In a world where environmental responsibility is considered paramount, businesses are increasingly scrutinised over their impact on nature. Last year, it was announced by Rishi Sunak, the then Chancellor of the Exchequer that certain entities would be required to publish climate transition plans, and businesses have continued to announce plans to improve their impact on the environment. The progress of businesses in this regard comes against a shifting landscape at governmental level, where a number of previously seminal green policies are being scaled back or mothballed.
Nevertheless, the Taskforce on Nature-related Financial Disclosures (“TNFD”) has forged forwards and published the final version of its recommendations on a standard framework to identify, assess, manage, and disclose nature-related issues.
What is the TNFD?
Established in June 2020, the TNFD emerged from an international coalition of governments, businesses, and financial institutions with a clear mission to develop a framework to position nature risk alongside financial, operational and climate risk and help to shift capital flows to nature-positive outcomes. It is envisaged that the TNFD would build upon a model developed by the Taskforce on Climate-Related Financial Disclosures (“TCFD”), a taskforce comprising of representatives of 31 multinational corporate sector leaders from G20 and chaired by Michael Bloomberg.
The TNFD acknowledges that nature-related risks, encompassing biodiversity loss, deforestation, water scarcity, and climate change, can impact the financial performance and stability of businesses. The TNFD executive summary explicitly states that nature is no longer a corporate social responsibility issue, but a core and strategic risk management issue alongside climate change. In many cases, the private sector has struggled to identify, assess, manage, and disclose against such risks and environmental commitments have been vague and, in some cases, used as a marketing tool. As a result, it became apparent that businesses need a standardised approach to understand, measure, and report on these risks.
The TNFD disclosure framework consists of a set of general requirements structured around four pillars:
- Governance: the processes, controls and structures the business uses to monitor and manage nature-related risks and opportunities. This involves assigning roles and responsibilities, defining the scope of nature-related disclosures, and setting clear objectives.
- Strategy Alignment: the strategies the business employs to manage nature-related issues. This entails identifying the impacts of nature-related issues on the business, setting targets and goals, and integrating nature-related considerations into strategic planning.
- Risk Management: the process used by the business to identify, assess and manage nature-related risks. This includes conducting risk assessments, implementing mitigation measures, and monitoring the effectiveness of these actions.
- Metrics and Targets: the metrics and targets used by a business to manage its nature-related disclosures. These metrics enable investors and stakeholders to understand a business’s exposure to nature-related risks and track progress toward mitigating these risks.
Each pillar is accompanied by a set of recommended disclosures. The TNFD plans to set out a staged approach, with each stage increasing in sophistication, to enable organisations to align themselves progressively with the framework.
Who will these measures apply to?
The TNFD framework was developed by reference to 50 financial institutions from over 25 countries.
While reporting in light of the TNFD recommendations is currently optional for both private and public UK companies, this may well change. The TNFD recommendations are deliberately drafted to encompass the same central pillars as those under the TCFD, which are set to become mandatory for over 1,300 of the largest UK-registered companies and financial institutions, so it is likely that this will add weight to the arguments to make it mandatory for all UK listed companies. Indeed, some companies, including GSK, have started to announce their intention to adopt the recommendations from as early as 2026, and more companies are expected to follow.
As consumers and employees apply pressure on entities to consider their environmental impact, and other companies begin implementing the TNFD recommendations, other business may wish to consider reporting against the recommended disclosures to demonstrate their ESG credentials.
There is now a growing list of nature-related reporting guidelines. It is important that businesses consider what, if any, obligations they may have to report against these frameworks to ensure that they have the necessary resourcing in place to both report against and improve their performance against these metrics.
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