Introduction to the Framework

: Executive Summary – v0.3 of the TNFD beta framework

The Taskforce on Nature-related Financial Disclosures (TNFD) was established in 2021 in response to the growing 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 and opportunities, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.

To achieve these outcomes, the Taskforce resolved at its first meeting in October 2021 that the TNFD risk management and disclosure framework should be applicable to, and used by, business and financial institutions of different sizes, across sectors and jurisdictions, irrespective of their preferred or required approach to materiality. Halting and reversing nature loss, achieving nature-positive outcomes and mitigating and managing nature-related risks will only be possible if large and small businesses across supply chains and financial institutions of all types are collectively identifying, assessing, managing and disclosing nature-related dependencies, impacts, risks and opportunities.

The Taskforce is now half-way through its two-year design and development phase building the TNFD framework. The TNFD’s complete recommendations (v1.0) will be published in September 2023. As it continues to develop the framework with the support and input of a wide range of knowledge partners and stakeholders, the Taskforce aims to:

• Help drive alignment with the emerging global reporting baseline under development by the ISSB and with best practice standards and tools already in use by market participants today;
• Provide adaptability and flexibility regarding the 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;
• Encourage early action by companies and financial institutions to begin reporting nature-related dependencies, impacts, risks and opportunities, given the urgent need to address both nature loss and climate change in an integrated way; and
• Provide a structured path to increase disclosure ambition over time, recognising that the incorporation of nature-related issues is new to many organisations, but a rapidly growing strategic imperative for sound governance, strategy, risk management and capital allocation.

TNFD has adopted an open innovation approach, centered around the release of several ‘beta’ or draft versions of the framework for feedback and pilot testing with market participants, experts and other stakeholders to bring insights and learnings as it develops the framework. (For more details on the TNFD’s consultation and engagement efforts, see end of summary)

Following the release of v0.1 of the beta framework in March 2022, v0.2 in June 2022 and this v0.3 in November 2022, the Taskforce will release v0.4 of the beta framework in March 2023, before the launch of the TNFD framework v1.0 for market adoption in September 2023.

In March 2023, the TNFD will conclude its open innovation process with a 60-day formal consultation where organisations can submit responses to a full draft of the beta framework (v0.4). The Taskforce will consider all feedback received to inform its complete framework for publication in September 2023. Comment letters received in this formal consultation will be published on the TNFD website, following the approach of international standards organisations.

Version 0.3 of the TNFD beta framework incorporates a number of important modifications and additions from v0.2 released in June 2022. These modifications and additions are based on the ongoing research and design of Taskforce Working Groups and feedback on v0.2 from market participants and other stakeholders.

The TNFD framework’s core components remain unchanged and consistent with v0.2 of the beta framework, illustrated in the figure below. The Taskforce expects it to remain unchanged in future update releases.

Figure: The TNFD framework core components

ExpandFigure: The TNFD framework core components

Figure: Updates to the TNFD beta framework in v0.3

ExpandFigure: Updates to the TNFD beta framework in v0.3

As outlined in earlier versions of the beta framework, the Taskforce’s approach to the design and development of the framework was to start by building on the disclosure approach and guidance already developed by the TCFD. Market participants have been clear in their feedback to the TNFD that consistency of approach and language is essential to support early market adoption of a risk management and disclosure framework for nature-related risks and to help move to integrated sustainability disclosures over time that cover both climate and nature.

As explained in v0.1 and v0.2, the Taskforce has therefore worked ‘outwards’ from the TCFD guidance in its structured, sequential design and development of the framework, with three guiding questions:

1. Which of the TCFD recommended disclosures apply well to the nature context and can carry over with minimal, if any, change in approach and language to maximise consistency and support integrated disclosures?
2. Which of the TCFD recommended disclosures remain relevant but need some adaptation to the nature context?
3. What additional disclosures might be warranted and should be considered by the TNFD, given the particular characteristics of nature-related dependencies, impacts, risks and opportunities?

Having identified those TCFD disclosures that need further adaptation, the TNFD provided initial guidance on some of this adaptation in v0.2 and is now providing new guidance on other aspects of this adaptation in v0.3:

• A proposed adaptation of the TCFD Metrics & Targets B recommended disclosure to incorporate disclosure on dependencies and impacts on nature, replacing the TCFD’s focus on the equivalent ‘impact on climate’ disclosure (i.e. greenhouse gas emissions-related disclosure).
• A proposed addition of ‘nature-related dependencies and impacts’ alongside ‘risks and opportunities’ in a number of the other draft disclosure recommendations for coherence and consistency.
• A proposed adaptation of the title of the ‘Risk Management’ pillar to include impact, i.e. ‘Risk and Impact Management’.
• Three new proposed disclosure recommendations the Taskforce believes are important given the specific characteristics of nature-related dependencies, impacts, risks and opportunities on: (i) traceability, (ii) the quality of stakeholder, including rights-holder, engagement; and (iii) the alignment of climate and nature targets, given the growing importance of integrated transition planning to achieve both net zero and nature positive goals in tandem. Crucially, the Taskforce believes these proposed additional disclosures are additive to those in the TCFD guidance, with a view to encouraging further movement towards integrated (TCFD+TNFD) sustainability disclosures by market participants as soon as possible.

Figure: The TNFD’s revised draft disclosure recommendations

ExpandFigure: The TNFD’s revised draft disclosure recommendations

For v0.4 of the beta framework, the TNFD will develop two ‘Annexes’ on Disclosure Metrics for implementation of two disclosure recommendations:

• Metrics and Targets A (Annex 1 – relating to metrics for nature-related risks and opportunities); and
• Metrics Targets B (Annex 2 – relating to metrics for impacts and dependencies on nature).

The Taskforce proposes to centre Annex 2 on metrics for impact drivers, organised by:

• the five drivers of nature change, adapted to reflect drivers of both positive and negative impacts on nature: land/ocean/freshwater use change; climate change; resource use / replenishment; pollution / pollution removal; invasive alien species introduction / removal; and
• the four realms (ocean, freshwater, land and atmosphere).

As part of v0.3 of the beta framework, the Taskforce has also published draft additional disclosure guidance for financial institutions  and an illustrative set of assessment and disclosure metrics for financial institutions, which includes examples with links for further information.

Approach to materiality

As the developer of a framework for practical application by market participants, the Taskforce is guided by a core design principle 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.

The modifications and additions included in this v0.3 update of the beta framework, including the new draft disclosures on dependencies and impacts on nature, are consistent with that principle. Together with the previously released draft disclosures on risks and opportunities, v0.3 of the TNFD beta framework now provides a full spectrum of recommended disclosures to support the reporting preferences and compliance requirements of report users everywhere.

To facilitate the applicability and uptake of the TNFD disclosure recommendations when released for market adoption in September 2023, the Taskforce is working on a mechanism to encourage the adaptable application of the TNFD disclosure recommendations. This will enable market participants to start disclosing as soon as v1.0 of the framework is released, and increase their disclosure ambition over time. This adaptable approach to adoption of recommended disclosures will likely distinguish between ‘core’ disclosures that constitute a baseline of TNFD adoption and additional disclosure recommendations that represent ‘enhanced’ disclosure.

Together, the combination of a full spectrum of disclosure recommendations and an adaptable application approach is designed to ensure that the framework is relevant and usable to corporates and financial institutions everywhere, accommodate different preferred or required approaches to materiality, and encourage increasing ambition in disclosure over time.

‘To do this, the Taskforce is exploring an adaptable approach to the application of the framework that could be subject to independent audit. This will likely centre around distinguishing between:

1. use of a ‘core’ set of TNFD disclosure requirements that constitute a baseline of TNFD adoption; and
2. use of additional disclosure recommendations that would represent ‘enhanced’ disclosure, depending on the type and size of the disclosing organisation.

Based on market feedback and ongoing pilot testing of the LEAP approach, v0.3 of the beta framework sets out a streamlined LEAP approach, with the ultimate objective that corporates and financial institutions will be able to incorporate LEAP into their existing enterprise or portfolio risk management systems. Over 130 institutions are already pilot testing the beta framework, including the LEAP approach, and 46 pilots have already provided the TNFD with feedback based on their experience.

Based on this feedback, the updated LEAP approach in this v0.3 release has four major revisions:

• Scoping the assessment: Guidance on scoping the assessment, with scoping questions for corporates to reflect the importance of scoping before starting analysis using the LEAP phases. This has now been made clearer for corporates, alongside the previously released scoping guidance for financial institutions (referred to in v0.2 as LEAP-FI);
• Evaluate phase: New guidance on impact mitigation and positive impacts, anchored in an adaptation of the IPBES five drivers of change to enable organisations to identify, assess and manage both negative and positive impacts on nature.
• Assess phase:
  • Consolidation of the five components of the Assess phase into four components by incorporating opportunities alongside risks throughout the LEAP Assess phase and eliminating the previous stand-alone opportunities identification component of LEAP ‘A5’.
  • New draft guidance on the Assess phase of LEAP for assessment of nature-related risks and opportunities;
• Updated characterisation of stakeholder engagement: To reflect the engagement approach and requirements that may be required with rights-holders, as distinct from other types of stakeholders, the language has been updated to ‘stakeholder, including rights-holder engagement’ (this will be further detailed in additional guidance in the v0.4 release in March 2023).

In addition, the Taskforce has published:

• a hypothetical case study in the aquaculture sector that covers all phases of LEAP.
• a new Tools Catalogue providing an overview of tools that organisations can use to apply each phase of the LEAP approach is also now available via the online TNFD framework platform.
• a risk and opportunity registry for use by organisations in the Assess phase of LEAP.

Figure: The TNFD’s revised risk and opportunity assessment approach (LEAP)

ExpandFigure: The TNFD’s revised risk and opportunity assessment approach (LEAP)

Metrics

In this v0.3 of the beta framework, the Taskforce sets out an approach to measurement required for the Assess phase of LEAP (risks and opportunity assessment) and provides illustrative examples of metrics for all categories of nature-related risks and opportunities.

The measurement approach introduces two types of assessment metrics:

1. Exposure metrics, based on nature-related dependencies and impacts identified in the Evaluate phase of LEAP (Evaluate priority dependencies and impacts); and
2. Magnitude metrics, which can be used to assess the financial implications to the organisation of nature-related risks and opportunities. Magnitude metrics should be used as part of the criteria to prioritise nature-related risks and opportunities. This will frame their strategy, risk management, capital allocation and disclosure decisions in the final Prepare phase of LEAP (Prepare to respond and report).

Targets

Building on initial considerations set out in v0.2 and consistent with the Taskforce’s commitment to build on and incorporate best practice methods and frameworks already widely used or under development, v0.3 includes guidance on target-setting based on methods under development by the Science-Based Targets Network (SBTN).

Developed with the SBTN, the ‘Additional draft guidance for corporates on science-based targets for nature’  incorporates the five-step approach to setting science-based targets for nature developed by the SBTN. The TNFD beta framework provides an overview of relevant SBTN guidance and signposts to SBTN documentation for further details. The TNFD’s guidance on target-setting will be updated with SBTN, as it releases further updates to their methods and guidance.

To help organisations interpret and implement the TNFD framework, the Taskforce is developing additional guidance by sector and biome. In addition to the Draft Additional Guidance for Financial Institutions released in v0.3, further additional guidance is currently under development with knowledge partners and input from relevant industry experts, other scientific experts and Forum members. This additional guidance currently in development covers:

• agriculture and food;
• fishing and aquaculture;
• forestry, paper and pulp;
• mining and metals;
• energy (oil and gas, and renewable energy); and
• tropical forests and other biomes.

Additional guidance will be released by the Taskforce for comment as part of the v0.4 release and potentially earlier in tranches to give market participants time to review and provide feedback to the Taskforce.

Like the TCFD, the TNFD recognises the utility of scenario analysis to help organisations navigate a complex set of interconnected uncertainties. Scenario analysis allows organisations to explore the possible consequences of climate change and nature loss, the ways in which governments, markets and society might respond, and the implications of these uncertainties for business strategy and financial planning. Nevertheless, a survey of TNFD Forum members confirmed that most market participants have either found the application of climate-related scenario analysis very difficult or have not yet attempted to use scenarios to inform their strategy, risk management and capital allocation decisions.

Alongside v0.3 of the beta framework, the Taskforce therefore publishes a discussion paper on the TNFD’s proposed approach to scenario analysis. In this discussion paper, the TNFD has set out its proposed approach to the use of scenarios and scenario analysis to support application of the TNFD framework. Since the TNFD defines nature to include the atmosphere and therefore the climate system, and is building on existing TCFD-aligned market practice and macro-prudential use of climate scenarios, the TNFD aims to work towards an approach to scenario analysis that integrates considerations of climate and nature. The TNFD will use the approach outlined in its discussion paper as the basis for a set of pilot tests, focusing initially on use by corporates to improve decision-making. Drawing on insights from applying the proposed approach in practice in these pilot tests and feedback from market participants, the TNFD aims to develop draft scenarios guidance in v0.4 of the beta framework in February 2023 and further refine this guidance for the v1.0 framework in September 2023. As part of the next phase of work, the TNFD will develop and adapt its approach to scenario analysis for financial institutions.

Based on the enhancements and additions outlined above and feedback from market participants, the TNFD has updated and added new concepts, definitions and categories. These are all now up to date on the ‘Understanding nature for market participants’  section of the online platform for the TNFD framework and added in an updated glossary.

The TNFD will continue to develop the beta framework based on additional research and consultations by the Taskforce, including ongoing feedback from market participants and insights from pilot testing. The Taskforce aims for v0.4 of the beta framework in March 2023 to be a complete and coherent representation of the framework to allow market participants to provide feedback before the deadline and conclusion of pilot testing on 1 June 2023.

The highest priorities for the Taskforce’s work in the next phase of framework development before the v0.4 release are:

• Additional guidance on metrics and targets, specifically on the Taskforce’s proposed Disclosure Metrics, as well as additional details on Assessment Metrics;
• Additional guidance on measurement of dependencies, impacts, risks and opportunities across supply chains (the TNFD’s adaptation of the concept of ‘scopes’ from the climate reporting context);
• Further guidance on target-setting developed with the SBTN and others;
• Release of draft additional guidance for priority sectors and biomes across the four realms of nature;
• Draft guidance on scenarios, developed in collaboration with a range of knowledge partners, including the Network for Greening the Financial System (NGFS), and with the benefit of feedback from the scenarios discussion paper issued as part of this v0.3 release;
• Draft guidance on stakeholder, including rights-holder engagement, developed with the benefit of feedback on the social considerations discussion paper issued as part of this v0.3 release; and
• Publication of a set of illustrative use cases, case studies and examples of the TNFD framework, across non-financial and financial sectors, including illustrative disclosures.

The TNFD invites market participants and other stakeholders to:

• Review and provide feedback: Explore the latest version of the beta framework on the TNFD online platform and complete the feedback form.
• Pilot test the beta framework: Corporates and financial institutions that want to explore how the TNFD framework would apply in their organisational context can pilot test the framework independently and, in some cases, through collaborative industry efforts. The TNFD piloting guide, released alongside v0.2 of the beta framework, provides detailed information for organisations interested in piloting the framework.
• Participate in consultation discussions: Based on the feedback provided by market participants, the TNFD is convening focus group discussions about key emerging themes, technical areas of the framework or by geography or sector to engage further with feedback providers.

The TNFD’s open consultation period will continue until 1 June 2023. While the TNFD will accept feedback on a rolling basis, feedback for each iterative release of the beta framework will be evaluated according to the schedule outlined below. All feedback, irrespective of when it is provided, will be reviewed and evaluated before the complete recommendations are published in September 2023.