Navigating The TNFD Framework: Your Guide to Nature-Focused Risk Management

Launched in 2021, the Taskforce on Nature-related Financial Disclosures (TNFD) aims to provide guidance and recommend metrics, targets, and disclosure requirements to support financial institutions and companies in assessing and reporting on their dependencies and impacts on nature, similar to how TCFD does for climate-related risks.

The TNFD is made up of 40 different Taskforce members, each representing a major financial institution, corporation, or market service provider. With this robust participation from key global industry players, TNFD seeks to harness the power of transparency by making nature-related risks visible and manageable. This includes risks related to biodiversity, land use, freshwater availability, and water quality. By recommending a clear framework, TNFD can redirect global financial flows towards nature-positive impacts.

Guiding Principles for TNFD: Transforming Nature Disclosure.

TNFD intends to empower organizations to analyze and respond to nature-related risks more effectively and improve data availability. But how will TNFD accomplish this goal?

TNFD’s framework development is guided by seven key principles to ensure usability, rigor, and inclusivity.

• Market Usability: The TNFD framework aims to provide clear, actionable disclosure standards optimized for integration into business and investment decisions. The goal is to make nature-related data seamlessly usable by financial institutions, companies, and other market participants to improve risk management.

• Science-Based Rigor: TNFD follows a rigorous scientific approach grounded in established and emerging environmental research. The framework will incorporate data and indicators endorsed by science to ensure robust disclosures. This builds confidence in the accuracy of reported information.

• Nature-Related Risks: The framework takes a comprehensive view of nature-related risks spanning financial risks like stranded assets, operational dependencies such as resource needs, value chain impacts on ecosystems, and societal risks, including community relations.

• Purpose Driven: TNFD explicitly aims to spur transparent disclosure that reduces nature-related risks and catalyzes positive action. This prevents net harm and delivers net gains for nature through improved business stewardship.

• Integrated and Adaptive: The TNFD standards strive for interoperability with existing disclosure regimes while enabling flexible localization across regions. This integration empowers straightforward adoption while the adaptive approach ensures relevance.

• Climate-Nature Nexus: TNFD recognizes the deep scientific links between climate and nature. The framework takes an integrated approach to risks and solutions, scaling up sustainable finance.

• Global Inclusiveness: The TNFD pursues extensive international consultation to ensure applicability worldwide, regardless of nation or ecosystem. This inclusion delivers universally accessible disclosure standards.

By adhering to these principles, TNFD can create accessible, robust disclosure standards that lead organizations to fully account for nature in their values and valuations. The targeted framework signals a major step toward driving investments for nature-positive futures.

Bridging the Gap Between Nature and Finance: Inside TNFD’s ESG Disclosure Framework.

The TNFD introduces four pillars—governance, strategy, risk management, and metrics and targets—building off the effective model established by TCFD for climate reporting. These pillars are tailored to evaluate nature-related risks, comprised of 14 core global indicators for disclosure across sectors. Additional metrics are also suggested for organizations to report based on relevance.

Climate change and biodiversity loss are deeply interconnected, as deforestation and declining ecosystems exacerbate greenhouse gas emissions. Thus, climate solutions require integrated nature-based approaches.

Where TCFD drove climate financial transparency, TNFD offers an equivalent disclosure framework tailored to nature dependencies, impacts, and financial risks.  Overall, TNFD builds on TCFD’s pillars while crafting tailored indicators to illuminate nature’s immense value, which empowers investors and companies to manage risks and allocate capital towards nature-positive outcomes.

Categorizing Risks to Build Resilience

Mirroring the Task Force on Climate-related Financial Disclosure’s approach, the Taskforce on Nature-related Financial Disclosures classifies risks into three primary categories:

1. Physical risks refer to an organization’s dependencies and impacts on nature through its operations and supply chain. The risks include biodiversity loss, deforestation, resource scarcity, and other direct ecological damage.
2. Transitional risks arise from societal and regulatory efforts to halt and reverse environmental degradation. As standards, policies, and social norms shift to protect nature, companies may face reputational, legal, and financial risks during the transition.
3. Systemic risks emerge from the breakdown of entire ecosystems and economic systems due to cascading physical and transitional failures. Systemic collapse can occur when multiple environmental and economic shocks converge and amplify.

This risk segmentation provides a structured framework for organizations to evaluate the direct, indirect, and cumulative nature-related risks arising across operational, regulatory, reputational, and market dimensions. Identifying exposures across risk types is vital for informed mitigation and disclosure.

Nature-related Risk and Opportunity Assessment– LEAP.

A key distinction of the TNFD framework is in its strategic approach in assessing nature-related impacts. TNFD provides the LEAP methodology as a voluntary tool to systematically evaluate business dependencies on nature.

L: Locate your interface with nature.

E: Evaluate dependencies and impacts.

A: Assess risks and opportunities.

P: Prepare to respond and report.

LEAP guides users to methodically examine their business model, supply chain, and customer use phases to identify all touchpoints where operations interact with or depend on nature. Common examples are raw material sourcing leading to deforestation or product use, driving further ecological degradation.

By mapping upstream and downstream nature dependencies, organizations can pinpoint where their activities directly or indirectly impact natural systems. This includes tracing impacts from raw material extraction through production, distribution, use, and disposal. LEAP enables a holistic perspective on the myriad ways business models depend on and affect nature.

Equipped with this understanding, organizations can then assess the resulting risks, quantify impacts through metrics, and prepare mitigation strategies and disclosures. LEAP delivers a vital framework for organizations to trace complex nature interlinkages and dependencies as a precursor to risk evaluation and disclosure.

Data and Reporting Challenges.

Assessing nature-related risks is inherently more complex than climate foot-printing. For example, greenhouse gas emissions provide a globally consistent metric independent of where emissions occur. In contrast, nature dependencies and impacts are localized and habitat-specific, requiring rigorous on-the-ground assessments.

TNFD offers an overarching voluntary framework for consistent nature disclosures, but measurement methodologies must account for geographic variations. Locations with different ecologies necessitate tailored data collection and metrics aligned to habitat types, species, and ecosystem services present. Similar companies may have varied dependencies if sourcing from different geographies This demands specialized local skills like ecologists to quantify impacts accurately.

While TNFD offers tools for assessment, compatibility issues persist. Still, frameworks create a starting point. Organizations should leverage guidance to collect quality data within locale-specific limitations. Baseline assessments enable continuous improvement in quantifying and disclosing nature-related risks over time.

For now, reporters should leverage TNFD resources to navigate data uncertainties. Despite difficulties, enhanced transparency on nature dependencies enables better risk management and stewardship. “What gets measured gets managed” applies equally to climate and ecological impacts.

Organizations can prepare for TNFD adoption through several steps:

First, businesses should conduct an impact assessment to map dependencies on nature across the value chain, from raw materials through production, distribution, use, and disposal. Tracing engagement points with natural systems facilitates understanding risks.

Next, they should focus on quantifying impacts and prioritizing the most material risks and metrics. Robust measurement provides the baseline data to prepare disclosures. It also spotlights risks requiring mitigation or offsetting.

The TNFD Adoption Roadmap.

Looking ahead, integrating TNFD into the International Sustainability Standards Board (ISSB) would further accelerate adoption. ISSB has provided interim guidance on TNFD disclosures to map them into IFRS S1, but a long-term dedicated nature-focused standard is needed.

Additionally, linking TNFD to the science-based targets has enabled science-backed goal setting for nature, similar to net zero targets for climate. Companies can establish credible, rigorous targets to reduce nature impacts with validation.

Mainstreaming TNFD also relies on financial regulators mandating its use. Momentum is building, as evident from the support of the Financial Conduct Authority (FCA). Within years, financial disclosures on nature-related risks and opportunities may become a legal expectation.

Though still voluntary, TNFD uptake is poised to rapidly scale up through harmonization with leading reporting frameworks, science-based target setting, and policymaker endorsements. This emerging alignment of initiatives signals TNFD’s vital role in steering finance and business towards regenerative, nature-positive futures.