Nature-Related Financial Disclosures: A Primer

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The global Taskforce on Nature-related Financial Disclosures (TNFD) launched this June as a complement to the Task Force on Climate-related Financial Disclosures (TCFD). Like the TCFD, the Nature-related task force is an independent international body that brings together stakeholders to address the fact that risk to the environment also represents a global financial risk.

What is the goal of the taskforce?

The taskforce seeks to develop a framework for organisations to use as they report and act on evolving nature-related risks and opportunities. The idea is to help shift global finance “away from nature-negative outcomes and towards nature-positive outcomes.”

Who is behind it?

The task force is led by David Craig, CEO of Refinitiv and Group Leader of Data & Analytics Division at London Stock Exchange Group (LSEG), and Elizabeth Maruma Mrema, Executive Secretary of the United Nations Convention on Biological Diversity (CBD). It has about 30 members from 24 countries, with representatives from governments, NGOs, corporations, financial institutions, consortiums, multilaterals, and regulators.  

Why is it necessary?

The taskforce is the first step toward recognizing that humans depend on nature for our economic wellbeing as much as our physical wellbeing. Approximately $44 trillion USD, or more than half of the globe’s economic value, depends moderately or extensively on nature. Any risk to nature highlights the fact that corporate financial stability is intrinsically tied to the stability of nature. 

What are its guiding principles?

The taskforce will be guided by the following principles:

  • Market usability: It will create frameworks that are useful and valuable to market reporters and users, especially corporations and financial institutions, and policy-makers.
  • Science-based: It will incorporate established and emerging scientific evidence and other science-based initiatives.
  • Nature-related risks: It will address immediate, material financial risks to nature, organizations, and societies, as well as nature dependencies and impacts.
  • Purpose-driven: It will purposefully reduce risks and increase nature-positive action.
  • Integrated & Adaptive: It will build measurement and reporting frameworks to integrate with existing disclosures and standards, and adapt to changes in national and international policy commitments, standards and market conditions.
  • Climate-Nature Nexus: It will use an integrated approach to climate- and nature-related risks, supporting finance for nature-based solutions.
  • Globally Inclusive: It will make sure its framework is globally relevant, equitable, valuable, accessible, and affordable worldwide.

What does it mean for companies?

The taskforce estimates that making nature-positive transitions “could generate up to US$10.1 trillion in annual business value and create 395 million jobs by 2030.” 

This means a tremendous opportunity for organizations that are seeking to make, and document, a positive impact on nature.

Where is it applicable?

The taskforce is global, and its findings can be applied anywhere in the world. It was endorsed by G7 finance ministers at their most recent meeting in June.

When will it take effect?

The framework will be established in the coming year, honed in 2022, and launched in 2023.

How can companies begin to adapt before they are required to comply?

While compliance isn’t required, the taskforce points to a growing trend in corporate reporting, which consumers and other businesses will increasingly demand. Early adoption of nature-related reporting practices, following the taskforce’s recommendations as they emerge, will help organizations gain a leading advantage. 

What does it mean for companies?

As co-chair Elizabeth Mrema said,“The G7 endorsement should be recognized as vital and a clear signal to global business and governments of the need for urgent action to halt nature loss. Nature is declining at rates unseen in human history, which poses unprecedented risks for corporate and financial institutions, so now is the time for decisive action that can secure a sustainable future.”

Is this the same thing as ESG?

The TNFD recommendations will help document one aspect of companies’ environmental impact, which supports the Environmental, Social, and Governance (ESG) reporting that many organizations are now implementing. Recommendations from the taskforce can help companies build out their ESG reporting metrics, to give stakeholders and investors a clear picture of organizations’ environmental impact. That, in turn, lets companies explain how they create value while maintaining values that many investors prioritize. As the Underwriters Laboratory explains, “Clearly communicating how your firm’s purpose is aligned to your ESG reporting is crucial.”  

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