Writer: Lynn HSIAO, Tiantai LING
Social Media Team: Irina LIN
Owing to the loss of biodiversity and an imbalanced natural system, both of which have caused a crisis in our way of living, international society has an urgent need to emphasize not only the climate issues but also those related to nature. Consequently, countries have adopted Kunming-Montreal Global Biodiversity Framework in 2022, committed to setting national biodiversity targets. Furthermore, various international initiatives appeal private companies to prioritize nature issues in their business management. Task Force on Nature-related Financial Disclosures (TNFD) is one of them, developed to guide businesses and financial institutions in disclosing information regarding their exposure to natural hazards. It was established in 2020, and its latest 1.0 version of recommendation has been released in September 2023.
Features and Recommended Disclosures
The TNFD focuses on the identification of risks and opportunities related to nature and align itself with the goals set by the Kunming-Montreal Global Biodiversity Framework, which aims to halt biodiversity loss by 2030 and achieve a net gain by 2050.
Moreover, the TNFD is consistent with the approach of the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB)’s International Financial Reporting Standards (IFRS) sustainability standards. Its framework adopts the same four pillars as the TCFD: governance, strategy, risk management, metrics and targets. Both companies and financial institutions are recommended to follow the requirements below:
The organization reveals the roles and responsibilities of the board and management concerning nature-related factors such as dependencies, impacts, risks, and opportunities. Also, as per the TNFD structure, the organization should explain its human rights policy and stakeholder engagement related to those issues.
The organization clarifies its strategy for the near and distant future and explain how it affects its business model, value chain, financial planning, and any transition plans under various conditions. Additionally, it should disclose the important locations of assets and activities in its operations and value chain.
The organization outlines how it tracks and identifies nature-related issues and includes those issues in its overall risk management processes.
4.Metrics and targets:
The organization discloses the metrics it uses to evaluate risks related to nature and describe its targets for addressing nature-related issues as well as its performance against them.
In addition, the TNFD provides the LEAP approach as an internal tool to assist organizations in understanding and managing their interaction with nature. It's optional but can be helpful for getting started. The LEAP approach consists of four steps:
To ensure organizations pay particular attention to any sensitive locations where their business model or value chain may have an impact or dependency. For companies, it is advisable to identify the operation bases and initiate a dialogue with suppliers and customers to gather data on their locations for better visibility and analysis in value chains.
To gain insight into the organization’s potentially substantial dependencies and impacts on nature. For companies, the assessment team can identify and measure company’s environmental assets and ecosystem services, as well as factors (positive or negative impacts) affecting its organization's dependencies and broader society, including its value chains.
To determine important nature-related risks and opportunities that should be disclosed. It is helpful to create a list or risk matrix for the board or management team to make informed decision. Companies can acquire an understanding of how to integrate nature-related risks and opportunities with their existing organizations.
To discuss how to respond to the assessment of nature-related factors. This involves conversations about how those issues and factors affect the organization's strategy, resource allocation, and capital allocation. The decisions should align with the overall corporate strategy and consider short, medium, and long-term aspects.
“Climate change is a primary driver of biodiversity loss. And climate change depends on biodiversity as part of the solution. So clearly the two are linked, and cannot be separated,” said by Elizabeth Mrema, executive secretary of UN Convention on Biological Diversity. Hence, nature-related issues will probably be the next significant sustainability trend for corporates to focus on, following climate issues.
However, businesses need not be concerned about the TNFD for being too challenging to get started with, as its structure is highly harmonized with the TCFD, especially in the four core pillars. Furthermore, since the TCFD framework forms the foundation for IFRS S1 and IFRS S2, it is anticipated that the adoption of the TNFD will seamlessly integrate with the existing processes that companies have already been working on. This alignment will make the pilot businesses easier to consider their relationship with nature.
1. The Taskforce on Nature-related Financial Disclosures (TNFD), https://tnfd.global/recommendations-of-the-tnfd/
2. Guidance on the identification and assessment of nature-related issues: the LEAP approach, https://tnfd.global/publication/additional-guidance-on-assessment-of-nature-related-issues-the-leap-approach/