What are the TNFD Recommendations?
The TNFD framework: An introduction
On 19th September, the Taskforce on Nature-related Financial Disclosures released its final recommendations for businesses in what UNEP FI describes as a “historic moment to encourage and support action on nature.” The recommendations aim to provide a global framework for organisations to report on nature-related risks and opportunities in a standardised manner and ultimately support a shift in global financial flows into positive action.
By using this framework, organisations can understand and assess their dependencies and impacts on nature, including the use of natural resources, greenhouse gas emissions, and biodiversity, and identify and disclose their nature-related risks. These disclosures can then be used by stakeholders, such as investors, customers, and regulators, to make informed decisions. The TNFD framework is designed to promote transparency and accountability in organisations' environmental impact and contribute to more sustainable natural resource management.
Understanding Nature-related Disclosures: TCFD and ISSB
Before understanding the details of the TNFD framework, it is important to understand the frameworks and standards already in place. The TNFD reporting requirements were informed by the Taskforce on Climate-related Financial Disclosures (TCFD). The TCFD released its 11 recommendations in June 2017 and this has become the preferred climate reporting framework globally. Although there are similarities between the frameworks, the key difference is that the TCFD is focused solely on disclosure of climate-related risks and opportunities and TNFD recommendations encourage climate-nature disclosures, rather than just nature disclosures.
2023 also saw the publication of the first sustainability disclosure standards which come into effect from 2024. Developed by the International Sustainability Standards Board (ISSB) in response to calls from leading investment and business professionals, alongside the G20, FSB (Financial Stability Board), and IOSCO (International Organisation of Securities Commissions), these standards aim to improve reliability and trustworthiness in company disclosures about sustainability, helping to inform investment decisions.
The work of the ISSB builds on the TCFD in its less climate-intensive focus and broader consideration of other ESG factors. The key difference between the term “standards” and “framework” captures effectively the differentiation between the TCFD and ISSB. The terminology “standards” highlights that the ISSB provides more comprehensive requirements and principles, as well as encapsulating what should and shouldn’t be reported.
The TNFD recommendations complement the work of both the TCFD framework and ISSB standards. According to Co-chair of the TNFD David Craig, the new TNFD framework builds on the "language, structure and approach of the TCFD and [is] consistent with the ISSB's sustainability reporting baseline. [T]he adoption of the TNFD Recommendations represent a step-change in the momentum and capacity for business and finance to identify, assess and disclose their exposure to nature-related issues in a manner consistent with climate-related-reporting."
In simple terms, the TCFD framework concentrates on the disclosure of climate-related risks, while the TNFD recommendations focus not only on nature-related disclosures, but also integrated climate-related disclosures. Further, the TNFD recommendations also encourage firms to develop suitable risk management procedures.
Seven Principles and Fourteen Recommendations structured around Four Pillars
There are seven Principles which guide the TNFD recommendations and aim to help organisations consider nature-related risks in the decision-making process: market usability, science-based, nature-related risks, purpose driven, integrated and adaptive, climate-nature nexus, and globally inclusive.
The core content for disclosure, however, comprises of fourteen recommendations which are structured around four pillars: governance, strategy, risk & impact management, and metrics & targets — themes used in other draft standards in Europe and the US to enhance international operability.
These four pillars build on the climate disclosure recommendations of the TCFD framework and incorporate the approach of the ISSB’s IFRS-S1 General Requirements, which outline a set of disclosure requirements guiding companies on information on their sustainability risks and opportunities relevant to investors.
The TCFD pillars apply across all sectors.
Governance: “Disclose the organisation’s governance of nature-related dependencies, impacts, risks, and opportunities.”
The three recommendations under the first pillar focus on governance arrangements, including aspects such as board oversight and the role of management in evaluating and managing factors related to nature. Organisations should consider their culture, roles and duties, and accountability procedures, and should work with suitable metrics in order to establish a robust reporting framework which can facilitate well-informed decisions senior by management. Collaborative cross-functional teams, supported by effective training, can instil the appropriate mindset, enhance engagement with stakeholders, and foster oversight throughout the entire organisation; this includes upskilling board members to ensure that issues related to nature are an integral part of the decision-making process.
Strategy: “Disclose the effects of nature-related dependencies, impacts, risks and opportunities on the organisation’s business model, strategy and financial planning where such information is material.”
There are four recommendations listed under this pillar outlining that organisations should provide transparent information on how nature-related factors directly affect their strategic planning, business operations, and financial preparations. Organisations should also consider the effect of physical, transitional and systematic risks when formulating their strategy.
Risk and impact management: “Describe the process used by the organisation to identify, assess, prioritise and monitor nature-related dependencies, impacts, risk and opportunities.”
As part of the four recommendations structured around this pillar, organisations are encouraged to disclose how they are identifying, assessing and managing nature-related risks. This includes incorporating scenario analysis to help identify the impact of nature loss on the organisation, which should be used to inform risk processes and actions taken.
Metrics and targets: “Disclose the metrics and targets used to assess and manage material nature-related dependencies, impacts, risks and opportunities.”
There are three recommendations listed under the final pillar stating that organisations should explicitly outline the metrics uses in any nature-related disclosures. These metrics should be science-based, encompass the entire value chain, align with global policy objectives, and outline both positive and negative impacts. This pillar is one of the key differences between the TCFD and TNFD frameworks, as the metrics referred to in the TNFD framework are specific to nature-related disclosures such as biodiversity and deforestation.
What are the TNFD general requirements?
There are six general requirements listed under the TNFD framework which build on the general reporting requirements of the ISSB’S IFRS S1 and account for risks and opportunities of the short, medium and long term.
The six general requirements of the TNFD are as follows:
The application of materiality
The scope of disclosures
The location of nature-related issues
Integration with other sustainability-related disclosures
The time horizons considered
The engagement of Indigenous Peoples, Local Communities and affected stakeholders in the identification and assessment of the organisation’s nature-related issues
The LEAP approach of the TNFD
The LEAP approach is a tool designed to help organisations begin to implement the TNFD framework and includes four assessment phases:
Locate the interfaces with nature across geographies, sectors and value chains;
Evaluate dependencies and impacts on nature;
Assess nature-related risks and opportunities to your organisation; and
Prepare to respond to nature-related risks and opportunities, including reporting on material nature-related issues to the primary users of financial reports and other stakeholders, aligned with the TNFD’s recommended disclosures.
These four phases act as a ‘how-to’ guide for organisations just getting started and will ensure firms understand their nature-related impacts, interactions and risks.
The Future of Nature-related Disclosures
While the TNFD framework is currently voluntary, it would be beneficial for industry leaders to consider its implementation across their organisations. This is in case certain aspects of the framework become compulsory in the future, similarly to the TCFD, which is forms an integral part of disclosure framework for businesses in the UK.
The importance of nature-related disclosures is only set to increase in the future. As the effects of climate change become more apparent, stakeholders are demanding more transparency in how organisations impact the environment. The TNFD, with its standardised framework for nature-related disclosures, is well-positioned to meet this demand, and will play a crucial role in promoting green initiatives and sustainable natural resource management. By providing a standardised framework for nature-related disclosures, the TNFD promotes transparency, encourages sustainable practices, and facilitates the implementation of green initiatives.