The state of nature and biodiversity is increasingly at risk. Forests have degraded and shrunk over time, thus making certain natural resources more difficult to access. Water shortages and the quality of water impacts both communities and businesses. The quality of land has also affected the state of agriculture and the loss of biodiversity has created an imbalance in nature. Due to human activity, nature and biodiversity have drastically changed which has created disruptions in lifestyles, global supply chains, and in the way businesses operate.
This degradation has caught the attention of governments and financial institutions. Policies and targets have been made to preserve and improve the state of nature. Financial institutions also now take nature into consideration during risk assessments. The decline of ecosystems and loss of biodiversity entails risks to global economies. Food production, water security, supply chains, and climate regulation are heavily tied to nature and large imbalances will trickle down to impact economies, businesses, and consumers.
To address this growing concern, nature-related risk disclosures have been integrated into sustainability reporting and financial decision-making, helping companies be transparent and aware of their greater role in sustainability and supporting investors in their decisions. June 2021 marked the establishment of the Taskforce on Nature-related Financial Disclosures (TNFD), which aims to direct capital towards sustainable and nature-positive investments, through risk management.
The TNFD sorts nature issues into four areas: dependencies, impacts, risks, and opportunities. In disclosing these, there are 14 recommendations sorted into four pillars: governance, strategy, risk and impact management, and metrics and targets. To be consistent and up-to-date with current standards, the TNFD recommendations are also aligned with the TCFD and the ISSB. Additionally, the TNFD disclosure framework includes fundamental information to get started with disclosures and general disclosure requirements.
Strong policies and direction governed by management and a well established team is critical to practicing sustainability. In addition to disclosing the role of the company’s board and management in overseeing and managing nature-related risks, impacts, dependencies, and opportunities, the TNFD also encourages organizations to disclose their human rights policies and engagement activities which involve or impact local communities, indigenous peoples, and other key stakeholders. This additional disclosure provides more insight into how a business and their impact on nature also affects communities who are more prone and vulnerable to climate change and nature-related risks.
When disclosing strategies addressing nature-related issues, the TNFD recommends organizations to detail on short, medium, and long-term dependencies, impacts, risks, and opportunities, and its impact on the organization’s value chain, business model, strategy, and financial performance. Any transition plans related to nature-related risks and issues are also to be disclosed in this section.
The business is also recommended to report their resilience to the aforementioned risks, taking into account different situations and scenarios that may occur. Lastly, organizations should also disclose which locations, operations, and upstream and/or downstream activities are prioritized in their strategy.
After discussing the organization’s key nature-related issues and how it impacts the business, the TNFD then recommends disclosures on how the organization identifies, assesses, prioritizes, and monitors nature-related issues. Organizations are to look into their direct operations, and upstream and downstream activities and describe what activities or processes they have established to manage their identified issues. Last in this section, organizations are recommended to describe how these sustainability strategies are incorporated into overall risk management.
In this section, organizations disclose their specific and attainable metrics, targets, and goals in assessing and managing material nature-related issues. Current performance is reported as well, creating a comprehensive and robust sustainability report anchored on the organization’s interactions with nature and biodiversity and how these impact them.
These TNFD recommendations were established through seven principles: market usability, a science-based approach, nature-related risks, purpose-driven action, integrated and adaptive structures, climate-nature nexus, and global inclusivity. By observing the recommended disclosures, businesses can better understand the risks associated with the loss of nature and biodiversity.
Overall, the TNFD established general disclosure requirements, which are applicable across all core pillars. The requirements create consistency throughout the report. This consists of the following:
Integrating a new framework to current sustainability reports can be daunting. To guide organizations, the TNFD released a guide further detailing the TNFD Recommendations. Additional guidance is provided to help organizations learn more about the TNFD Recommendations and how they can integrate it into their sustainability reporting initiatives. Disclosure guidelines are also provided based on specific sectors. Given the different kinds of ecosystems, the TNFD issued resources on disclosing nature-related issues based on specific biomes, including tropical and subtropical forests, savannas and grasslands, intensive land-use systems, urban and industrial ecosystems, rivers and streams, and the marine shelf.
Sustainability Reporting using the TNFD Recommendations can be implemented with its detailed guidelines and structured approach in reporting. When disclosing nature-related issues, the TNFD recommends organizations to observe the LEAP approach– locating the issues, evaluating dependencies and impact, assessing the risks and opportunities, preparing to respond and report.
2023 had major events and progress for the TNFD. In June 2023, the TNFD received over 3,400 pieces of feedback from their pilot testing. In September 2023, the final TNFD Recommendations and additional resources were published. The TNFD currently has 1,473 total partners across 70 countries and territories. Similar to the TCFD, there is no doubt that the TNFD will continue to gain more traction and attention as the concern for nature and biodiversity preservation rises as climate change continues to impact lives. The TNFD is a game changer that promotes awareness and action towards a more sustainable ecosystem and economy.
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