Getting started on the journey towards reporting on nature issues may be easier than you think – incorporating it into climate disclosures could be the first step.
On Monday 18 September, the Taskforce on Nature-related Financial Disclosures (TNFD) published its final recommendations to enable global corporates and financial institutions to begin reporting and managing nature-related issues (see our previous article here).
With corporate reporting on nature issues set to become the business norm – driven by escalating financial risks from nature loss, evolving regulation and growing demands from investors – organisations are urged to adopt and start to apply the TNFD recommendations now.
Every journey starts with the first step
Getting started may be easier than you think. As the TNFD highlights, many organisations will already be familiar with the need to adapt risk management and reporting processes to new and evolving challenges (eg, for financial risk, modern slavery, climate change). Bringing nature into the mix can leverage existing governance structures and processes rather than starting from scratch.
Seeing TNFD as a way to incorporate nature into climate disclosures can be a good place to start. TNFD pilot studies have shown this is an effective way to identify initial priorities, such as emissions from land-use change and nature-based carbon removal solutions. Thinking about connections across climate and nature dimensions will also help to prepare for integrated climate-nature disclosures.
There’s no need to try to do everything at once. Users are encouraged to expand the depth and breadth of their TNFD disclosures over time. The LEAP framework is also for guidance only and organisations can apply it flexibly – for example, by focusing on a specific business line, geography or impact driver and then expanding the scope over time. This can be especially beneficial for large corporations with complex supply chains or finance institutions with global portfolios.
You probably have more nature-related information already than you realise. Organisations that have previously prepared TCFD disclosures will also have a head start. For example, data collected on suppliers for Scope 3 footprinting can also help to inform analysis of nature-related risks and opportunities. Existing supplier engagement and due diligence processes can be expanded to also cover nature.
As the TNFD says: “There is no single way to get started with the TNFD recommendations, as each organisation is different and will therefore have its own pathway towards adoption.” It has, however, issued guidance to help organisations get started, including key steps to consider and a range of practical considerations when working towards TNFD-aligned disclosures. Learning from the TNFD’s pilot case studies can also provide valuable insights to help with your own TNFD journey. Users can also access support and collaborative learning and capacity-building activities through the TNFD Forum and Community of Practice.
The accounting profession must play a key role
In their roles as company leaders and advisers working across the economy, accounting and finance professionals have the skill and knowledge in organisational governance, strategy, risk management and performance to help put nature at the heart of business and financial decision-making.
The profession is therefore integral to the TNFD’s mission. Chartered accountants will play a crucial role in enabling the businesses they lead and advise to adopt and implement its recommendations.
In particular, they are in a strong position to make the business case for implementing TNFD recommendations, and to perform and advise on the data collection, analysis, risk and materiality assessments, financial reporting and assurance to ensure that it happens.
The time to act is now
Nearly 70% of companies disclosing data through CDP did not assess the impact of their value chain on biodiversity in 2022. Finance is still overwhelmingly flowing towards activities that damage nature and exacerbate climate change.
The taskforce is calling for voluntary TNFD adoption across the world. The first inaugural cohort of early adopters will be announced at the 2024 World Economic Forum. Market momentum is already strong, with a number of early adopters on board, including GSK. A recent survey of TNFD Forum members indicated that nearly 80% plan to get started by 2025 or earlier. Some 240 TNFD pilots have already been completed or are under way. The CDP’s confirmation that it intends to align its platform with the TNFD also sends a strong signal to the market.
The TNFD’s success now depends on adoption and uptake by the wider business and finance community, as well as action from standards setters, regulators and the wider global community. The challenge demands collective action. The profession must seize the opportunity to put nature at the heart of the way we do business, building value and resilience and helping to secure collective future prosperity.
“By channelling our collective expertise and resources, and by leveraging our global network of members, partnerships and alliances, ICAEW can help to build the skills and capacity in the market to support TNFD adoption and implementation, while also continuing to advocate for and champion the mainstreaming of nature into accounting practices,” says Richard Spencer, Director of Sustainability, ICAEW.
Working as part of the Global Accounting Alliance, ICAEW was among 10 of the world’s leading accounting bodies that made a public statement to the accountancy profession in 2022 outlining four pledges:
- Work with governments to establish and align coherent policy frameworks that accelerate business action to reverse the process of nature loss.
- Build our members’ knowledge, understanding and awareness of nature loss.
- Provide our members with the training, support and infrastructure to value and embed nature in decision-making and disclosure.
- Support the alignment of consistent global regulation and globally accepted disclosure frameworks that integrate nature, people and climate into corporate reporting.
The TNFD’s launch is an opportunity to redouble efforts on those 2022 commitments, leveraging all of ICAEW’s tools in line with its mission for a world of sustainable economies by 2030.