Last week, the Taskforce on Nature-related Financial Disclosure (TNFD) launched their highly anticipated final recommendations after a two-year open innovation process to develop the risk management and disclosure tool for the private sector to report on nature-related risks.
We sat down with our senior technical advisor, Marta Santamaria, to explore how the framework can help integrate the value of nature into financial decisions and why it is a key milestone in understanding the relationship between nature, business, and finance.
Why is the TNFD framework so important?
It is often quoted that over half of global GDP is dependent on nature, but in truth, our economy is one hundred percent reliant on nature. Nature provides us with food, freshwater and materials and keeps critical global systems in check, from regulating the climate to keeping rivers flowing.
Nature is critical to the success and resilience of our societies, wellbeing, businesses and economies. But currently, nature is seen as an externality to business – providing services, such as pollination, free of charge across their operations and value chains.
It is this current economic system that is degrading our natural world. It fails to recognize the value nature provides to us and how we depend and impact upon it. As these systems continue to degrade, the risk to business increases, growing in severity and frequency as Earth’s systems cross irreversible tipping points.
The TNFD framework can help organizations to identify where these risks are in their operations and value chains. Business can use the TNFD framework to assess how they impact and depend on nature and be guided on managing these risks, as well as publicly disclosing them.
The framework encourages a movement beyond performance, towards impact. Traditionally, sustainability disclosure has focused on outputs from business activities. The TNFD is encouraging organizations to consider what the consequences of business activities are on nature, as well as the impacts experienced by people. Furthermore, in line with our work at Capitals Coalition, the TNFD encourages organizations to consider both impacts and dependencies on nature.
The TNFD is also consistent with existing and emerging reporting standards and aligned with the requirements of the UN CBD’s Global Biodiversity Framework (GBF). Most notably, the TNFD framework will support Target 15 of the GBF by helping business and financial institutions in undertaking corporate assessment and disclosure of risks, opportunities, impacts and dependencies on nature.
What have the TNFD developed?
The TNFD has published 14 recommended disclosures covering nature-related dependencies, impacts, risks and opportunities. The final recommendations are science-based and voluntary, building on the market’s experience with, and progressing on, climate-related reporting.
To support the recommendations, the TNFD has also published supporting guidance, called the LEAP approach. The LEAP approach is voluntary guidance intended to support internal, nature-related risk and opportunity assessments within corporates and financial institutions. There is also additional guidance, including guidance for financial institutions, assessment of different biomes, scenario analysis and target-setting.
How has Capital Coalition been involved in the work of the TNFD?
The Coalition is a founding TNFD knowledge partner, providing technical expertise to the TNFD on impact and dependency analysis. The work of the Coalition has been the building block for TNFD recommendations on how to improve business and finance understanding of their relationships with nature.
This is particularly true for the Evaluate stage (E) of the LEAP approach, where the TNFD framework builds directly upon the Natural Capital Protocol, including steps such as measuring impacts, dependencies, and changes in the state of natural capital.
The Coalition has also supported the inclusion of valuation in an annex of the TNFD framework. Valuation, or the process to understand the relative importance or worth of impacts and dependencies on nature, is now included in framework. Through valuation, businesses can undertake a more holistic risk and opportunities assessment.
The TNFD will now move to a phase of encouraging and supporting voluntary market adoption. This will include capacity building and scaling up applications. At the Coalition, we will continue to work closely with TNFD to promote and highlight applications across the business community, provide technical insights, bring valuation into the heart of future iterations, and build capacity to apply the approach within the global business community.