Introducing the TNFD framework

Introduction

The Taskforce on Nature-related Financial Disclosures (TNFD) was established in 2021 in response to the growing appreciation of the need to factor nature in financial and business decisions. The TNFD is a global, market-led initiative with the mission to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks and opportunities, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.

The TNFD framework is intended for use globally by corporates and financial institutions of all sizes. The TNFD follows in the footsteps of the work of the Taskforce on Climate-related Financial Disclosures (TCFD) on climate risk management and disclosures, but focuses on ensuring that nature-related dependencies, impacts, risks and opportunities are effectively understood and communicated by corporates to the financial community. The TNFD’s work is a part of the wider system of activities that are shaping markets and economies to be sustainable. The Taskforce is committed to ensure that its process and the TNFD framework are complementary to these wider developments.

The TNFD framework is being developed by the Taskforce, which sits at the heart of the TNFD initiative. The Taskforce is made up of 34 senior executives drawn from corporates, financial institutions and market intermediaries around the world and led by the TNFD Co-Chairs, Elizabeth Mrema and David Craig.[1] Collectively, the Taskforce Members represent institutions with over US$19.4 trillion in assets under management and a footprint in over 180 countries. A global network of 16 core knowledge partners, including leading global scientific, conservation and standards development bodies, have also contributed to the development of specific aspects of the framework.[2]

Developing the TNFD framework

The TNFD has set out to accelerate action by developing and promoting the adoption of an integrated risk management and disclosure framework. The framework will be directly usable and valuable to financial report preparers and users, build on the best metrics, data and tools already existing or under development in the market, and follow a science-based approach. To achieve this, the TNFD is adopting an open innovation approach, centered around feedback and pilot testing with market participants, and supported by expert input from a wide range of knowledge and implementation partners.

The first beta version of the TNFD framework, released in March 2022, was designed to start a dialogue with a broad cross-section of market participants about how best to assess and manage nature-related risks and opportunities in a manner that is both science-based and practical to implement.

Following this release of beta v0.2, the Taskforce will release v0.3 and v0.4 of the beta framework in November 2022 and February 2023, before the launch of the Taskforce’s final recommendations in September 2023 (see figure below). The TNFD invites market participants and other stakeholders, including policy makers, regulators, scientists, conservation organisations and local and Indigenous peoples’ organisations, to provide feedback on the beta versions of the TNFD framework through the TNFD’s interactive online platform.

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Market participants have also been clear in advocating for a nature-risk assessment framework that is consistent with the emerging global baseline for sustainability reporting. As such, the TNFD has set out to build upon the approach adopted by the TCFD and align with the emerging global baseline for sustainability standards currently under development by the International Sustainability Standards Board (ISSB).

The TNFD framework – An overview

The TNFD framework seeks to provide recommendations and guidance of relevance to a wide range of market participants, including investors and credit providers, analysts, corporate executives and boards, regulators, stock exchanges and accounting firms. It has been developed following the TNFD principles of being market usable, science-based, purpose driven, integrated and adaptive, and globally inclusive, while embracing a broad approach to nature-related risks and employing an integrated approach to sustainability risk management and reporting.

TNFD framework beta v0.1

The first beta version of the TNFD framework included three core components:

TNFD framework beta v0.2

Based on feedback from a range of market participants and other stakeholders, beta v0.2 makes several enhancements based on market feedback and three significant additions::

These additions are reflected in TNFD’s interactive online platform, which now represents beta v0.2 of the TNFD framework in its entirety (see figure below).

Alongside the updated framework itself, the Taskforce are also releasing complementary guidance and case studies:

  • Additional piloting guidance to support pilot testing that will run from July 2022 to 1 June 2023.
  • Additional draft guidance for corporates on the Evaluate Phase of the TNFD’s LEAP Approach for Dependency and Impact Analysis (E3 and E4).
  • Additional draft guidance on the Locate Phase of the TNFD’s LEAP Approach for Priority Location Identification (L2 and L3).
  • An updated case study on a hypothetical forestry company application of LEAP and related metrics and data sources. This builds on the case study included in the TNFD Data Discussion Paper, first released alongside TNFD beta v0.1.
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Who the TNFD framework is designed for

With demand for an integrated nature-related risk management and disclosure framework growing, the TNFD seeks to provide recommendations and guidance of relevance to a wide range of market participants:

  1. Investors and financial institutions: Support more informed and robust capital allocation decisions and active ownership strategies based on clarity, confidence and trust in data relating to nature-related risks.
  2. Analysts: Enable high-quality and timely analysis that incorporates nature-related risks to support the determination of potential and likely impacts on future cash flow and company valuations.
  3. Corporates: Inform better corporate strategy, governance and risk management decision making, and the incorporation of nature-related risk assessments alongside, and ideally integrated with, climate-related risk reporting in statutory reporting to markets and regulators.
  4. Regulators: Ensure recommendations and guidance align with existing disclosure mechanisms, standards and other jurisdiction-specific regulatory requirements.
  5. Stock exchanges: Support and encourage consideration of new voluntary and mandatory listing requirements linked to nature-related risks, as well as opportunities for new listed equity offerings that encourage nature-positive outcomes.
  6. Accounting firms: Enable comprehensive company assurance that incorporates nature risk and opportunity considerations, and support internal risk functions.
  7. Environmental, Social and Governance (ESG) data providers, credit rating agencies and financial service providers: Enable support to investors and financial decisionmakers with consistent and robust data and insights on how corporates manage their nature-related risks.

As we have seen in the growth of climate-related reporting, demand for disclosure from investors and others is now strong and widespread. For many investors, company disclosures on climate are considered essential to their full disclosure of material risks.

Large asset owners and asset managers also play a catalytic role, as they influence the organisations they invest in to provide nature-related financial disclosures and strengthen their management of nature-related risks and opportunities. This also applies to lenders, including development financiers. Corporates have been found to be 2.3 times more likely to disclose across climate, forests and water themes when financial institutions request them to do so.[3]

In addition, governments and regulators are considering nature-related risk management and disclosure, expanding the work they have already undertaken on climate-related risks. Eight jurisdictions, including the United Kingdom, Japan, Singapore and the European Union, have now mandated the incorporation of TCFD recommendations into their national reporting regimes.[4] The more than 100-strong network of global central banks and supervisors, the Network for Greening the Financial System (NGFS), is now exploring the impacts of nature and biodiversity loss on systemic risks to financial system stability. Many national governments, central banks, regulators and public sector organisations formally support the TNFD as members of the TNFD Forum, a global and multi-disciplinary consultative network of over 500 institutional supporters who share the vision and mission of the TNFD.[5]

‘We look forward to the establishment of the Taskforce on Nature-related Financial Disclosures and its recommendations.’ G7 Finance Ministers

‘The TNFD will play a shaping role in providing a reporting framework that will allow for consistent and comparable reporting.’ Network for Greening the Financial System, Study Group on Biodiversity and Financial Stability

‘A move to ultimately mandatory standards [for nature-related risks] is appropriate. The Taskforce on Nature-related Financial Disclosures, which is a voluntary process, could ideally provide some basis for this.’ Mark Carney, UN Special Envoy for Climate Action and Finance

Framework development principles

The TNFD framework is being developed following the TNFD principles:[6]

  • Market usability: Directly usable and valuable to market participants, notably corporates and financial institutions, as well as policy and other actors.
  • Science-based: Follow a scientifically anchored approach, incorporate well established and emerging scientific evidence, and converge towards other existing science-based initiatives.
  • Embrace nature-related risks: Embrace nature-related risks that include immediate and material financial risks, as well as nature dependencies and impacts and their related organisational and societal risks.
  • Purpose driven: Actively reducing risks and increasing nature-positive action by using the minimum required level of granularity to ensure achievement of the TNFD goal.
  • Integrated and adaptive: Can be integrated into and enhance existing disclosures and other standards. Account for and be adaptive to changes in national and international policy commitments, standards and market conditions.
  • Climate-nature nexus: Employ an integrated approach to climate- and nature-related risks, scaling up finance for nature-based solutions.
  • Globally inclusive: Ensure the framework and approach is relevant and accessible worldwide, across emerging and developed markets.
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