In key news for businesses, investors and the ESG world: the Taskforce on Nature-related Financial Disclosures (TNFD) officially launched last week.
The TNFD, first announced back in July 2020, will create a framework for businesses (including companies, banks, insurers and asset managers) to assess their "emerging nature-related risks and opportunities". It will build on and complement the existing TCFD (Task Force on Climate-related Financial Disclosures), a widely-adopted framework that encourages companies and investors to make public disclosures on climate-change financial risks. Together, the TCFD and TNFD will give financial institutions, companies and their investors a full picture of their environmental risks and opportunities.
A task force of about 30 financial institutions, companies and data providers has committed to delivering the TNFD framework by 2023. It is expected that the framework will launch in the second half of 2023, with more detailed and practical guidance to follow afterwards. The task force will be led by Elizabeth Maruma Mrema (executive secretary of the United Nations Convention on Biological Diversity) and David Craig (founder of financial-data company Refinitiv, and from 1 July senior adviser at London Stock Exchange Group).
Historically, climate-related risks have been viewed as the key "E" risk in the ESG world - but nature-related risks may be just as high, if not higher. More than half the world's economic output depends on nature - and yet overconsumption, deforestation and pollution all currently pose huge threats to biodiversity and with that, financial stability. It is clear that companies and investors need to start engaging with nature-related risks as they do with climate-related risks.
The TNFD will aim to direct investment and capital expenditure to activities that support biodiversity. Yet Mrema emphasises the complexity of this aim: “Unlike when we talk of climate change, biodiversity is deforestation, it’s water, air, food, agriculture, pollution and invasive species.” Currently, there is limited data available to measure biodiversity; and unlike with climate change and the Paris Agreement, there are no high-level government targets.
Instead of setting biodiversity targets then, the TNFD will focus on shifting global financial flows from "nature-negative" outcomes (such as the current food system - where demand for meat creates an incentive for deforestation) to "nature-positive" outcomes.
G7 finance ministers have endorsed the launch of the TNFD, ahead of the G7 Summit on 11-13 June in Cornwall. Mrema said: “The G7 endorsement should be recognized as vital and a clear signal to global business and governments of the need for urgent action to halt nature loss. Nature is declining at rates unseen in human history, which poses unprecedented risks for corporates and financial institutions, so now is the time for decisive action that can secure a sustainable future.”
More information can be found on the TNFD’s website: in particular, the Nature in Scope report, published on 4 June after months of development by an Informal Working Group, sets out more detail on how the TNFD will deliver its framework. A complementary report also sets out the proposed technical scope recommendations for the TNFD.
The group has committed to deliver, by 2023, a framework for companies “to report and act on evolving nature-related risks, to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”