The Taskforce on Nature-related Financial Disclosures (TNFD) recommendations announced


By Fiona Donnelly, Director of Sustainability, ICAS
25 September 2023

And so we have it, the third significant new set of sustainability disclosures this year. Quite the hat trick!

But these ones really are different, comprising a lot more than disclosures. And we are really pleased to see them launched.
After years of development and testing including by some of the world’s largest conglomerates, the Taskforce on Nature-related

Financial Disclosures’ (TNFD) final recommendations for nature-related risk management and disclosures were released on 18 September 2023.

These disclosure recommendations are voluntary and have a huge degree of familiarity about them as they closely resemble – and in fact mostly directly map to – its climate counterpart: The Taskforce for Climate-related Financial Disclosures (TCFD). In short, they involve governance, strategy, risk management, and metrics and targets… and a few more impact measurements.

So this makes very good sense for the governance of nature in the boardroom, whereby this approach and model will be familiar to many organisations.

And this is where the other part of TNFD also comes into play, the LEAP approach.

We’ve known for years through the World Economic Forum’s annual Global Risks Perception Survey, among other sources, that various ‘environmental’ risks – including biodiversity loss, natural disasters, natural resource crises, ecosystem collapse – rank among the top risks in the world for the immediate and medium term future. Boards should be ensuring that risk registers are up to date and reflect the latest understanding of the risks and opportunities posed by nature, not least because they are so inextricably linked to climate (being another topic we are learning much more about and need to urgently address).

While in theory and at a macro level you can understand how the planet and humans depend on natural systems like water, soil, pollination, crops… it’s trickier to analyse where such natural assets (or biomes) and ecosystems affect a business.

Enter LEAP.

Another part and probably what will be the most immediately useful element of the TNFD is the LEAP approach, being the approach for scoping the assessment starting with three steps to undertake stakeholder engagement:

L – LOCATE concerns considering where assets and operations are and which biomes and ecosystems do these activities interface with.

E – EVALUATE involves a review of business processes and activities at each priority location and a determination of dependencies on and impacts to assets and ecosystems, in terms of size and scale.

A – ASSESS requires analysis of material risks and opportunities, including existing and additional risk mitigation and management approaches. An output of this step will be a determination of what is considered material.

P – PREPARE concerns responding and reporting. On the former consideration of strategy and performance measurement, and the latter disclosure including what would be disclosed in line with the TNFD disclosure recommendations.

Thankfully TNFD is not totally new. Not only is it consistent with TCFD, but also with the ISSB’s IFRS Standards and meets the material information needs of stakeholders focused on impacts as it is aligned with a broader materiality approach consistent with the Global Reporting Initiative (GRI) Standards.

At ICAS, we are very pleased that TNFD affords great interoperability with the other frameworks and standards. This is a quality that we believe to be vital, given the various ongoing developments in reporting and how the reporting landscape could become very onerous and confusing for both preparers and users. We also fully support the TNFD incorporating impact reporting as well as reporting per financial materiality – we believe reporting in such a rounded way ensures more investors and other stakeholders are better served.

Furthermore, TNFD is aligned with other key existing initiatives like the global policy goals and targets in the Kunming-Montreal Global Biodiversity Framework – including Target 15 on corporate reporting of nature-related risks, dependencies and impacts – and leverages the best available global science on biodiversity, ecosystem and climate change.

How the TNFD is adopted alongside existing and new considerations will be interesting, and only time will tell. As with all these changes, the real measure of their success will be the impact that they support in the real world by facilitating our shifting global financial flows away from nature-negative outcomes and towards nature-positive outcomes.

With nature declining faster than at any time in human history we must no longer consider managing its integrity as a nice to do, but as a core strategic risk management issue. The TNFD recommendations and supporting material provides a ready means for boards and others to better consider nature-related dimensions in a business, and we warmly encourage enterprises to do so.