocation plans. As guidance, the TNFD recommends the use of the following time frames:

  • short-term – less than 2 years;
  • medium-term – 2-5 years; and
  • long-term – more than 5 years.

If a preparer is using definitions of short-, medium- and long-term that differ from the time frames recommended by the TNFD, they should explain these definitions based on the time horizon over which nature-related risks or opportunities could reasonably be expected to have a financial effect on the organisation.

The TNFD recommends that preparers account for different long-term scenarios to ensure that their strategy, governance, risk management, capital allocation and decision making appropriately considers long-term trends and critical uncertainties relating to nature, including climate change, that are relevant to their organisation. In its further work on scenarios, drawing on related work by IPBES and the NGFS, the TNFD will issue further guidance on scenario analysis of nature-related risks and opportunities. (See Engage for more details on the TNFD’s forthcoming work on scenarios.)

Communicating and staging the scope of disclosures

Preparers should be clear and transparent in communicating what has been included in the scope of their disclosures. Given that nature-related disclosures will be new to many organisations, it will be prudent in many cases to start with a narrow scope and then expand over time. Preparers may wish to prioritise their disclosures and focus on specific activities or business lines where nature-related risks and opportunities are most material. They may focus on priority locations, as defined in the TNFD disclosure recommendations and the LEAP approach (see glossary of terms), and/or on specific aspects of their value chain and specific dependencies and impacts. For financial institutions, scoping choices may involve focusing on certain asset classes or financing and advisory lines of business.

When disclosures are made, a statement should be provided outlining what further disclosures are planned in the future. Coverage should expand over time, so that after no more than 5 years, organisations are considering all material impacts and dependencies across their direct operations and related upstream and downstream activities. This proposed timeline aligns with the TCFD’s concept of a five-year pathway to full disclosure.

Characteristics of useful information

To encourage effective disclosure, the TNFD proposes to use and align with the qualitative characteristics of useful sustainability-related information, set out in Appendix D of the International Sustainability Standards Board (ISSB) General Requirements for Disclosure of Sustainability-related Financial Information Prototype[2] and in EFRAG documentation.[3] This identifies the types of information that are likely to be most useful to existing and potential investors, lenders and other creditors to make decisions about the reporting organisation based on information in its sustainability-related financial disclosures.

These ‘characteristics’ set out that useful sustainability-related financial information must be relevant and material, and faithfully represent what it purports to represent. The usefulness is enhanced if it is comparable, verifiable, timely and understandable.

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High-level overview of disclosure recommendations

To encourage market uptake and integration, the TNFD’s proposed disclosure recommendations have been designed to be aligned with, and additive to, the TCFD’s disclosure recommendations. The TCFD structure, content and language was used as the starting point that TNFD extended, adapted and supplemented with recommendations as needed to cover nature-related risks and opportunities. These will remain under review and consideration throughout the beta framework development phase as TNFD consider and incorporate feedback from market participants.

The draft disclosure recommendations for nature-related risks and opportunities in this beta version follow the TCFD’s four pillars of governance, strategy, risk management, and metrics and targets:

  1. Governance: the ways in which the organisation’s oversight and decision-making functions take nature-related risk and opportunities into account.
  2. Strategy: the integration of actual and potential effects of nature-related risks and opportunities on the organisation’s business model, strategy and financial planning.
  3. Risk management: how the organisation integrates nature-related risks into its overall risk management approach.
  4. Metrics and targets: quantitative and qualitative performance indicators and aims related to nature-related risk and opportunities, based on nature dependencies and impacts.

These initial draft disclosure recommendations provide guidance for all sectors. Further specific guidance for individual sectors will be developed and included in subsequent beta releases of the TNFD framework.

Disclose the organisation’s governance around nature-related risks and opportunities.

Recommended Disclosures

  1. Describe the board’s oversight of nature-related risks and opportunities. Find out more.
  2. Describe management’s role in assessing and managing nature-related risks and opportunities. Find out more.

Disclose the actual and potential impacts of nature-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material.

Recommended Disclosures

  1. Describe the nature-related risks and opportunities the organisation has identified over the short, medium, and long term. Find out more.
  2. Describe the impact of nature-related risks and opportunities on the organisation’s businesses, strategy, and financial planning. Find out more.
  3. Describe the resilience of the organisation’s strategy, taking into consideration different climate and nature-related scenarios. Find out more.
  4. Describe the organisation’s interactions with low integrity ecosystems, high importance ecosystems or areas of water stress. Find out more.

Disclose how the organisation identifies, assesses and manages nature-related risks.

Recommended Disclosures

  1. Describe the organisation’s processes for identifying and assessing nature-related risks. Find out more.
  2. Describe the organisation’s processes for managing nature-related risks. Find out more.
  3. Describe how processes for identifying, assessing, and managing nature-related risks are integrated into the organisation’s overall risk management. Find out more.

Disclose the metrics and targets used to assess and manage relevant nature-related risks and opportunities where such information is material.

Recommended Disclosures

  1. Disclose the metrics used by the organisation to assess nature-related risks and opportunities in line with its strategy and risk management process. Find out more.
  2. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. *Adaptation under consideration by TNFD. Find out more.
  3. Describe the targets used by the organisation to manage nature-related risks and opportunities and performance against targets. Find out more.

Preparers should apply four general requirements for the preparation of disclosures that cut across all four pillars of the disclosure recommendations:

  1. Identification of material nature-related risks and opportunities should be based on an assessment of nature-related dependencies and nature impacts;
  2. Consideration of the organisation’s interface with nature at specific locations should be integral to the assessment, recognising that nature-related dependencies and nature impacts occur in specific ecosystems;
  3. Consideration should be given to how the organisation ensures that the correct skills and competencies are available to assess nature-related risks and opportunities, and oversee strategies designed to respond to those risks and opportunities; and,
  4. A statement should be provided regarding the scope of current disclosures and what further disclosures are planned in the future.