It is proving to be increasingly difficult for even the most diversified portfolios to avoid exposure to risk created by biodiversity loss. The same ASCI report identifies financial material risks created by biodiversity loss, including credit risk, risk to investments and capital, market risk, liquidity and insurance. These risks are becoming more immediate, as a recent report has found that Australia has already transgressed its national limit for the global biosphere integrity boundary, the limit beyond which biodiversity can no longer support ecosystem processes and resilience.

The establishment of a nature reporting framework such as the TNFD is essential for companies to measure their impacts, dependencies, and risk on nature (both positive and negative). While scientific reporting on biodiversity is abundant, the TNFD presents a standardised way for companies to assess and measure their risks associated with nature. This allows businesses to manage and plan their business operations accordingly, creating transparency and security for investors as well.

It’s important to clarify the difference between nature and biodiversity, as the two terms are often used interchangeably. Within the context of the TNFD framework, nature is defined as “the natural world, with an emphasis on the diversity of living organisms (including people) and their interactions among themselves and with their environment”. On the other hand, biodiversity refers to the “variability among living organisms from all sources, including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems”. Put simply, nature refers to the presence of biotic and abiotic elements (including natural processes such as currents and climate regulation) while biodiversity is concerned with the variety of organisms present. For example, a palm oil plantation may be considered natural because palm oil comes from trees, but it has come at the expense of biodiversity through deforestation, the use of pesticides and other human interventions.

Within the TNFD, nature is defined to include both biotic and abiotic (living and non-living) elements. Living nature is inclusive of habitats, species and genetic resources across land, ocean, lakes and rivers. Non-living nature is made up of soil, water and air, for example. These non-living nature components have complex interactions with living nature to produce what are called ecosystem services, such as water filtration and flood protection. Nature also encompasses the Earth’s stock of minerals; their extraction through mining or other methods can create negative effects on ecosystems.

In order to prepare for the arrival of the TNFD, investors, corporates, financial institutions and asset managers are encouraged to take the following steps. Firstly, they should start identifying short, medium and long-term exposure to nature-related risks in their current portfolios and value chains. Secondly, they should consider utilising appropriate nature-related metrics, targets and internal reporting mechanisms. Thirdly, they should actively engage company boards to determine how exactly nature-related risk will affect normal business operations. Next, they should familiarise themselves with the prototype LEAP approach as well as the extended LEAP-FI for Financial Institutions. Finally, check resource availability and consider pilot testing the TNFD/LEAP framework and submitting a case study.

The advent of the TNFD is a step in the right direction for mapping the economy’s interactions with nature. Our dependency on nature means there are few industries not exposed to the risks associated with biodiversity loss. The TNFD allows businesses to manage and plan their business operations accordingly, creating transparency and security for investors as well.

While mandatory reporting on the TNFD is still a while off, shareholders can engage companies to voluntarily report their impacts on nature. Shareholders have a right to know how their investments affect and are affected by nature and can make their influence felt through raising the TNFD at Annual General Meetings.

As we start to unravel the complexities of our relationship with Nature, it is clear how inextricably linked humans are with the natural world. The TNFD provides a means by which businesses and investors can map their many connections to nature and identify which of their activities are at most risk of degrading her at the expense of the economy and society. It’s vital that we begin to view the economy as embedded within ecological and social systems. Through the introduction of the TNFD, we can begin to bridge the gap of understanding business risk associated with nature.