TNFD Framework to Build Capacity for Nature-Related Data

Like the TCFD, the TNFD reporting framework is expected to be incorporated into disclosure standards and written into national law by governments.

The newly-launched Task Force on Nature-related Financial Disclosures (TNFD) aims to bolster the availability and quality of data needed by organisations complying with its reporting framework. This is according to two reports published last week following the framework’s official launch, titled ‘Nature in Scope’ and ‘Proposed Technical Scope’.

The reports outline the proposed scope of the new framework, its timeline for further developments and research between 2021-2023, and expectations for policymakers, standards-setting bodies, investors and corporates. The framework will align with the United Nations Convention on Biodiversity’s (CBD) draft Global Biodiversity Framework in order to be easily adaptable for standards-setting bodies. The next meeting of the UN Convention of Biodiversity is expected to be held in Kunming, China.

Like the Task Force on Climate-related Financial Disclosures (TCFD), it is expected that the TNFD’s reporting framework will be incorporated into the disclosure standards of existing sustainability standards bodies and also written into national law by governments. Also like TCFD, reporting organisations are likely to include both corporates, financial institutions and asset owners.

“The TNFD is not a new standard, but an aggregator of the best tools and materials to promote worldwide consistency for nature-related reporting,” the ‘Nature in Scope’ report noted.

TNFD’s new reports acknowledge that nature-related risks vary widely according to geographies, seasons and industries, making it more complicated to build a standardised framework, according to TNFD Co-Chairs David Craig and Elizabeth Maruma Mrema.

“Unlike for climate, it is not just what your activities are, but where they are [and] which matters, which means having more location-specific data from corporates will be part of the solution,” they wrote.

To accelerate development and adoption, the TNFD will “commission a rapid assessment of the availability of data for different aspects of nature and in different geographies, looking beyond data provided through existing corporate disclosure frameworks to consider third-party data sources”.

In the interim, the TNFD has asked standards-setters to first prioritise securing aligned disclosures from reporting organisations that are most dependent on nature, noting that data concerning the most prevalent nature-related concerns (e.g. water scarcity) is already available for corporates to use.

Once TNFD-aligned disclosures from existing data sources are produced, the TNFD will be able to further identify existing data shortcomings and act accordingly, the reports added.

“Improving corporate disclosures will also only be one of many levers to close the data gap on nature-related financial risks. In the climate space, better corporate disclosures were at the centre of the solution to the data challenge. Satellite data may also play a significant role in closing data gaps on nature-related risks,” said Craig and Maruma Mrema.

Officially launched last week after eight months of development under the aegis of a working group, the founding organisations behind the TNFD include Global Canopy, United Nations Development Programme (UNDP), the United Nations Environment Programme’s Finance Initiative (UNEP FI) and the World Wide Fund for Nature (WWF).

Double materiality

The TNFD framework will require organisations to implement a double materiality reporting perspective, where they disclose how nature is impacting the organisation, positively or negatively, and how the organisation impacts the natural world.

“This two-way approach is necessary to robustly identify, assess and manage systemic nature-related risks and, in turn, inform estimations of long-term risks to individual organisations,” the ‘Nature in Scope’ report said.

The double materiality approach to ESG-related risks is also preferred by the European Financial Reporting Advisory Group (EFRAG), which is the group leading Europe’s development of a sustainability reporting standard.

TCFD-alignment

The foundation of the TNFD framework will mirror the TCFD four pillars for reporting: governance, strategy, risk management, and metrics and targets. This is to ensure the new framework is more easily implementable across global markets and reporting frameworks, allowing for a “climate-nature nexus”, the reports said.

This will “give companies and financial institutions a broader picture of their environmental risks,” the co-chairs noted.

However, due to the wider challenges when measuring nature-related risks, “the TNFD will incorporate a broader definition of ‘risks and opportunities’ into each pillar,” according to the ‘Nature in Scope’ report. This includes the identification and categorisation of physical, transitional and systemic nature-related risks and to what extent these should be accounted for within a TNFD-aligned report.

These definitions will be further expanded upon and defined over the next two years.

Accounting for the iterative process needed by organisations to comply with TNFD-aligned reporting recommendations, disclosures will be expected to exhibit “progression over time” across three official stages: basic, intermediary and comprehensive. For each stage, the TNFD framework will pose “more granular questions” as to what does and doesn’t fall under the remit of nature, relying on science-led evidence and information.

The TNFD will further support organisations and existing frameworks in their own capacity building for complying with and/or incorporating the TNFD framework.

“As the TNFD kicks off its work over the coming months, the challenge is to learn from what’s worked for climate, while carefully considering how nature requires a different approach,” TNFD’s co-chairs said.

Read more articles like this on Regulation Asia’s sister publication, ESG Investor.

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