Introduction to the Framework

: Executive Summary – v0.4 of the TNFD beta framework

Society and business depend on the services nature provides. The acceleration of nature loss globally is an increasing source of risk to businesses and providers of financial capital.

Governments around the world are increasingly recognising the importance of halting and reversing this nature loss, with over 190 states committing to a set of ambitious goals and targets under the Global Biodiversity Framework (GBF) in December 2022.  Biodiversity loss is also now recognised by the world’s central banks as a source of systemic risk alongside climate change.

The TNFD is a market-led, science-based and government supported initiative to help respond to this imperative. The Taskforce is nearing the end of its two-year framework design and development phase to provide market participants with a risk management and disclosure framework to identify, assess, respond and, where appropriate, disclose their nature-related issues. The TNFD framework, including TCFD-aligned recommended disclosures, will be published in September 2023 ready for market adoption.

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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 International Sustainability Standards Board (ISSB) and with best practice standards and tools already in use by market participants today;
• Provide adaptability 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.

Like TCFD, the TNFD is developing a framework, not a standard. Recognising the need for as much consistency and alignment as possible across corporate reporting jurisdictions, the TNFD is working closely with existing standards bodies as knowledge partners. The framework draws from, and feeds into, relevant standards throughout, including those of the ISSB, the Global Reporting Initiative (GRI), the European Financial Reporting Advisory Group (EFRAG) and others.

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Where TNFD fits in the emerging reporting architecture

The TNFD fourth and final beta framework (v0.4)

This release marks the fourth (v0.4)and final draft of the framework . For the first time, market participants can view a full representation of the framework, including examples of additional guidance by sector and biome.

The iterative development of the framework is outlined in more detail later in this document with further information on past framework design considerations outlined in early beta releases (v0.1, v0.2 and v0.3) on the TNFD website .

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Figure 1: Core components of the TNFD framework

There are four conceptual building blocks at the heart of the TNFD Framework – nature-related dependencies, impacts, risks and opportunities. These are collectively referred to in the TNFD Framework as nature-related issues. The growing body of scientific research and knowledge about nature and the reslience of the ecosystems on which society and business depend is clear that evaluating dependencies and impacts on nature is essential for assessing the risks and opportunities to an organisation.

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Beyond these four building blocks, the Taskforce has worked closely with some of the world’s leading scientific and conservation organisations to ensure the TNFD’s recommendations draw on authoritative and consensus-based definitions as the foundation of a market-accessible language system for understanding nature.  A glossary of key terms and definitions provides a key foundation stone for the rest of the TNFD Framework.

Nature-related risk and opportunity assessment – the LEAP approach

In the preparatory consultations with market participants leading up to the launch of the Taskforce, a wide range of market participants called for the Taskforce to provide practical ‘how to’ guidance to support corporate reporting activities, in recognition of the low level of current understanding and internal capability in business and finance about the science of nature and its relevant to business and finance.

For that reason, the Taskforce has developed an integrated assessment process for nature-related risk and opportunity management called LEAP. This includes four phases, following an initial scoping of organisational priorities:

• Locateyour interface with nature;
• Evaluateyour dependencies and impacts;
• Assessyour risks and opportunities; and
• Prepareto respond to nature-related risks and opportunities and report.

A recognition that dependencies and impacts on nature are location-specific and present risks and opportunities to organisations anchor’s the TNFD risk assessment and disclosure aproach. All companies and financial institutions – large and small, across sectors and along value chains – need to identify and assess their nature-related issues, regardless of whether they are required to disclose those to capital providers, regulators and other stakeholders.

The LEAP approach is voluntary guidance intended to support internal, nature-related risk and opportunity assessments within corporates and financial institutions, and ultimately become embedded in the enterprise risk management and portfolio management mindset and process.  Recognising that different types of organisations will have different starting points for their nature-related identification and assessment activities, it is described as an ‘Approach’ with analytic activity components not a ‘Process’ requiring a strict step-by-step application from beginning to end.

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The TNDF’s risk and opportunity assessment approach (LEAP)

LEAP has been designed and developed with three overarching considerations in mind:

• The LEAP approach encourages users to carefully consider the scope of their assessment before commencing;
• Analysts and preparers are encouraged to consult with relevant stakeholders as they work their way through the LEAP approach; and
• LEAP is designed as an iterative process – across business locations, business lines for corporates, and across investment portfolios and asset classes for financial institutions – in line with enterprise risk management processes and reporting and disclosure cycles.

Finally, LEAP is not a mandated process to adhere to the recommended disclosures put forward by the TNFD but is designed to help organisations meet their nature-related corporate reporting activities. Not everything that is identified, assessed and evaluated using the LEAP approach is recommended by the TNFD to be disclosed.

Further details on the iterative development of LEAP, including the extensive feedback from market participants and pilot testing of the approach currently underway by over 200 organisations, is outlined later in this document.

Market participants have been clear in their feedback to the TNFD that consistency of approach, structure and language with the TCFD is essential to support early market adoption of corporate reporting for nature-related issues. Strong alignment across sustainability reporting frameworks and recommendations will also support a move to integrated sustainability disclosures over time, covering both climate and nature, as standards by the ISSB, GRI and government regulators come into effect.

With these desired outcomes in mind, he TNFD draft recommended disclosures are designed to:

• Meet the corporate reporting needs of a wide range of organisations across geographies, sectors and jurisdictions, including different approaches to materiality;
• 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.

 

To ensure close alignment with the approach, structure and language of TCFD, the TNFD has used three guiding questions in developing its recommended disclosures iteratively over the past 18 months:

• 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 sustainability disclosures?
• Which of the TCFD recommended disclosures remain relevant but need some adaptation to the nature context?
• 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?

The outcome of this approach is that the Taskforce has:

• Introduced a new general requirements component to the overall approach to disclosure and corporate reporting with 6 general requirements for use of the TNFD framework;
• Retained the four pillars of the TCFD Recommendations – Governance, Strategy, Risk Management and Metrics and Targets – with Impact Management incorporated into Risk Management;
• Carried over all 11 TCFD recommended disclosures into the TNFD recommended disclosures, providing maximum consistency of content and enabling report users to start reporting on nature-related issues alongside, or integrated with, climate-related issues.
• Adapted the approach taken to incorporate value chain impacts (Scope 3 climate reporting) to the nature context as direct operations, upstream, downstream and financed.

Developed additional guidance, building from TCFD guidance where it exists. This includes new guidance on scenario analysis to inform strategy and on key topics for nature, such as engagement with affected stakeholders.

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Figure 3: TNFD’s approach to discolsure guidance, building on TCFD’s approach

Reflecting these design and alignment decisions, the TNFD’s final draft set of recommended disclosures, aligned with the approach of TCFD, are as follows:

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Figure 4: The TNFD’s draft recommended disclosures

Further details on the adaptation and development choices made by the Taskforce in arriving at these general requirements, recommended disclosures and additional implementation guidance is outlined later in this document.

Draft disclosure metrics

Consistent with market practice with financial and climate reporting, report preparers should support their nature-related disclosure statements with qualitative and quantitative indicators and metrics. This will be most useful for report users’ decision-making where it is comparable across and within sectors.

In this final draft (v0.4) of the beta framework, the Taskforce sets out draft disclosure indicators and metrics to support this comparability. The TNFD’s approach to measurement is designed to:

• Be science-based but also practical for report preparers on an annual corporate reporting cycle;
• Recognise that nature-related issues are specific to the location, sector and biome in which they are occurring;
• Reflect that nature-related issues take place along value chain(s) and in activities financed[1] by financial institutions;
• Reflect both negative and positive impacts and both risks and opportunities to the organisation; and
• Align with global policy goals, including the Global Biodiversity Framework, while providing flexibility for the different materiality approaches of report preparers, capital providers and market regulators globally.

The guidance proposes disclosure metrics for all nature-related issues – dependencies, impacts, risks and opportunities – and an organisation’s responses to these, dividing these metrics into:

• A small set of ‘core metrics’ covering:
  • Dependencies and impacts, aligned with global policy priorities and targets, such as those in the Global Biodiversity Framework; and
  • Risks and opportunities, aligned with the TCFD and commonly used in climate reporting.

These are divided into ‘core global metrics’ that cover all sectors, and ‘core sector metrics’ which are sector-specific.

• ‘Additional metrics’ that may support an organisation’s disclosure statements and can be used flexibly based on specific considerations for the business, sector, biome and/or location.

Consistent with the recognition in climate reporting of the need to account for impacts across value chains, the Taskforce has also considered how best to reflect value chains in nature-related assessment and reporting.  Given the climate specific notion of ‘Scope 2’ reporting, the Taskforce has adapted the notion of ‘scopes’ to:

• Direct operations;
• Upstream;
• Downstream; and
• Financed activities (for financial institutions).

At the same time, the TNFD recognises that not all aspects of nature and drivers of nature change can yet be practically identified, assessed and reported by report preparers on an annual reporting cycle basis, and that the scope and quality of reporting will evolve over time with new measurement, data and analytics methods and technologies.

The Taskforce recommends that, when corporates applying the TNFD framework set targets for nature in relevant areas and measure performance against those targets (the ‘P’ phase of the LEAP approach), they set science-based targets for nature using cross sector frameworks under development such as the Science Based Targets Network (SBTN) framework. In setting targets, the Taskforce also encourages organisations to align with the TNFD disclosure metrics, the Global Biodiversity Framework’s monitoring framework and other international treaties and global policy goals.

TNFD draft guidance on target setting provides:

• A discussion of the considerations an organisation should take into account when setting targets for nature;
• Target design features that can help ensure that targets best support an organisation’s wider impact and risk management objectives; and
• Illustrative examples of targets an organisation might set that would align with TNFD metrics and the Kunming-Montreal Global Biodiversity Framework (GBF).

The Taskforce and its knowledge partner the Science Based Targets Network (SBTN) published joint guidance for corporates setting science-based targets for nature in the beta v0.3 in November 2022. This will be updated later in 2023 based on the SBTN v1 publication, due in spring 2023.

Approach to nature-relate scenarios

Like the TCFD, the TNFD recognises the utility and importance of scenario analysis to help organisations develop and test the resilience of their organisation’s strategy, given complex uncertainties. Scenario analysis allows organisations to explore the possible consequences of nature loss and climate change, the ways in which governments, markets and society might respond, and the implications of these uncertainties for the resilience of an organisation’s strategy and financial planning.

Based on feedback from market participants that the development and use of climate-related scenario has generally been challenging for most organisations, the TNFD has developed a practical and modular approach to the use of scenarios, reflecting the need for flexibility and adaptability for different kinds of organisation. This includes a set of pre-defined scenarios as a base to help get organisations started in their use of scenarios, and an accompanying set of practical tools, templates and general guidance.

Approach to stakeholder engagementThe location-specific character of nature-related issues necessarily requires consideration of the related issues affecting a wide range of stakeholders including social and human rights related considerations. To provide market participants with practical guidance on these considerations, the TNFD has consulted a wide range of stakeholders and partnered with the International Union for Conservation of Nature (IUCN) to engage with a range of representatives of Indigenous Peoples and Local Communities to leverage their knowledge and provide their voice and perspective to help design and develop this aspect of the TNFD framework. Following the publication of a Discussion Paper on ‘Societal dimensions of nature-related risk management and disclosure – Considerations for the TNFD framework’ in November 2022, the Taskforce has included in this release draft guidance on Engagement with Affected Stakeholders. The Taskforce welcomes additional feedback from market participants and other stakeholders on this draft guidance.

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Finalising the design and development of the TNFD framework and recommendations

The Taskforce welcomes further feedback from market participants and insights from pilot testing until 1 June 2023 prior to publication of the final recommendations in September 2023.

In parallel, based on this full and final draft of the core aspects of the framework, the Taskforce will also be working on the following additional elements to complete its package of recommendations for publication in September:

• Further development of additional guidance by sector and biome, including identification of core sector disclosure indicators and metrics;
• Development of case studies and use cases, including illustrative TNFD disclosure statements to help users interpret and apply the framework by learning from practical examples;
• Final refinements to the recommendations on the basis of a review of audit and assurance considerations;
• Further development of the scenarios guidance and toolkit, including for financial institutions, based on insights from further pilot testing;
• Consideration of the needs for TNFD guidance on transition plans, both for nature in net zero transition plans and transition plans to achieve nature positive goals and targets; and
• Development of guidance on linkages between climate and nature, with a focus on practical insights for developing nature-related disclosures building from existing climate disclosures based on the TCFD framework.

Details on how to engage with the TNFD during this final phase of market consultations on the design and development of the recommendations is outlined below in this document.

The Taskforce’s immediate task is to publish the first complete version (v1.0) of the TNFD framework to enable market participants to get started with the identification, assessment and, where relevant, disclosure of nature-related issues.

While the TNFD has moved quickly and effectively to develop a first (v1.0) set of recommendations and practical guidance, the Taskforce has acknowledged from the outset that he framework will need to continue to evolve over time beyond v1.0, based on market experience and further evolution in the underlying science and new technologies that will make data and analytics easier.

As we have seen with the TCFD and other standards bodies such as CDSB, GRI, the Value Reporting Foundation and others, there are a number of glidepaths possible for the TNFD in the years ahead. Once the complete TNFD recommendations are published in September 2023, the Taskforce will focus on:

1. Encouraging and scaling voluntary market adoption of the framework;
2. Working with standard-setting organisations including TNFD knowledge partners, including ISSB, GRI and others, on the translation of the TNFD’s recommendations into voluntary standards and the emerging global baseline for sustainability reporting;
3. Engaging with government policy makers and regulators following their commitment to implement nature-related corporate reporting (Target 15) in the Global Biodiversity Framework; and
4. Ongoing technical development of additional guidance to support market adoption – including additional sector and biome guidance, work on transition planning and other areas of interest to the market and policy makers.