New framework puts nature-related reporting in the spotlight
New reporting guidance marks the beginning of a step-change that will enable companies to integrate nature into decision making, and support efforts to stem the loss of our natural world.
The Taskforce on Nature-related Financial Disclosures (TNFD) recently published its final version of a framework that will expect businesses to report on financial risks and opportunities, which means nature-related disclosure requirements are finally set to become the norm.
Over 50 percent of the world’s gross domestic product is dependent on the stability and prosperity of nature. Last year, at the Montreal United Nations Biodiversity Conference, almost 200 countries agreed to ‘halt and reverse’ nature loss by 2030.
This means we will see national efforts to upgrade strategies, and businesses and financial institutions will be expected to monitor, manage and disclose nature-related impacts, dependencies and risks, for example loss of biodiversity or degradation to an ecosystem.
The new framework will therefore be a powerful tool in addressing the ‘intelligence gulf’ between a business’ interaction and relationship with the natural world, and the impacts on financial performance and risk.
Nature laws and policies around the globe
Businesses and financial institutions have an increasing number of climate-related financial and non-financial disclosures to fulfil. Nature and biodiversity-specific laws and policies are also being introduced. This includes the UK's biodiversity net-gain requirements under the Environment Act 2021 for new developments, the EU's Deforestation-free Products Regulation and the EU's 2030 Biodiversity Strategy – all of which will provide traction for the TNFD framework.
While the new framework is voluntary, the construction industry should make no mistake – there is a clear direction of travel towards a mandatory requirement. The TNFD will likely follow suit from the Task Force on Climate-related Financial Disclosures (TCFD) framework, which is expected to be adopted as regulation globally.
Preparing your business: frameworks and opportunities
Moving forward, businesses should start preparing for disclosures if they aren't already, through a mix of approaches. These could include an evaluation of data against the new requirements, an assessment of investment strategies and corporate governance, and, finally, engagement with stakeholders.
Of course, those businesses that are not prepared may face more immediate nature-related challenges, such as vulnerabilities around operations and supply chains, reputational risks and financial risks from higher insurance premiums and capital costs.
Above all, we see the most challenging factor being TNFD’s uniqueness. Nature-related risk is arguably much more complex due to the spectrum of factors which can be more geographically constrained, so mitigations are less fungible. Businesses will therefore need to adopt a programmatic approach to qualifying risk globally and ensure their data management and governance stands up to a novel type of reporting.
Looking ahead: tips for navigating the new framework
There are however some top tips for navigating the new framework.
Firstly, a lot of data related to nature can be gathered from existing operational data, like water consumption or a supply chain, for example, raw material use. We would therefore encourage a business to analyse what data they have already as the starting point and then identify gaps.
Secondly, the TNFD has a lot of similarities with TCFD, particularly its core areas of focus, like governance, target metrics and risk management. Businesses should look at what activity supports both frameworks since they broadly share seven common disclosures (of which around half are identical).
Finally, it’s also advisable for organisations to speak to stakeholders and partners early in the process, so they understand what is required, and the goals around fulfilling new disclosure requirements.