TNFD is here: What Does It Mean for Your Business & How to Get Started

Introduction to TNFD and Its Significance:

With the recent release of the Taskforce on Nature Related Financial Disclosures (TNFD) framework, how does your business actually plan to have a positive impact on nature?

We stand at a pivotal moment in history, where our actions can either perpetuate the degradation of our planet or pave the way towards a nature-positive future.

There are ample opportunities for businesses to manage risks, engage in a sustainable way with nature, and achieve positive outcomes for nature, their organisations and society… and yet most companies, investors and lenders today inadequately account for nature-related risks and opportunities in their decision making.

This is where the Taskforce on Nature Related Financial Disclosures (TNFD) comes in.

Understanding the TNFD Framework:

The TNFD framework is a risk management and disclosure framework for businesses to identify, assess, respond and, where appropriate, disclose their nature-related issues.

It will encourage early action by any organisation (corporate, investor, government) to begin disclosing nature-related dependencies, impacts, risks and opportunities.

The TNFD has been developed to highlight the interrelationship between nature and climate and provide a platform for integrated nature-related disclosures in the same way the Taskforce on Climate-related Financial Disclosures (TCFD) did for climate.

What is the difference between TNFD and TCFD?

While both the Taskforce on Nature Related Financial Disclosures (TNFD) and Taskforce on Climate-related Financial Disclosures (TCFD) are pivotal in guiding organisations toward more sustainable and transparent practices, they focus on different aspects of environmental impact.

The TCFD, or Taskforce on Climate-related Financial Disclosures, primarily addresses how organisations should disclose climate-related financial risks and opportunities. In contrast, the TNFD extends this scope to encompass the broader environmental challenges, including biodiversity loss and ecosystem degradation.

This broader perspective is crucial as it acknowledges the intricate connections between climate change and nature, emphasising the need for a holistic approach to sustainability.

The Four Pillars of the TNFD Framework

The TNFD disclosure recommendations are structured around four pillars, consistent with the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB), to ensure a comprehensive and unified approach to environmental sustainability and financial disclosure.

1. Governance

Governance lies at the heart of the TNFD Framework, emphasising the critical roles of both board oversight and management in evaluating and addressing nature-related issues.

This includes a comprehensive approach to managing the organisation's impact on nature, adhering to human rights policies, and actively engaging with indigenous peoples and other stakeholders in local communities affected by nature-related activities.

2. Strategy

The Strategy pillar demands organisations to thoroughly examine the nature-related challenges they face across different time horizons—short, medium, and long term. It involves understanding how these challenges impact the business model, value chain, financial planning, and overall strategy.

Moreover, it assesses the resilience of the organisation’s strategy against identified nature-related issues, ensuring a sustainable approach to navigating future uncertainties.

3. Risk & Impact Management

This pillar focuses on the processes for identifying and managing nature-related risks and impacts, not just within direct operations but also throughout the upstream and downstream value chains.

It underscores the importance of integrating these processes into the organisation's overarching risk management framework, thereby ensuring a comprehensive approach to environmental stewardship and sustainability.

4. Metrics & Targets

Lastly, the TNFD Framework advocates for the adoption of specific metrics and targets to assess and manage material nature-related issues effectively.

This involves setting clear, measurable goals for managing the organisation's impact on nature and tracking performance against these targets, facilitating transparent reporting and continuous improvement in environmental performance.

By integrating nature into strategic and capital allocation decision making, the TNFD Framework seeks to guide organisations and financial institutions towards a more sustainable and nature-positive future.

Is the TNFD Mandatory?

The TNFD Framework, much like its predecessors the TCFD and ISSB standards, is on a trajectory to be woven into domestic regulatory frameworks across the globe. Various governments have already expressed their support for the TNFD, indicating plans to embed its principles within their national regulatory systems.

A prime example of this emerging trend is the UK Government's Green Finance Strategy, unveiled in March 2023. This strategy reaffirms the UK's dedication to the TNFD's objectives and explores the integration of the TNFD framework into the UK's policy and legislative framework, aligning with Target 15 of the Global Biodiversity Framework.

At the regional level, the European Union has made strides by incorporating elements of the TNFD guidance into its regulatory reporting mandate, specifically through the Corporate Sustainability Reporting Directive (CSRD).

This directive mandates that entities falling under its scope must align their corporate disclosures with the European Sustainability Reporting Standards (ESRS), incorporating the TNFD's LEAP approach into several key areas of materiality assessments, including pollution, water and marine resources, biodiversity and ecosystems, as well as resource use and the circular economy.

While the formal inclusion of TNFD reporting requirements into mandatory regulatory regimes is still in the works, the TNFD itself has committed to monitoring voluntary adoption by the market. Starting in 2024, an annual status update report will be published to track the progress of TNFD's voluntary integration, setting the stage for its eventual mandatory adoption in regulatory practices worldwide.

Advantages and Disadvantages of Adopting the TNFD

While the Taskforce on Nature-related Financial Disclosures (TNFD) is currently a voluntary framework, companies are encouraged to weigh both the potential benefits and challenges associated with its adoption.

Here’s a closer look at the advantages and disadvantages that come with embracing the TNFD principles.

Advantages

1. Attract Investors: In today's market, there's a growing appetite among investors for companies that proactively manage their environmental impact. TNFD disclosures can serve as a testament to a company's commitment to sustainability, potentially drawing in more investment by showcasing forward-thinking environmental stewardship.
2. Reduce Risk: Embracing TNFD allows companies to identify, assess, and mitigate climate-related risks early on. This proactive approach can enhance financial stability and safeguard against the operational and supply chain disruptions often precipitated by environmental challenges.
3. Future-Proof Business: With environmental regulations becoming increasingly stringent, the future is likely to mandate nature-related disclosures across the board. Early adopters of the TNFD framework will find themselves ahead of regulatory trends, ensuring a smoother transition to compliance and fostering a resilient business model in the face of evolving environmental legislation.

Disadvantages

1. Costs: Integrating TNFD recommendations into corporate strategies involves initial investments in robust data collection, thorough analysis, and comprehensive reporting infrastructures. These upfront costs are a crucial consideration for companies contemplating TNFD adoption.
2. Greenwashing Risk: There's a legitimate concern that companies might lean towards TNFD reporting as a means of enhancing their environmental image without committing to meaningful action on nature conservation. It is imperative that firms approach TNFD adoption with the intent of genuine implementation, beyond just ticking boxes for compliance or public relations benefits.

Adopting the TNFD framework presents a strategic decision for companies, balancing the allure of long-term sustainability and investor appeal against the realities of initial costs and the imperative for authentic engagement with environmental challenges.

The LEAP Framework: Guiding Organisations in Nature Disclosures

As new driving frameworks roll out in this space, there is no one-size-fits-all solution for companies. To address nature in a meaningful way, companies should come up with a strategy informed by the framework(s) relevant to their context.

The TNFD leverages the LEAP (Locate, Evaluate, Assess, Prepare) framework to guide nature-disclosures, sitting within the same TCFD disclosure requirements for an organisation to identify the governance, strategy, risk management and metrics and targets it will undertake to address the identified risks.

However, the LEAP framework concludes at prepare (for reporting); preparation should not be an end point, but rather the beginning of a broader nature journey. It is simply not enough to prepare to respond and report: companies must actually do something about their impacts on nature.

At this point the TNFD recommends companies use the Science-Based Targets for Nature (SBTN) guidance for setting a target for their nature impacts. Despite published guidance, the interaction between these two leading frameworks is not particularly simple.

Challenges and Opportunities in Combining TNFD and SBTN

There are eight common outputs, and at a first glance the frameworks may appear interchangeable. In practice though, relying on TNFD’s LEAP process and tacking on SBTN at the end may detract from SBTN's role of identifying material impacts upfront and acting where impacts can be most realised. This approach risks minimising the depth of materiality within the supply chain that SBTN aims to uncover.

Conversely, working solely to set an SBTN could potentially minimise an organisation’s ability to discover and disclose meaningful data which could be of value to many organisations and influential beyond.

Tailoring the Approach to Each Organisation's Unique Context

The interaction between these two frameworks, and the relevance of each, will be different for each company. A large retailer with less direct dependencies and risks on nature may be better suited to the more detailed supply chain assessment that SBTN endorses, before proceeding to using the data and analytical outputs generated to apply parts of the TNFD’s LEAP approach for a nature-related risk and opportunity assessment.

However, in the same position, a smaller corporate with specific goods may benefit from reporting their nature-related dependencies, impacts, risks and opportunities, and using these disclosures to then create a nature strategy with informed science-based targets.

Whether an organisation should align with TNFD or SBTN (or both) is not as simple as an either/or decision; each organisation’s experience of the interaction between the frameworks will be unique.

Ultimately, it is not about starting with the end-point framework for disclosing impacts and targets, but about creating a strategy to understand and address your organisation’s relationship with nature.

Taking this approach, starting with an overarching plan for how your organisation will approach nature, provides your organisation with the space to plan to do this properly – avoiding risks of greenwashing, greenhushing or greenrushing.

Edge Impact's Role in Your Journey Towards Nature Positivity

At Edge Impact, we offer an understanding of both of these frameworks, and are working with companies to create a tailored, specific nature strategy.

We acknowledge that every organisation’s impacts, dependencies, goals, and capacity are different, and the real impacts will come from positioning your organisation beyond being committed to addressing nature, but addressing nature in your unique context.

We appreciate that when talking about nature in the context of avoiding the climate crisis, time is not on our side. But we’ve only got one chance to set this global mindset up to succeed, and if we want to ensure nature efforts are taken seriously, we need to make sure each organisation is doing what’s within their specific capacity to act.

Our Services

As experts in the full spectrum of sustainability topics, we are here to guide you through the complexity. Our team includes specialists from across the globe; from strategists to economists, engineers to creatives. Since 2008, we have been helping businesses, organisations, industries and societies make transformation happen.

Our areas of expertise are focussed around the following areas:

Leadership and Transformation
ESG and Strategy
Circular Economy and Lifecycle Thinking
Procurement and Supply Chain
Built Environment
Nature and Biodiversity
Brand, Communications and Creative

Key Takeaway

As new driving frameworks roll out in this space, there is no one-size-fits-all solution for companies. To address nature in a meaningful way, companies should come up with a strategy informed by the framework(s) relevant to their context.