TNFD publishes early draft of framework for biodiversity disclosures

What is the TNFD?

Many of us are now familiar with the Task Force on Climate-Related Financial Disclosures ("TCFD") and the disclosure obligations it has developed in relation to climate risks.

Perhaps less familiar is the Taskforce on Nature-related Financial Disclosures ("TNFD"). The TNFD is a global initiative to create a risk management and disclosure framework for organisations to use in reporting on nature-related risks. It has recently published the first draft of this proposed framework, which is due to be launched in final form in 2023 and will be relevant to corporates and financial institutions worldwide.

What is the aim of the TNFD framework?

More than half of the world's economic output is either moderately or highly dependent on nature, so nature/biodiversity loss is a significant risk to corporate and financial stability. However, the TNFD believes that companies, investors and lenders do not currently adequately consider the risk of nature loss, and associated opportunities, in their financial decision making.

The TNFD framework aims to ensure that nature-related risk and opportunity analysis is incorporated into corporate and financial decision making by encouraging related disclosure. The aim is that this will ultimately support a move in financial flows towards nature-positive outcomes. The hope is that the TNFD will do for nature what the TCFD has done for climate.

Draft TNFD framework

On 15 March 2022, the TNFD published a draft ("beta") version of its proposed framework (see here).

The draft framework includes three key sections: key concepts and definitions; draft disclosure recommendations; and guidance on nature-related risk and opportunity assessment.

Key concepts and definitions

The concepts and definitions in the draft framework are for market participants to use when assessing and disclosing nature-related risks and opportunities.

The draft framework defines:

• "Nature" as having four realms: land, ocean, freshwater and atmosphere.
• "Nature-related risks" as potential threats to an organisation linked to dependencies on nature and nature impacts. These can be physical, transition or systemic risks.
• "Nature-related opportunities" are activities creating positive outcomes for organisations and nature by avoiding/reducing the organisation's impact on nature or contributing to nature restoration. This would include organisations mitigating nature risks, or strategic transformation that actively halts or reverse nature loss.

Disclosure recommendations

The draft disclosure recommendations are explicitly aligned with, and build on, the TCFD disclosure recommendations and follow the same four pillars (governance, strategy, risk management and metrics & targets). The TNFD hopes that this will encourage the market to move towards integrated sustainability disclosures.

The draft framework is also designed to be aligned with the disclosure standards being prepared by the International Sustainability Standards Board (“ISSB”) (see here).

The TNFD expects organisations to disclose "the full set of material risks and opportunities related to the impacts and dependences of their operations and their upstream and downstream value chains". For financial institutions, this means they will need to consider balance sheet financing and advisory work as well as direct operations.  

Guidance on carrying out nature-related risk and opportunity assessments

The final section of the draft framework includes guidance for corporates and financial institutions on undertaking nature-related risk and opportunity assessment (called the LEAP process, which stands for "Locate, Evaluate, Assess, Prepare") and incorporating the outcomes of the LEAP assessment into strategy and risk management processes to inform company decisions, including on reporting and disclosure.

What happens next?

The TNFD is taking an iterative approach to creating the framework, and engaging with market participants as it does so. It has noted that the draft framework does not yet include metrics, which will follow in later iterations.

It is currently inviting stakeholders (including market actors, policy makers, regulators and scientists) to test and provide feedback on this first beta version through the online platform.

It intends to release further draft versions in June and October 2022 and February 2023. It aims to launch its final framework in September 2023.

The TNFD has already been endorsed by G7 Finance Ministers. After the TNFD's final protocol framework is published, governments may choose to mandate disclosures in line with the TNFD in the same way as some jurisdictions have done for the TCFD. Even if TNFD disclosures are not made mandatory, the hope is that they will at least be seen as best practice globally.