Preparing your business for nature-related reporting
Business action on biodiversity and nature loss protection is shaping up to be one of the big stories of 2023. As the science continues to advance, we are now seeing bigger steps forward on the response from the private sector. After two years of design and development, on September 18th, 2023 the Taskforce for Nature-related Financial Disclosures (TNFD) released their final disclosure recommendations for corporates and financial institutions. Hailed as a ground-breaking moment for nature, the private sector is looking to understand what this means for their business. This insight will answer 5 key questions on TNFD for businesses looking to get started on their nature reporting journey.
What is the purpose of TNFD?
The TNFD was launched in 2021, founded by a host of financial institutions, corporates, and market services providers from multiple jurisdictions including Australia, France, Germany, and the UK.
The TNFD set out to develop a risk management and disclosure framework for organisations to report and act on evolving nature-related risks and opportunities, with the aim of supporting a shift in global financial flows away from nature-negative outcomes and towards nature-positive outcomes.
How do the TNFD disclosures fit within the wider landscape of reporting frameworks and regulation?
Reporting fatigue has emerged as a major obstacle for the private sector as businesses grapple with the various requirements of the many goals, principles, frameworks, and regulations that have emerged across jurisdictions.
Against the backdrop of a complex and expanding set of reporting obligations, the TNFD has centred the recommended disclosures around alignment, both with the global goals that will inevitably shape country-level responses and existing frameworks that many businesses have already begun reporting against.
- Global Biodiversity Framework: the language of the TNFD recommendations is directly aligned with the language of the GBF and has been designed to support businesses in understanding their contribution to the 30 targets and 4 goals that have been adopted under this protocol.
- GRI: GRI is a knowledge partner to the TNFD and the upcoming GRI Biodiversity Topic Standard has been heavily informed by the TNFD recommendations. The work carried out for TNFD reporting will support businesses to identify and prioritise their impacts in line with the requirements of the GRI standard, building a cohesive roadmap for action on biodiversity.
- TCFD: the TNFD framework outlines disclosure recommendations that are aligned to the TCFD, with organisations being encouraged to disclose around the same four key pillars: Governance, Strategy, Risk & Impact Management, and Metrics & Targets.
- ISSB: biodiversity, ecosystems and ecosystem services has been selected as one of the top priorities in the ISSB upcoming two-year work plan. The ISSB has said they will look to the TNFD recommendations in its future work.
Will the TNFD become mandatory?
At this point in time there is no law or regulation requiring mandatory TNFD reporting. However, Target 15 of the Global biodiversity framework commits countries to
“take legal, administrative or policy measures to encourage and enable business to…regularly monitor, assess and transparently disclose their risks, dependencies and impacts on biodiversity…in order to progressively reduce negative impacts on biodiversity, increase positive impacts, reduce biodiversity-related risks to business and financial institutions, and promote actions to ensure sustainable patterns of production.”
In April, the UK’s updated Green Finance Strategy stated that in Q4 of 2023, the UK government will be exploring how best to integrate the TNFD framework in UK policy and legislative architecture. The TNFD is considered the main method of operationalising Target 15 of the GBF, and the close integration with the broadening GRI standards is welcomed toward building a cohesive global baseline for sustainability reporting. This dynamic is likely to be mirrored in other countries, with specific regulatory provisions emerging on a jurisdiction-by-jurisdiction basis.
What challenges may arise in nature-related reporting?
Data availability
Through piloting activities and surveys the TNFD has identified 3 key challenges in the collection of meaningful data that can be used to inform effective decision making:
- Data coverage differs across nature categories
Advancing comprehensive nature-data solutions is in some ways limited by the availability of data for particular realms such as oceans, and remote locations that are away from an organisation’s direct operations.
2. Variation in measurement approaches
Data is often not attributed, collated, or presented in a standardised way which makes it challenging to ensure consistency in measurement between spatial locations or across a time series. Often, data is collected for very specific research questions that are not always relevant for an organisation’s purposes.
3. Limited access and relevance of data
Data accessibility is a major limiting factor for the advancement of nature-related data, as issues arise like strict licensing restrictions, and the limited availability of some emerging tools for non-technical users. There is also an added complication for non-technical users trying to combine datasets for measuring and reporting.
To address these challenges standards will likely be developed and clearly defined to ensure that the data collected is relevant, useful, trusted and up to date for businesses and financial institutions. Further investment and collaboration between private companies, governments and NGOs will be required to ensure that publicly available data is capable of meaningfully capturing the relevant variables.
Metrics
One of the challenges of the TNFD when compared with the TCFD is that there is no single measurement for nature change like the carbon dioxide equivalent, CO2e, for climate. The TNFD suggests a variety of indicators on which adopting entities should report for each of the 14 recommended disclosures. These indicators numbered as high as 3,000 in Beta versions of the TNFD, however the final framework has been streamlined, for example by differentiating between ‘core’ metrics that all business should report against and ‘additional’ metrics to be based on materiality and sectors.
What can businesses do to prepare for TNFD reporting?
- Deepen your understanding of the fundamentals of nature
For many organisations, understanding nature and its economic and financial relevance will be new territory, requiring a solid understanding of the fundamentals of nature and associated issues. This includes the components of nature (i.e., realms, biomes, environmental assets and ecosystem services), biodiversity as an essential characteristic of nature, and the concepts of nature-related dependencies, impacts, risks and opportunities.
2. Build your knowledge on the conceptual foundation for disclosures
The TNFD framework uses the double materiality approach as the basis for disclosure, meaning information about the nature-related dependencies, impacts, risks, and opportunities that are material to the business. The TNFD’s recommendations have been designed to accommodate the different materiality preferences and requirements that businesses face across jurisdictions.
3. Make the business case for nature and gain buy-in from the board and management
While understanding of nature is relatively nascent, it will be important to build the business case within your organisation, to support actions to understand and address nature-related issues. This should take into account:
- The economic and financial value of nature;
- Risk management and mitigation needs;
- Commercial opportunities driven by innovation and increased resilience; and
- The long-term viability of business models.
Nature loss creates both risks and opportunities for businesses. What matters most for businesses now is building a more comprehensive understanding of how their impacts and dependencies on nature and the related risks and opportunities will affect their organisations over the short- to long-term.
To find out more about the TNFD framework and how to get started on reporting please contact erika.furbert@sancroft.com.