In 2015, nearly every country in the world ratified the Paris Agreement, agreeing to do their part to drawdown and phase out greenhouse gas emissions. With this, a mechanism called the global stocktake (GST), often referred to as the climate “report card,” was enacted to take inventory of progress, keep nations accountable, and spur action. Ahead of the 28th United Nations Climate Change Conference (COP28), taking place in December 2023, the United Nations Framework Convention on Climate Change (UNFCCC) issued its first GST report, reflecting the grim reality of our current landscape.
Progress toward meeting long-term emissions reduction and climate change mitigation goals established by the Paris Agreement is occurring but at a significantly delayed rate and lacking the “rapid and deep” changes necessary to limit global warming to 1.5 degrees Celsius – which, if not met, would have irreversible consequences for natural resources, systems, and our overall environment that underpins local and global economies. More than half of global GDP, an estimated $44 trillion of economic value, is generated in industries that are moderately or highly dependent on nature and its four realms – land, ocean, freshwater, and atmosphere.
This macro-recognition that urgent action is needed, not only on emissions but on nature and biodiversity, is further exemplified by the recent adoption of the Kunming-Montreal Global Biodiversity Framework (GBF) by over 190 countries in December 2022, which encompasses ambitious conservation goals and advocates for risk assessments and disclosure requirements.
The growing focus on nature’s irrevocable tie to climate has led to the release of final recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD), launched on September 18 amid Climate Week in New York City. The TNFD, an international, multi-sector, market-driven initiative for corporate and financial organizations, sets recommendations and voluntary guidance to report and act on evolving nature-related dependencies, impacts, risks, and opportunities.
TNFD comprises 40 senior executives representing leading financial institutions, corporations, and service providers, with over $20 trillion in combined assets, and 19 core knowledge partners from leading science, standards, and data bodies. Since its launch in June 2021, and following four draft releases with over 3,000 responses, the TNFD has amassed support from more than 800 organizations and received a formal mandate from both the G7 and G20.
While developing its disclosure recommendations, the Taskforce created the TNFD Forum to engage with over 1,200 organizations across 180 countries, ensuring diverse views and needs were represented in the feedback process before finalizing the TNFD framework. Participating organizations represented the most at-risk and high-impact business sectors. Government institutions from the United Kingdom, France, Mexico, Brazil, Nigeria, Australia, Germany, the United States, Canada, Japan, Kenya, Denmark, Bangladesh, Peru, the Netherlands, and Guernsey also participated.
Notably, many TNFD Forum participants plan to voluntarily adopt the TNFD framework. At present, over 60 percent of the 1,200 participants have committed to disclosing in accordance with the TNFD by or before 2025. A list of these organizations is set to be released in January 2024 at the annual World Economic Forum (WEF) convening in Davos. Committed organizations will likely include global banks and corporates, leading regulators, market supervisors, and development finance institutions.
The TNFD views financial systems as part of larger ecosystems susceptible to natural disasters and the resulting loss of life and infrastructure. Thus, its recommendations describe a framework to integrate the economic impacts of nature and biodiversity into sustainability disclosures and risk management processes. Similar to the climate-focused Taskforce on Climate-related Financial Disclosures (TCFD) framework, the TNFD recommendations follow four disclosure pillars:
- Governance: Entities must disclose their governance structures, including board oversight and management's role in addressing nature-related factors. This requires consideration of culture, leadership, roles, and accountability.
- Strategy: Entities should disclose how nature-related factors affect their short-, medium-, and long-term strategies, including physical, transition, and legal aspects.
- Risk and Impact Management: Entities must disclose processes for identifying, managing, and assessing nature-related issues across operations, the value chain, and financed activities. Scenario analysis, based on science, should inform risk management, strategy, and resilience efforts, incorporating metrics for financial impact comparison.
- Metrics and Targets: Entities should state the nature-related metrics and targets they use in disclosures and supporting processes. Consideration should be given to specific biomes, sectors, locations, and circumstances, including core and additional metrics.
The TNFD departs from the TCFD by including an optional internal due diligence assessment for determining which nature-related risks businesses should focus on, called “LEAP,” which stands for Locate, Evaluate, Assess, and Prepare to support entities in their approaches.
Alignment with other frameworks
The TNFD recommendations align strategically with the other major sustainability reporting frameworks: the International Sustainability Standards Board (ISSB) S1 and S2 standards, released earlier this summer, the EU’s Corporate Sustainability Reporting Directive (CSRD), the Global Reporting Initiative (GRI), and the TCFD. These recommendations are intended to offer material flexibility and implementation guidance for corporations and financial institutions. CDP, the non-profit that runs the global environmental disclosure platform for corporations, also announced its intention to align with the TNFD.
Other jurisdictions will likely see the TNFD’s recommendations as a tool for international alignment. For example, Brazil, China, India, Mexico, and South Africa have developed a multi-year initiative called the Natural Capital Accounting and Valuation of Ecosystem Services (NCAVES) project. The project aims to account for a sustainable approach to calculating nature’s role in financial systems and develop corporate governance disclosures around it.
Next steps for business
In addition to dependency on nature, businesses' negative impacts on nature can create direct and indirect risks in the form of regulatory, legal, reputational, and market risks, among others. Given this increasing recognition, the TNFD will likely follow a path similar to the TCFD, becoming an expected part of sustainability disclosure practices. Entities may face capacity and data challenges now, but as emphasis on nature-based economic impacts increases from regulators, investors, and customers, nature-focused disclosures will likely be a growing part of the disclosure landscape.
Just last week, Nature Action 100, a global investor engagement initiative of 190 institutional investors representing $23.6 trillion in assets under management, unveiled a list of 100 companies they have begun to engage in driving greater corporate ambition and action to reverse nature and biodiversity loss.
As such, proactively adopting a voluntary international standard like the TNFD may help organizations efficiently transition to their future scope of mandatory reporting when necessary. To prepare, businesses should view the TNFD as a guide to support the evolution of their strategic and risk management approach to nature-related issues.