A framework for change

More sustainable decisions are impossible without better information about business’s impact on nature – which is precisely what the Taskforce on Nature-related Financial Disclosures set out to encourage.

At the heart of the challenge of transitioning to a low-carbon economy lies an unaddressed market failure: we have not been paying for negative externalities related to the environment. The failure to price the resources we use has undermined the long-term sustainability of the global economy and the environment. When corporations fail to bear the costs associated with their environmental impacts, they have little incentive to reduce emissions, protect biodiversity, or invest in sustainable practices.

The result has been over-consumption of natural resources, pollution, and habitat destruction, resulting in loss of biodiversity – and exacerbating climate change. The failure to internalize these costs distorts market signals, perpetuates environmental degradation, and poses significant risks to ecosystems, human health and future generations.

Yet in the years ahead, this dismal cycle could be disrupted as businesses and investors gain greater access to reliable and evidence-based information through the development of corporate reporting on nature. The framework developed by the Taskforce on Nature-related Financial Disclosures (TNFD) will be central to that effort. 

Nature in crisis

The global situation is dire. Just look at global wildlife populations: according to the World Wide Fund for Nature (WWF), they have plummeted by 69% since 1970. The rich biodiversity that sustains our planet is in crisis, putting every species at risk – including us. 

Climate and biodiversity are inextricably linked. According to the UN, warming of 1.5 degrees Celsius will result in 4% of mammals losing half their habitat. At 2 C, 8% of mammals will lose half their habitat, and at 3 C, a shocking 41% of mammals will lose half their habitat. And this is just above ground. Below the ocean surface, things will be even worse. In the past 150 years, live coral reefs have already halved due to current warming levels. However, at 1.5 C, it is expected that 70-90% of coral reefs will have vanished; at 2 C we’ll reach a point of no return, with 99% of coral reefs expected to have vanished. If they go, over 1 million species that rely on them will disappear. 

But it’s not all bad news. Biodiversity is not just a victim of climate change, it’s also part of the solution. Biodiversity contributes significantly to the Earth’s capacity to sequester carbon: by protecting and enhancing biodiversity we can develop a practical and effective strategy for combating climate change. Indeed, science has identified several significant carbon sequesters beyond trees. Recent studies suggest that the oceans are the real lungs of the planet. Phytoplankton – microscopic organisms – capture enormous quantities of carbon dioxide, at a level equivalent to four Amazon forests. Closer to shore, seagrasses, salt marshes, mangroves and kelp also serve as significant carbon sinks. 

Global support to protect biodiversity was cemented in 2022, when an agreement known as the Kunming-Montreal Global Biodiversity Framework was established. It committed 196 nations to stopping and reversing nature loss by 2030 – a goal that may be operationalized by business adoption of the TNFD framework in the coming years. 

TNFD: a welcome step forward

Announced in 2020, the TNFD is a science-based and government-backed global initiative that focuses on how to address organizations’ reliance on nature. Its final recommendations, published in September 2023, offer a risk management and disclosure framework to help companies and governments understand their nature-related dependencies, impacts, risks and opportunities. It is intended to support a shift in financial flows away from nature-negative outcomes towards nature-positive outcomes. The TNFD Framework is built around the same four pillars previously developed by the Task Force on Climate-Related Financial Disclosures (TCFD), so the structure will be familiar to many.

Governance To address the lack of formal governance around nature-related issues, organizations can start by integrating these concerns into role descriptions for sustainability officers and directors. Board upskilling is crucial. Organizations should provide internal briefings, engage in dialogue with relevant teams and consult external experts to integrate nature-related issues into decision-making. They should also consider stakeholder engagement, particularly with indigenous peoples, local communities and other affected stakeholders, to understand their concerns and priorities.

Strategy Organizations should identify potentially nature-related issues in their operations and value chains using TNFD’s suggested ‘Leap’ approach. This comprises four steps: locate your interface with nature; evaluate dependencies and impacts; assess material risks and opportunities; and prepare to respond and report. Utilizing multiple datasets builds comprehensive understanding, while adjusting materiality thresholds ensures manageable analysis. Defining short-, medium-, and long-term time horizons, aligned with organizational incentives and broader policy goals like the Global Biodiversity Framework, is crucial. Lastly, organizations should assess the strategic implications of findings on their business model, value chain and financial planning.

Risk and impact management Organizations should assess their risks and manage their impact through methods including scenario analysis, identifying relevant approaches and understanding their limitations. Heat mapping, akin to climate risk assessment, can also be useful, especially for financial institutions. For scenario analysis, begin iteratively, focusing initially on specific business units or regions; use the Leap approach and the TNFD Tools Catalogue. Next, identify and adjust risk-management processes and organizational structures to address nature-related issues. This includes reviewing risk processes, organizational structures, roles, responsibilities and tools.

Metrics and targets To initiate nature-related disclosure metrics, organizations should grasp TNFD’s core and additional metrics, expanding over time to include forward-looking indicators. For effective target-setting, adopt the methods of the Science Based Targets Network (SBTN). Start by setting targets for material impact drivers relevant to organizational activities. Consider how to monitor and assess progress and potential interactions with climate-related targets. Overall, organizations must progressively integrate nature-related metrics and targets into their reporting and management practices to address biodiversity loss and nature degradation effectively.

What makes TNFD different? 

There are several sustainability reporting initiatives aiming to enhance disclosure and transparency: they include the Global Reporting Initiative (GRI), the CDP (formerly the Carbon Disclosure Project), and the International Sustainability Standards Board (ISSB) to name a few. Each have nuances that leaders need to understand before committing to a specific approach.

The GRI is broader than the TNFD. It offers a range of standards covering a wide range of ESG topics, including environmental issues, labor practices, human rights and ethics. It allows organizations to communicate their impact on critical sustainability issues to a variety of stakeholders, not just investors. 

The CDP, on the other hand, narrows the focus primarily to environmental aspects, especially carbon emissions, water security and deforestation. It provides a platform for disclosing environmental impacts, with a data-driven approach that facilitates targeted insights into specific areas of environmental concern.

Finally, the ISSB aims to streamline global sustainability reporting, developing standards focusing on material sustainability-related information necessary for investors. While the ISSB covers a broad range of sustainability issues, its approach is centered on financial materiality. The ISSB also recently assumed responsibility for monitoring the progress of companies’ climate-related disclosures, taking over from the now-disbanded TCFD. 

Where to get started?

Implementing the TNFD recommendations is no small task and will require significant resources. To help with this, the TNFD has published a quick-start guide to adoption, suggesting the following seven steps to get started. 

1 Deepen your understanding of the fundamentals of nature

To ensure effective engagement with nature-related financial disclosures, organizations must grasp fundamental concepts. This includes comprehending nature’s components, biodiversity’s significance, and nature-related dependencies, impacts, risks and opportunities. While climate-related language systems have matured, a similar framework for nature remains underdeveloped. Utilize external resources, including the TNFD itself, to facilitate learning and capacity building.

2 Make the business case for nature and gain buy-in from the board and management

To build a business case for addressing nature-related issues, consider the economic value, risk management needs, commercial opportunities, and long-term viability of your business models. Start by addressing a subset of nature-related issues already on the radar, like deforestation or pollution. Engage with the board and management to secure commitment to adopt the TNFD recommendations, ensuring sufficient and timely information provision, and empower relevant teams with internal mandates to implement them, as part of a broader nature strategy. 

3 Start with what you have, leveraging other work

Organizations can start aligning with TNFD recommendations by leveraging existing TCFD and ISSB-aligned disclosures. Many organizations are surprised to discover the amount of nature-related data that is already collected but not shared across departments – so the TNFD’s Leap approach suggests beginning with an internal scan of relevant data sources. New information may also be needed of course. Using the Leap approach, organizations can prioritize material nature-related issues, even with limited data. This approach acknowledges the varying significance of nature-related issues across sectors, biomes and regions.

4 Plan for progression over time and communicate your plans and approach

Organizations should develop a progression plan, focusing initially on specific areas like business lines or geographies before expanding. The plan should set clear goals with timelines or conditions for expansion, considering resource needs and alignment with other sustainability efforts. Communicating these plans publicly helps manage user expectations and demonstrates a commitment to increasing disclosure over time. Organizations can also leverage existing TCFD-aligned disclosures and integrate climate and nature-related disclosures for a more comprehensive approach.

5 Encourage collective progress through engagement

Organizations should recognize the interconnected nature of progress. Therefore, encouraging stakeholders to enhance their understanding and assessment of nature-related issues is crucial. This involves establishing dialogues, focusing on areas of mutual concern and promoting transparency along value chains. Financial institutions in particular can leverage public communication to inspire TNFD-aligned disclosure among clients and investees. 

6 Monitor and evaluate your adoption progress

A system for monitoring and evaluating progress is key to effective adoption. Build an internal roadmap and regularly assess adherence to the plan. Consider creating board and management dashboards to track nature-related issues, investor and regulator interests and internal progress. Providing regular progress evaluation, potentially through annual reporting, allows organizations to update their plans, communicate actions to stakeholders, and make necessary adjustments for continued alignment with TNFD guidelines.

7 Register your intention to adopt the TNFD recommendations

Formally registering your intention to adopt the TNFD recommendations signals your organization’s commitment to nature-related issues. This public declaration can enhance your company’s reputation, attract like-minded stakeholders and differentiate your business in the marketplace.

The early adopters

Adoption of the TNFD is currently voluntary – but a number of national governments, including the UK, have signaled their support and intention to consider adopting the TNFD Framework through domestic regulation. At a regional level, the EU has also integrated aspects of TNFD guidance into its regulatory reporting regime – specifically, the Corporate Sustainability Reporting Directive (CSRD), which requires in-scope entities to provide corporate disclosures in line with the European Sustainability Reporting Standards. Until mandatory TNFD reporting is incorporated into regulation, the TNFD has committed to tracking voluntary market adoption on an annual basis and will publish an annual status update report commencing in 2024.

More than 300 organizations have already signaled their intention to adopt the TNFD recommendations. These early adopters are likely to see several benefits, such as enhanced risk management and resilience, competitive advantage through sustainability leadership, and innovation and new market opportunities. One of those early adopters is the Swedish furniture chain Ikea. The company has highlighted that it views nature-related concerns as a pivotal strategic business matter, and it believes the guidance and recommendations provided by the TNFD will aid a more thorough evaluation of risks and opportunities. The company has recognized that its future is intimately connected to its current efforts to tackle these issues.

Don’t let data be the enemy of progress

One of the most important aspects of nature-related reporting is, of course, data. There are no universally agreed metrics for quantifying nature-related impacts. Could this lead to greenwashing? Some concern about this risk may be valid, yet it should not impede progress in disclosing and reporting on nature-related risks and opportunities. Transparency and accountability are essential for addressing environmental challenges effectively. By establishing clear guidelines, rigorous verification processes and independent certifications, organizations can mitigate the risk of greenwashing while advancing genuine efforts towards sustainability. For example, organizations can consider getting their nature-related targets independently certified under the framework for science-based nature targets being developed by the SBTN. 

Embracing the TNFD framework encourages responsible corporate behavior, fosters trust among stakeholders, and drives meaningful action to preserve biodiversity and mitigate environmental impacts. Rather than succumbing to fear, leaders should focus on building genuine commitment, robust reporting mechanisms, and continuous improvement to navigate the complexities of nature-related disclosures responsibly. 

Prasad Gollakota is chief content officer at xUnlocked.

For more on the TNFD, see tnfd.global