Draft recommended disclosures

Logged in users can personalise Framework guidance and recommendations by setting user preferences. Please consider logging in or creating an account to customise your preferences.

Overview

Download
Annex 4.2 – Disclosure implementation guidance –

Download –
Annex 4.4 – Additional draft disclosure guidance for financial institutions –

Introduction

The development of a set of recommended disclosures 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 dependencies and impacts on nature 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 recommended disclosures 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 the 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.

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.

Reflecting the importance of location in nature-related disclosures

The TNFD recognises that nature-related dependencies, impacts, risks and opportunities take place in specific places, embedded in local, regional and global ecosystems. The TNFD framework therefore includes recommendations that a corporate or financial institution undertake a location-based assessment. 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.

A focus on opportunities alongside risks

Nature-related opportunities are included in the TNFD framework alongside nature-related risks. This approach aligns with that of the TCFD, while recognising that organisations have no obligation to disclose specific growth and investment opportunities related to sustaining or building their competitive advantage.

Communicating and staging the scope of disclosures

The TNFD recognises that nature-related disclosures will be new to many organisations, and that 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.

In light of this, the TNFD framework includes a recommendation that an organisation provides a statement outlining what is covered by the disclosures, and what further disclosures are planned in the future. Coverage should expand over time, and the TNFD expects that after no more than 5 years organisations will be considering all material impacts and dependencies across their direct operations and related upstream and downstream activities.

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.

Additional Content

Figure: Characteristics of useful information

A flexible approach to materiality

The TNFD’s approach to materiality has been a topic of significant ongoing interest among market participants and other stakeholders since the TNFD launched. As the developer of a framework for practical application by market participants, the Taskforce is guided by a core design principle and goal that the TNFD framework should be applicable to, and used by, corporates and financial institutions of different sizes, across sectors and jurisdictions, irrespective of their preferred or required approach to materiality.

To facilitate this, v0.3 of the framework proposed a flexible approach to materiality to accommodate the preferences and regulatory requirements of report preparers and report users from organisations of all sizes and across all jurisdictions.

This is now further reflected in the General Requirements, which ask report preparers to provide a statement explaining their materiality processes.

The TNFD would welcome feedback from the market on this proposal and how it can be further improved to achieve the aim of the wide applicability of the framework.

Materiality definitions

Debates on materiality continue to evolve with a number of related definitions:

‘single materiality’ focused only on risk to the enterprise value of a business;
‘double materiality’ or ‘dual materiality’, as advanced by European policy makers and regulators, incorporating a focus on impacts and risks to climate and nature as well as the enterprise;
‘dynamic materiality’, referenced by a number of the standards bodies now incorporated into the International Sustainability Standards Board (ISSB), the World Economic Forum and others, emphasising that material issues are dynamic and change over time; and
‘societal materiality’ used by the Science Based Targets Network (SBTN), emphasising an obligation to contribute to social outcomes beyond what might be required by regulation.

Revisions to draft disclosures in v0.4

This final draft framework (v0.4) includes a complete set of disclosure guidance for ‘All Sectors’, building on the first draft in v0.1, as described above. Revisions have been made in response to feedback received and to improve clarity and consistency across the recommended disclosures.

The TNFD approach to implementation guidance mirrors that proposed by the TCFD, with the important nature-specific addition of biome guidance, given the location-specific character of nature-related impacts (distinct from climate-related impacts from emissions).

Since the v0.3 beta release in November 2022, the following changes have been made to the implementation guidance for the TNFD recommended disclosures:

General

Aligned with TCFD guidance, additional narrative text has been added at the start of each disclosure pillar to support interpretation, with implementation guidance developed to support report preparers across all disclosures.

Governance

The guidance for the recommended disclosures under the governance pillar have been strengthened:

‘Should consider including’ is replaced with ‘should include’;
The guidance is expanded to cover dependencies and impacts as well as risks and opportunities; and
The guidance for Governance B now asks ‘how’ the organisation has assigned nature-related responsibilities to management-level positions, in addition to ‘whether’.

Strategy

Additional Content

Table: Strategy

The guidance for the Strategy pillar has been revised as follows:

Recommended disclosure	Update in v0.4
Strategy A	Expanded to provide guidance on the information organisations should provide as part of the disclosure for dependencies and impacts, as well as risks and opportunities. It has been made explicit that the dependencies and impacts listed should be linked to the priority locations identified in Strategy D. The request for information on processes for identifying risks and opportunities has been moved to Risk and Impact Management.
Strategy B	The list of areas for consideration has been removed.
Strategy C	Guidance has been broadened to discuss an increased rate of change of nature-related risks, as well as a change in the level of risks. It is now also specified that the analysis should consider the financial performance and position over the short, medium and longer term. The word ‘impact’ is replaced with ‘effects’ where not talking about impacts on nature to avoid confusion in terms. An additional recommendation has been added that the organisation disclose the resources it can put in place to adapt its strategy, if required, to address future nature-related risks and opportunities.
Strategy D	The disclosure has been changed to clarify the criteria for identifying ecosystems that should be disclosed (see Section 3.3 for more details). It now refers to locations in: High integrity ecosystems; Areas of rapid decline in ecosystem integrity; Areas of high biodiversity importance; Areas of water stress; and Areas where the organisation is likely to have significant potential dependencies and/or impacts. The guidance also requests disclosure of the definitions the organisation has used to identify the ecosystems for disclosure.

Risk and Impact Management

Additional Content

Table: Risk and Impact Management

As described above, recommended disclosures under the Risk and Impact Management pillar have been restructured from the proposed list in v0.3 as follows.

Recommended disclosure	Update in v0.4
Risk and Impact Management A	Recommended disclosure Risk and Impact Management D from v0.3, which asked for information on the organisation’s approach to locating the source of inputs, has been folded into Risk and Impact Management A. Risk and Impact Management A now has two parts: A(i) asks an organisation to disclose its process for identifying and assessing nature-related dependencies, impacts, risks and opportunities in its direct operations. A(ii) asks the same for the organisation’s value chain(s). This split allows an organisation to adopt different approaches for its direct operations and value chain. A(ii) gives organisations the option to identify a subset of elements of the value chain for assessment, with a request to disclose how those elements were determined. This split in approaches for Risk and Impact Management A is in recognition of the challenge to value chain reporting in the short to medium term due to data and analytics limitations, and because of data sharing and reporting dependencies across value chains (for example, financial institutions requiring data from corporate clients). The expectation is that the ease of value chain reporting will improve over time as data and analytics improve with new technologies and data standards and programmes to improve traceability and data integrity and availability.
Risk and Impact Management B	The guidance has been broadened to include the actions taken in light of the risk management process. The guidance includes examples of the types of information that organisations might disclose on how they have taken such actions both in their direct operations and in their interactions with the value chain.
Risk and Impact Management C	The guidance has been broadened slightly to include ‘whether’ as well as ‘how’ the processes for managing nature-related issues are integrated into an organisation’s wider risk management.
Risk and Impact Management D	What was formerly Risk and Impact Management E is now Risk and Impact Management D, with new disclosure guidance added in line with the new draft guidance on engagement with affected stakeholders (see Section 3.5).

Metrics and Targets

Additional Content

Table: Metrics and Targets

The Metrics and Targets recommended disclosures and accompanying guidance have been updated in line with the overall approach to metrics and targets in v0.4 of the beta framework.

Recommended disclosure	Update in v0.4
Metrics and Targets A	The guidance has been broadened to include indicators as well as metrics and a request that they be disclosed at the individual risk and opportunity level. The discussion in the guidance of shadow pricing has been replaced with financial quantification of risks and opportunities.
Metrics and Targets B	The guidance has been expanded to list the key categories of metrics that an organisation should disclose, covering the main types of dependencies and impacts an organisation is likely to have on nature in the priority locations from disclosures Strategy A and D. There is also a request for metrics to be disclosed against historical baselines, reference states and/or industry averages, as well as the suggestion of forward looking indices, and a request for a description of the methodology used.
Metrics and Targets C	The guidance has been expanded to reflect the additional thinking now in the additional guidance on target setting. This includes lists of the types of targets an organisation might set, as well as a request for disclosure of the methodology used to set the target, performance against the targets, and whether and how the targets align with global policy goals for nature.
Metrics and Targets D	This recommended disclosure proposed in v0.3 on climate-nature interactions has been removed and replaced with the new general requirement 5.

The disclosure framework

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, with the addition of impact management to the third pillar:

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

Within these four pillars, the intent of all 11 TCFD recommended disclosures has been retained by the TNFD, maximising consistency of approach between climate and nature reporting recommendations. The concept of Scopes for emission reporting (Scope 1, 2 and 3) has been adapted to direct, upstream, downstream and financed because the climate-related notion of Scope 2 reporting does not carry over to the nature context. Market participants indicated that the Scope 3 equivalent for nature needs to be clearly articulated;

There are two additional disclosure recommendations:

Strategy D (proposed in v0.1), covering priority locations; and
Risk and Impact Management D (previously proposed as Risk and Impact Management E in v0.3), covering stakeholder engagement; and

Risk and Impact Management A be split into two parts: A(i), covering direct operations; and A(ii) covering upstream, downstream and financed activities and assets. This approach replaces the additional recommended disclosure Risk and Impact Management D proposed in v0.3, looking at sourcing of inputs. This allows differentiated approaches to nature-related issues in direct operations and value chain(s).

The proposed additional recommended disclosure Metrics and Targets D from v0.3 on nature and climate targets alignment has been removed. However, the intent of including climate-nature target alignment has been retained by incorporating this as General Requirement 5 on integration with other sustainability issues. This reflects the need to consider connections across sustainability issues in all TNFD disclosures rather than just in one standalone disclosure; and

These changes have been made by the Taskforce to streamline the recommended disclosures as much as possible, retain the alignment to the structure and approach of the TCFD and ensure they apply clearly to the nature context.

These initial draft disclosure recommendations provide guidance for all sectors.

Additional Content

Figure 4- The TNFD’s draft recommended disclosures

General requirements

The first TNFD beta release in March 2022 included a set of general requirements cutting across the four disclosure pillars of Governance, Strategy, Risk and Impact Management, and Metrics and Targets.

The general requirements were created to help ensure expectations are aligned across report preparers and users on what adoption of the TNFD framework means. Report users can then check consistency of disclosures against the TNFD general requirements.

The general requirements have been updated in this release and now cover:

Approach to materiality: The organisation should set out its approach to materiality – aligning to external standards or regulatory requirements where appropriate – to help report users understand the context of the information being presented by the report preparer;
Scope of disclosures: The organisation should provide a description of the scope of the disclosures, both in terms of the coverage of the business and value chain, as well as which elements of the TNFD framework have been disclosed against, and plans to extend this scope in the future;
Consideration of nature-related issues: The organisation should identify nature-related risks and opportunities based on an assessment of dependencies and impacts on nature;
Location: The organisation should consider the specific locations of its interface with nature as integral to the assessment;
Integration with other sustainability issues: The organisation’s nature-related disclosures should consider, and be integrated with to the extent possible, other sustainability-related disclosures, including climate-related disclosures, with any alignment, contributions and possible trade-offs clearly identified; and
Stakeholder engagement: The organisation should take consideration of stakeholder engagement into account across its disclosures.

General requirements 1, 5 and 6 are new and additional to the original list set out in v0.1 of the beta framework in March 2022. The general requirement on consideration of capabilities for nature-related risk and opportunity assessment and management has been removed as it was not judged needed in the context of TNFD general requirements.