TNFD – where are we now?

In this article, we build on our previous article, “TNFD: expanding the focus from climate to nature” to explore the developments in the framework and situate these developments in the broader biodiversity context.

“The TNFD framework is evolving in a direction that is well aligned not only with emerging regulatory and standard setting approaches but also with global policy goals currently being negotiated as the Global Biodiversity Framework (GBF).” - Elizabeth Mrema, TNFD Co-Chair and Executive Secretary

In July 2022, the UN General Assembly recognised the right to a clean, healthy and sustainable environment, and reaffirmed the role of States in protecting such rights. Nevertheless, the progress of the TNFD is situated within the declining state of biodiversity and nature-related loss. The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) and the World Wildlife Fund (WWF) reports highlight the growing need for action against the current global biodiversity crisis. This October, the WWF released its “Living Planet Report 2022” confirming that:

• “Land-use change is still the most important driver of biodiversity loss” and “every year we lose roughly 10 million hectares of forests – an area about the size of Portugal.”
• “Unless we limit warming to 1.5°C, climate change is likely to become the dominant cause of biodiversity loss in the coming decades.”
• “Despite 30 years of policy interventions to stop biodiversity loss, the rates of wild species decline continues at a similar rate to previous reports.”

Biodiversity and nature has an intrinsic value to society and, like other aspects of the climate, loss of these systems has the potential to impact the financial system and livelihoods across the world. 

Comparison with TCFD

The TNFD draws upon the pillars, structure and language of the Taskforce on Climate-related Financial Disclosures (TCFD).  There are, however, key differences. While the TCFD framework is focused on climate-related risks and opportunities, the TNFD focusses on nature-related risks and opportunities, and an organisation’s dependence and impact on nature and biodiversity.  Once finalised, the two frameworks will provide companies and financial institutions a more complete picture of their environmental risks and opportunities. 

Nature-related risks: potential threats posed to an organisation linked to their and wider society’s dependencies on nature and nature impacts. These can derive from physical, transition and systemic risks.

Framework v.03 features an updated definition of nature-related risks which recognises that nature-related risks can affect other organisations, not only the organisation concerned, and that wider societal dependencies and impacts on nature are relevant. This update reflects the importance of accounting for these overlapping impacts in risk-based assessments. 

Similarities with the TCFD

• Includes the same four pillars of recommendations: Governance; Strategy; Risk Management; Metrics and Targets.
• Similar process to implementation, including approach to consultations and developing guidance.
• Similar language and definitions.
• Use of scenario analysis, whilst noting that the TNFD is working towards a scenario analysis that fully integrates climate and nature.
• Integration of risks into risk management.

Differences to the TCFD

• Focusses specifically on nature-related risks rather than climate.
• Captures areas not covered by the TCFD, including biodiversity and soil erosion.
• Contains further disclosure requirements.
• Voluntary and market-led (at the time being).
• Concept of double-materiality, recognising not only natures impact on an organisation, but also an organisation's impact on nature.
• The formulation of the LEAP approach, with a particular focus on location.

A work in progress

The TNFD is flexible in its approach to the adoption of recommended disclosures, with revisions intended to ensure that the framework accommodates varying approaches to materiality. As well as expanding on disclosure requirements such as in relation to supply chain traceability (of which see below), new draft guidance has also been provided which includes areas such as target setting developed with the Science Based Targets Network (SBTN). The draft Framework v.03 also updates and introduces new definitions, and further develops the approach to metrics and targets.  

Whilst most of the TNFD nature-related disclosure recommendations reflect that of the TCFD, there are a number of notable additions which organisations should be aware of: 

• Governance: none added.
• Strategy : organisations to describe its interactions with low integrity ecosystems, high importance ecosystems or areas of water stress.
• Risk & Impact Management: organisations to describe their approach to locate the sources of inputs used to create value that may generate nature-related dependencies, impacts, risks and opportunities. organisations to describe how stakeholders, including rights-holders, are engaged by the organisation in its assessment and response to nature-related dependencies, impacts, risks and opportunities.
• Metrics and Targets: organisations to describe how targets on nature and climate are aligned and contribute to each other, and any trade-offs.

These additional disclosures aim to assist organisations in understanding the robustness of their integrated transition pathways and plans and whether these are aligned to net zero and nature-positive goals. At the same time, companies should be mindful of these additional disclosure recommendations, and those that reflect the TCFD disclosure recommendations with adaptions, to ensure that they can appropriately implement them where relevant. 

The LEAP approach

Framework v.03 has made four major revisions to the LEAP approach, which highlights the importance of adequate scoping before using the LEAP approach and introduces new guidance on its use. In particular, it builds upon the five drivers of nature change identified by IPBES – land/sea use change, climate change, direct exploitation, pollution, and invasive alien species – to reflect that impact drivers have positive and negative impacts. 

Implications for business

Businesses are still grappling with TCFD reporting so another reporting initiative on the horizon may receive a mixed response. However the direction of travel is clear and it will be important to ensure that the finalised proposals and guidance are workable in practice. This is a particular challenge for TNFD given the complexity that nature-based assessments are reporting present.

“Our objective is to provide the TNFD framework as a powerful tool that helps move business and finance to take action on nature-related dependencies, impacts, risks and opportunities, sooner rather than later. This framework will encourage increasing disclosure ambition over time, essential to aligning financial flows and business activities to the task of urgently halting and reversing nature loss; and ensuring that both business and finance become more resilient in the face of the increasing frequency and magnitude of nature-related risks that are clearly apparent today.” - David Craig, Co-Chair of the Taskforce

What Next?

It is expected that a new beta framework will be released in March 2023, with the full framework following in September 2023.

Building on aspects of the Global Biodiversity Framework being discussed at COP15 – the TNFD has confirmed that it will look to COP15 to inform targets and transition plans – and will include: 

• additional modifications to the draft disclosure recommendations;
• the proposed approach to disclosure metrics; and
• draft guidance on scenarios and on priority sectors and biomes.

Alongside Framework v.03, the TNFD has released two discussion papers – on scenario analysis and societal dimensions of nature-related risk management and disclosure – and invites feedback from market participants and stakeholders. 

The TNFD is currently intended to be a market-led and voluntary program. There have, however, been calls from the head of the UN Convention on Biological Diversity to make reporting in line with TNFD mandatory. It appears inevitable that TNFD reporting will, in the future, move to a stronger legal footing, as has been the case with respect to the TCFD framework. 

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