Introduction to the Framework: Executive Summary – v0.1 of the TNFD beta framework
The TNFD released the first beta version of its prototype risk management and opportunity disclosure framework (v0.1) in March 2022.
The executive summary of the TNFD framework is available on this page. You can also download the executive summary as a PDF in:
Why nature-related risk and opportunity management matters
More than half of the world’s economic output – US$44 trillion of economic value generation – is highly or moderately dependent on nature. Yet most companies, investors and lenders today inadequately account for nature-related risks and opportunities in their decisions. The Taskforce on Nature-related Financial Disclosures (TNFD) was established in response to the growing appreciation of the need to factor nature into 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, with the ultimate aim to support 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.
Our approach to developing the TNFD framework
The Taskforce is developing the TNFD framework through an open innovation approach with market participants and with the benefit of the expertise provided by a global network of knowledge partners from science, standards, data, technology, finance, business, policy and regulation.
This report and accompanying online portal represent a beta version (v0.1) of the TNFD framework. It represents the beginning of the TNFD’s consultation and pilot testing with market participants. This feedback and testing approach will inform subsequent releases of beta versions through 2022 and 2023, before the Taskforce launches its final recommendations in late 2023.
The Taskforce invites feedback from market participants through the online platform. By taking this open innovation approach, the TNFD aims to ensure its final recommendations are both science-based and practical to implement by market participants globally, thereby advancing approaches to factor nature into financial and business decision making.
Additional Content
Market participants have been clear in advocating for a nature-related risk management framework that is consistent with the emerging global baseline for sustainability reporting. As such, the TNFD has set out to build upon the approach taken by the Task Force on Climate-related Financial Disclosures (TCFD) and align with the emerging global baseline for sustainability standards currently under development by the International Sustainability Standards Board (ISSB), with flexibility for those who want to disclose, or are required to disclose, to a materiality threshold additional to the global baseline.
Overview of the first beta version of the TNFD framework
The TNFD framework seeks to provide recommendations and guidance on nature-related risks and opportunities relevant to a wide range of market participants, including investors, analysts, corporate executives and boards, regulators, stock exchanges and accounting firms.
The framework is being developed following the TNFD principles to be market usable, science-based, purpose driven, integrated and adaptive, globally inclusive, and embracing a full approach to nature-related risks and employing an integrated approach to climate- and nature-related risks.
The first beta version of the TNFD framework includes three core components:
- An outline of fundamental concepts and definitions for understanding nature that the TNFD recommends market participants use when assessing and disclosing their nature-related risks and opportunities;
- TNFD’s draft disclosure recommendations for nature-related risks and opportunities; and
- Guidance for corporates and financial institutions to undertake nature-related risk and opportunity assessment and incorporate into their enterprise strategy and risk management processes to inform a range of corporate and capital allocation decisions, including those relating to reporting and disclosure.
Additional elements will be added in future beta versions of the framework (see figure below).
Additional Content
A. Fundamental concepts and definitions for understanding nature
The TNFD’s fundamental concepts and definitions for understanding nature draws on the most authoritative science- and consensus-based existing definitions. The TNFD recommends market participants use these building blocks and language system when assessing, managing and disclosing nature-related risks and opportunities.
TNFD’s definitions of nature
The TNFD defines nature as a construct of four realms – Land, Ocean, Freshwater and Atmosphere. These provide an entry point for understanding how organisations and people depend on and impact natural capital, which the TNFD defines as natural resources that combine to yield a flow of benefits to people. Just as in the financial world, where assets exist that give rise to flows of revenue, nature consists of stocks of environmental assets that give rise to associated flows of benefits to people and the economy.
The TNFD defines environmental assets as the naturally occurring living and non-living components of the Earth, for example, forests, wetlands, coral reefs and agricultural areas. Ecosystems are an important part of these assets, and the TNFD defines them as a dynamic complex of plants, animals and microorganisms, interacting with each other and their non-living environment. They support the provision of ecosystem services, which deliver benefits (the goods and services that are ultimately used by people and society) to business. Biodiversity is an essential characteristic of nature that is critical to maintaining the quality, resilience and quantity of ecosystem assets and the provision of ecosystem services that business and society rely upon.
TNFD’s definitions of dependencies and impacts
The TNFD defines dependencies as ecosystem services that an organisation relies on for their business processes to function, such as a clean and regular water supply. Organisations also have impacts on environmental assets and ecosystem services that may be positive or negative. Short-term impacts on nature can result in changes in the quality and resilience of environmental assets, which in turn create medium- and long-term risks for organisations, given their dependencies. In short, today’s nature impacts can create tomorrow’s nature-related risks and opportunities.
TNFD’s definitions of nature-related risks and opportunities
The TNFD defines nature-related risks as the potential threats posed to an organisation linked to its and other organisations’ dependencies on nature and nature impacts. These can derive from physical, transition and systemic risks. In addition to shorter-term financial risks (deemed material today), the TNFD’s definition of nature-related risks includes longer-term risks presented by nature-related dependencies and nature impacts.
This complex interplay of dependencies and impacts over multiple time periods can result in earnings and cashflow vulnerability that transmits into a broader range of financial risks, including market, credit and liquidity risks. An organisation’s actions to manage these issues – through, for example, governance, strategy and risk management – can give rise to financial opportunities. Failure to take actions to manage these issues can create risks linked to, for example, asset devaluation, supply chain resilience, reputation and license to operate, and shifting demands. These risks and opportunities for corporates translate into financial risk for financial institutions.
Nature-related opportunities, not only nature-related risks, are core to the TNFD framework. The TNFD defines nature-related opportunities as activities that create positive outcomes for organisations and nature by avoiding or reducing impact on nature or contributing to its restoration. Nature-related opportunities can occur: i) when organisations mitigate the risk of natural capital and ecosystem services loss; and ii) through strategic transformation of business models, products, services and investments that actively work to halt or reverse the loss of nature, including by implementation of nature-based solutions (or support for them through financing or insurance).
B. TNFD draft disclosure recommendations
In response to clear calls from market participants for a consistent and integrated approach to sustainability reporting, the TNFD’s draft disclosure recommendations explicitly build on those already recommended by the TCFD. They follow the TCFD’s four pillars of disclosure: governance, strategy, risk management and metrics and targets. By aligning the TNFD’s recommended disclosures closely to those of the TCFD, the TNFD intends to facilitate and encourage a move towards integrated disclosures.
The draft recommendations also include four general requirements that disclosures should be based on:
- assessment of nature-related dependencies and nature impacts;
- consideration of location;
- consideration of capabilities for nature-related risk and opportunity assessment and management; and
- a statement of the scope of disclosures and what will be covered in future disclosures.
C. A nature-related risk and opportunity assessment approach – Introducing LEAP
Based on feedback from market participants that practical guidance would be helpful to enable more organisations to incorporate nature considerations into enterprise and portfolio risk management process, the TNFD has developed a first version of an integrated nature-related risk and opportunity assessment process, called LEAP (Locate, Evaluate, Assess, Prepare).
The LEAP approach is voluntary guidance intended to support internal nature-related risk and opportunity assessments within corporates and financial institutions, which should in turn inform strategy, governance, capital allocation and risk management decisions, including disclosure decisions aligned with the TNFD’s draft disclosure recommendations.
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 report to investors.
The core audiences for this first prototype of the LEAP approach are financial report preparers and users (e.g. investors, creditors and insurers), as well as risk management and operations teams. LEAP is designed to enable a wide range of corporates – publicly listed or privately held, multinational or a small to medium size enterprise – to undertake a structured, step-wise and science-based assessment of nature-related risks and opportunities through an understanding of their nature-related dependencies and nature impacts.
Additional Content
The TNFD recognises that some organisations may already be using their own proprietary process for assessment, and may therefore not consider nature-related risks and opportunities in the exact same step-wise process outlined in LEAP. The LEAP approach is built around discrete, analytic components that the TNFD believes need to be undertaken for a robust assessment of nature-related risks and opportunities, based on an understanding of nature-related dependencies and impacts. While the LEAP approach is voluntary guidance, the TNFD believes it is critical that any similar approach used by analysts and preparers includes the same components and considerations.
The TNFD also recognises that the scope and type of analysis is different for financial institutions, depending on the type of financial institution, asset class or product type, sector, geography or investment theme, for example. The Taskforce has outlined in this first beta version of the framework a version of the LEAP approach for financial institutions that will be further developed and refined. The Taskforce welcomes feedback from financial institutions as the TNFD continues to develop LEAP for this sector.
Priority areas for further framework development
Further work is underway by the Taskforce on the following areas, which will be part of future releases. They include the links to, and complex interplay with, climate (the climate-nature nexus), scenario development, the scope of disclosures, social dimensions, defining nature-positive, data and metrics, and sector-specific guidance.
Engage – Co-create the TNFD framework
Nature-related risks and opportunities must become part of the broader risk management and valuation calculus for corporates and financial institutions. The TNFD invites market actors, policy makers, regulators, scientists and other stakeholders to test and provide feedback on this first beta version of the TNFD framework on the TNFD’s interactive online platform.