The fourth and final version of the Taskforce on Nature-based Financial Disclosure (TNFD) beta framework has been released. For the first time, market participants can see the full framework, including examples of guidance by sector and biome as well as further details of how TNFD will align with the disclosure framework under the Taskforce on Climate Related Financial Disclosure (TCFD) including reporting of direct and indirect nature related impacts (including financing) along the value chain. Consultation is open until 1 June 2023, with the final version due to be released in September 2023.
The New TNFD Framework
The TNFD arose out of an urgent need to recognise that nature underpins the global economy, and that our economies are embedded within nature, not external to it. Corporations across multiple sectors of the economy are not currently considering how their supply chains, operations and enterprise values depend on, and impact, nature. Governments are now recognising the value of nature, with over 190 states committing to a set of ambitious goals and targets under the Global Biodiversity Framework (GBF) in December 2022 and the Australian Federal Government committing to delivering environmental economic accounts to Parliament as part of reforms to national environmental law. Biodiversity loss is also now recognised by the world’s central banks as a source of systemic risk alongside climate change.
The TNFD is a market-led, science-based and government supported initiative to help respond to this crisis and aims to provide market participants with a risk management and disclosure framework to identify, assess, respond and, where appropriate, disclose their nature-related issues.
In the final draft version, all three core components of the framework have been updated and supporting guidance released, including:
- greater clarity on core concepts and definitions;
- an updated proposed risk and opportunity assessment (LEAP) approach for assessment and management of nature-related risks and opportunities;
- 14 draft core global recommended disclosures and supporting metrics;
- cross-sector guidance on approaches to scenarios analysis, target setting, and more;
- guidance on risk assessment methods;
- additional sector and biome guidance provided on the framework; and
- additional guidance on engagement with affected stakeholders.
The TNFD sits under the Global Biodiversity Framework and is a framework, not a standard. It works with other standards, including those of the ISSB, the Global Reporting Initiative (GRI), the European Financial Reporting Advisory Group (EFRAG) and others.
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Draft recommended disclosures
Market feedback has indicated a strong support for a consistent approach, structure and language between the TNFD and TCFD. The alignment across sustainability reporting frameworks and recommendations will also support a move to integrated sustainability disclosures over time, covering both climate and nature, as standards by the ISSB, GRI and government regulators come into effect.
The TNFD draft recommended disclosures are designed to:
- Meet the corporate reporting needs of a wide range of organisations across geographies, sectors and jurisdictions, including different approaches to materiality;
- Help provide better information to support strategy and risk management at the board and management level, and ultimately improve capital allocation and asset valuation decisions by corporates;
- Promote more informed investment, credit and insurance underwriting decisions by financial institutions; and
- Enable a stronger understanding of the concentrations of nature-related risk and opportunities, based on insights into nature dependencies and impacts.
Based on these principles, and the TNFD's guiding questions, the Taskforce has now:
- Introduced a new general requirements component to the overall approach to disclosure and corporate reporting with 6 general requirements for use of the TNFD framework;
- Retained the four pillars of the TCFD Recommendations – Governance, Strategy, Risk Management and Metrics and Targets – with Impact Management incorporated into Risk Management;
- Carried over all 11 TCFD recommended disclosures into the TNFD recommended disclosures, providing maximum consistency of content and enabling report users to start reporting on nature-related issues alongside, or integrated with, climate-related issues; and
- Adapted the approach taken to incorporate value chain impacts (Scope 3 climate reporting) to nature related assessments. The concept of scopes for emission reporting (i.e. Scope 1, 2 and 3) doesn't neatly translate into nature particularly the scope 2 reporting so the Taskforce has settled on the following categories: "direct operations"; "upstream"; "downstream" and "financed" (for financial institutions).
The TNFD has recognised the importance of comparability at a sector and industry level, and started developing sector and biome specific disclosure metrics in the additional guidance. Currently, version 0.4 of the TNFD beta framework includes draft guidance for four sectors: agriculture and food, mining and metals, energy and financial institutions as well as biomes including tropical forests. Further draft disclosure metrics for other priority sectors will be released as they are developed by the Taskforce.
Approach to target setting
The TNFD recommends that, in applying the framework, corporations should set science-based targets for nature. In setting these targets, the TNFD also encourages organisations to align with the TNFD disclosure metrics, the Global Biodiversity Framework's monitoring framework and other international treaties and global policy goals.
In addition, TNFD draft guidance on target setting provides a discussion of the considerations an organisation should take into account when setting targets for nature, as well as examples of targets an organisation could set that would align with TNFD metrics and the Kunming-Montreal Global Biodiversity Framework (GBF).
Approach to nature-related scenarios
Based on previous feedback, the TNFD has developed a practical and modular approach to the use and scenarios, reflecting the need for flexibility and adaptability for different kinds of organisations. This includes a set of pre-defined scenarios as a base to assist organisations get started, as well as an accompanying set of practical tools, templates and general guidance.
Changes expected for the final version
In addition to the final draft, the Taskforce will also be working on the following additional elements to complete its package of recommendation for publication in September 2023:
- Further development of additional guidance by sector and biome, including identification of core sector disclosure indicators and metrics;
- Development of case studies and use cases, including illustrative TNFD disclosure statements to help users interpret and apply the framework by learning from practical examples;
- Final refinements to the recommendations on the basis of a review of audit and assurance considerations;
- Further development of the scenarios guidance and toolkit, including for financial institutions, based on insights from further pilot testing;
- Consideration of the needs for TNFD guidance on transition plans, both for nature in net zero transition plans and transition plans to achieve nature positive goals and targets; and
- Development of guidance on linkages between climate and nature, with a focus on practical insights for developing nature-related disclosures building from existing climate disclosures based on the TCFD framework.