The final TNFD framework – along with sector-specific guidance for financial institutions – was published in September 2023. In combination, the two documents assist financial institutions to analyze and disclose nature-related risks and impacts.
The Taskforce on Nature-related Financial Disclosures (TNFD) has developed a set of recommendations for organizations to disclose and respond to their nature-related dependencies, impacts, risks, and opportunities. Alongside this, they published sector-specific guidance aimed at financial institutions disclosing under the framework. The TNFD comprises 40 senior executives and is supported by various governments across the globe. The recommendations are voluntary, and their implementation will rely on governments and regulators to enact rules to make them legally binding. Nevertheless, many companies and financial institutions are expected to disclose against the recommendations in the coming years.
The general framework comprises 14 recommended disclosures organized across four pillars: governance, strategy, risk and impact management, and metrics and targets (see below). This mirrors the approach of the Taskforce on Climate-related Financial Disclosures (TCFD) on which the TNFD has built its own recommendations. Like TCFD for climate, TNFD is considered the gold standard for disclosing biodiversity and nature-related risks. The TNFD guidance for financial institutions allows the financial sector to understand the nature-related dependencies, risks, and opportunities in their portfolios.
The four pillars of TNFD (Source: TNFD)
Recommended Disclosures
The 14 recommended disclosures are intended to serve as a foundation for companies to identify, assess, and disclose nature-related issues. A detailed description of each recommended disclosure can be found in the Annex.
The LEAP Approach
The TNFD released a number of supporting documents along with the initial recommendations. Amongst them is the “LEAP” approach which offers a structured process and assists preparers in identifying and assessing nature-related issues. The approach has been developed and tested extensively by TNFD, though it builds on existing international standards. Importantly, the approach is not mandatory for organizations following the TNFD’s recommended disclosures, but rather a suggested approach to identify relevant issues.
The LEAP process includes the following key steps:
- Locating an organization’s interface with nature, across geographies, sectors, and value chains;
- Evaluating dependencies and impacts on nature;
- Assessing nature-related risks and opportunities for your organization;
- Preparing to respond to nature-related risks/opportunities including reporting on material nature-related issues to the primary users of financial reports and other stakeholders, aligned with the TNFD’s recommended disclosures.
Global and Specific Metrics in the Financial Institution Guidance
The TNFD Additional guidance for financial institutions published in September 2023 recommends financial institutions to consider metrics to understand the nature-related dependencies, risks, and opportunities in their portfolios. These include a set of core global and sector-specific and additional disclosure metrics. These can be found here:
- Core global disclosure metrics: Annex 1 of the TNFD Recommendations
- Additional disclosure metrics: Annex 2 of the TNFD Recommendations
- Core Sector Metrics for Financial Institutions: Section 3.2 of the TFND additional guidance for FIs
- Additional disclosure metrics for Financial Institutions Section 3.3 of the TFND additional guidance for FIs
- Examples of nature-related metrics used by financial institutions: Annex 2 of the TFND additional guidance for FIs
Data, Metrics, and Targets Needed to Implement the TNFD Framework
While the TNFD recognizes challenges in accessing nature-related data, it highlights the rapid innovations underway in data, analytics, and technology. For example, the TNFD established the Nature-related Data Catalyst initiative as an effort to accelerate solutions related to nature and biodiversity. Members of this initiative, such as Clarity AI, typically engage in activities that revolve around improving the quality, availability, and interoperability of data related to nature and biodiversity impacts and dependencies within financial markets.
What’s Next?
- Beyond 2023: It is expected that the focus will shift towards encouraging and scaling adoption of the Framework, collaborating with standard setters, engaging with policymakers and regulators, and developing additional guidance to support market adoption, including sector and biome-specific guidance and transition planning.
- We expect to see policymakers and regulators directly integrate the TNFD framework into their domestic rules in the coming months. For example, the EU Corporate Sustainability Reporting Directive (CSRD) explicitly mentions the use of the LEAP approach for corporates to start their nature-related assessments².
- Similarly, the UK government has welcomed the TNFD and is encouraging UK businesses and financial institutions to engage with the framework³.
Clarity AI to Support Investors with the Implementation of the TNFD Framework
Clarity AI supports financial institutions throughout the different steps of the LEAP process and helps them report on the TNFD financial institution-specific indicators. Contact us or book a demo today to learn more about our solutions to integrate nature into decision-making and sustainability assessment.
Watch our webinar with Nathalie Borgeaud, Financial Markets Engagement Lead at TNFD, Rachael Monteiro, Stewardship and Climate Analyst at WHEB Asset Management, and Renato Coelho, Research & Innovation Director for Impact at Clarity AI.
