If you’re curious or confused about the new Taskforce for Nature-based Financial Disclosures (TNFD) framework, you’re in the right place. Our cheat sheet will get you up to speed in five minutes flat.
In December 2022, world leaders gathered at the UN Biodiversity Conference (COP15) to discuss the biodiversity crisis.
The conference birthed The Kunming-Montreal Global Biodiversity Framework (GBF), which charts a path to a future where people are living in harmony with nature by 2050. At the heart of the GBF are 23 targets for 2030 and 4 goals for 2050 — which 188 governments have signed onto.
It’s Target 15 of the GBF that’s most relevant to the TNFD:
Encourage and enable businesses [to] ... regularly monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity, including with requirements for all large as well as transnational companies and financial institutions along their operations, supply and value chains and portfolios.
Enter, the TNFD
If Target 15 of the GBF is the ‘what’ — the Taskforce for Nature-based Financial Disclosures (TNFD) is the ‘how’. It’s a guide that helps corporates to begin to identify, measure and disclose their nature-related risks. (Note, the TNFD refers to both the ‘taskforce’ of 40 corporations who created the guide, and the guide itself.)
How does it work?
The bread and butter of the TNFD framework is the LEAP assessment approach, which stands for Locate, Evaluate, Assess and Prepare. (And in my opinion, wrapping your head around LEAP is the biggest unlock to understanding what the TNFD means for the nature-positive movement.)
1. Locate your interface with nature
Nature-related dependencies and impacts are most often location-specific. But this is far more complex than noting where an office or factory is located. To illustrate just how complicated, I’ve taken some creative liberties with the TNFD’s ‘beverage company’ example…
Our sample beverage company has factories in two locations, and its most obvious nature-related dependency and impact is the local water sources. But it would be insufficient to report on the company’s overall water consumption and quality and call it a day. No, our beverage company needs to look at each water source individually, and consider what using and relying on this water is doing to the health of the local ecosystem — or more specifically, what species live in the area and if they have enough healthy water to thrive, what the extraction of water is doing to salt levels in the soil and the water table, and how the area’s water quality has changed over time just in case there’s an unnoticed negative trend, among other things. That’s water. Energy and waste will be next.
But our beverage company’s work doesn’t end there. In addition to locating its direct interface with nature, it also needs to look at its entire supply chain. Who grows the grain, hops and yeast and what’s the impact of this agriculture? How are the ingredients transported to the factory? What metal are the cans made from and where is it sourced? What material are the labels made from? What machines, fridges and equipment does the factory use? How is the canned beer transported to distributors? What snacks are stocked in the communal kitchen? What airlines do staff fly with on work trips and where do they stay? What institution do you lend from and bank with? And the list goes on.
As you can see, there’s a lot of locating to be done in step one. I like to think of step one as a complex set of babushka dolls, requiring companies to gather information from all of their suppliers, that have to gather information from their suppliers, that have to gather information from their suppliers, and so on.
2. Evaluate your priority dependencies and impacts
Once a company knows where their nature-related dependencies and impacts are, the next step is to assess the seriousness of these risks and opportunities, and prioritise them.
For example, our beverage company might have realised that one water source is under stress, with water quality trending downward, while the other water source is healthy and resilient. The former is a higher risk and therefore a priority.
3. Assess your material risks and opportunities
Step one is all about where to look, step two is about where to look first, and step three is about actually assessing risk and opportunity in order of priority.
Back to our example, what does a water source under stress mean for our beverage company in the short term and long term? What’s the direct risk? The reputational risk? The legal and regulatory risk? How might this risk evolve?
And on the flip side, what’s the opportunity? Examples of opportunities include boosting resource efficiency, transforming or creating a business model, product or service that protects, manages or restores nature, or accessing new green capital markets. What’s the low-hanging fruit here? How might opportunities evolve?
4. Prepare to respond and report
Having completed the first three phases of the LEAP approach, our beverage company is now ready to create and disclose its assessment of material nature-related risks and opportunities to investors, capital providers and other stakeholders.
What companies will use the TNFD?
Businesses of every size are dependent on nature, however, the TNFD is created by and for the world’s biggest and most influential corporations. Think corporates, investors, banks, insurance companies, analysts, regulators, stock exchanges and accounting firms.
This focus is significant for two reasons.
Firstly, because these corporates drive our global economies. They cumulatively invest, spend and generate trillions of dollars annually.
And second, because the majority of their operations are currently nature-negative, meaning they have a net negative impact on biodiversity. The five main drivers of global biodiversity loss are land- and sea-use change, direct exploitation, climate change, pollution and invasive alien species, and large industry has roles in all of these.
The TNFD frames a corporate’s nature-related dependencies and impacts as both business risks and opportunities. This is because risk and opportunity drive business decisions. The hope is that by bringing transparency to nature-related risks and opportunities, risks will be mitigated and opportunities will be chased. Both outcomes are wins for nature.
How does it connect to the TCFD?
The Taskforce for Climate-based Financial Disclosures (TCFD) is the TNFD’s climate counterpart, guiding corporates on how to disclose their climate dependencies and impacts.
Officially released in 2017, the TCFD arguably had to precede the TNFD, because climate dependencies and impacts are relatively easier to locate, evaluate and assess. To give this some context, the climate crisis has a couple of core metrics (hello, carbon) and takes place in the atmosphere we all share, whereas the biodiversity crisis, as discussed above, has thousands of potential metrics and is highly localised.
Differences in crises aside, the frameworks are intentionally as similar as possible, sharing language and some steps. The hope is that because corporates are familiar with the TCFD reporting process already, the TNFD’s uptake will be speedier. Over time, it’s expected corporates will integrate their disclosures, assessing and communicating their dependencies and impacts on both climate and biodiversity together.
What does it have to do with the SBTN?
The Science-Based Targets Network (SBTN) guides corporates on how to take action to reduce their impacts and dependencies on nature. In the simplest sense, the SBTN is all about action, and the TNFD is all about accountability. They are incredibly complementary guides. (And yes, there are climate guides too, called SBTi, which pair with the TCFD.)
The SBTN recently released its first science-based targets for nature, focused on freshwater and land, and guiding companies in how to reduce their negative impacts and increase positive ones for nature and people. Specifically, the first batch of nature targets aims to help corporates protect and restore terrestrial ecosystems, and improve their impacts on freshwater quantity and quality (specific to nitrogen and phosphorus).
Is the TNFD mandatory?
No. The TNFD is a guide that corporates must voluntarily elect to use. The decision to make disclosure mandatory lies with government regulators in each jurisdiction. However, it’s expected the TNFD will follow in the footsteps of the TCFD’s recommendations, which have become or are becoming mandatory in many jurisdictions, including the European Union, Singapore, Canada, Japan and South Africa, New Zealand and the United Kingdom.