
Insights into UNEP FI’s TNFD pilots: Insights into deep-dive UNEP FI pilots to ensure effective uptake of the final TNFD framework
This publication provides investors with insights from pilot projects supporting the TNFD framework. It highlights best practices and lessons learned for integrating nature-related financial disclosures into investment strategies, enhancing transparency and sustainability. It outlines the valuable insights gained and significant findings obtained from a global pilot project initiated by UNEP FI in conjunction with 20 financial institutions.
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OVERVIEW
What is the TNFD?
The Taskforce on Nature-related Financial Disclosures (TNFD) aims to establish a framework enabling organisations to manage and disclose nature-related dependencies, impacts, risks, and opportunities. Its objectives align with the Kunming-Montreal Global Biodiversity Framework. By integrating nature into decision-making processes, TNFD supports financial institutions in transitioning from nature-negative to nature-positive outcomes. The framework builds upon the Task Force on Climate-related Financial Disclosures (TCFD) structure, incorporating broader environmental dimensions such as biodiversity and ecosystem services.
An innovative exercise: The UNEP FI pilots in support of TNFD
UNEP FI initiated pilot programmes in 2022 to test TNFD’s beta framework with financial institutions globally. These pilots aimed to identify high-impact sectors and geographies at risk, providing insights for nature-related integration into financial decision-making. The initial phase revealed the importance of internal capacity building, understanding nature-climate interlinkages, and refining metrics for assessing biodiversity impacts. Feedback from participants significantly informed the TNFD’s final recommendations.
The second cohort of TNFD pilots
In 2023, the second cohort focused on:
- TCFD-TNFD alignment: This group emphasised harmonising climate and nature disclosures by integrating TNFD’s broader focus areas, including freshwater, land, and biodiversity.
- Nature scenarios: Participants explored scenario-based risk assessment to evaluate nature-related financial risks. Institutions identified gaps in data granularity and methodologies, with a focus on aligning nature scenarios with existing climate models for comprehensive analysis.
Where do financial institutions currently stand in respect to nature reporting?
Financial institutions reported varying levels of readiness for nature-related reporting. While 30% conduct internal nature-related disclosures, 70% plan to start within the next year. Key challenges include reliance on separate resources for climate and nature reporting, the complexity of nature-specific metrics, and a lack of long-term strategic planning. Tools like ENCORE and WWF’s Biodiversity Risk Filter are commonly used to identify and manage nature-related risks, but their integration into broader frameworks remains a work in progress.
Key lessons learnt and challenges
Financial institutions face obstacles such as:
- Limited location-specific data and metrics for biodiversity.
- Difficulty in aligning nature disclosures with global regulatory frameworks.
- Stakeholder engagement gaps, especially in high-dependency areas.
Insufficient internal expertise to assess and manage nature-related risks. Nature scenarios highlight additional challenges, including the need for robust models to quantify financial impacts and assess interdependencies between climate and biodiversity risks.
Recommendations
To improve TNFD adoption, financial institutions are advised to:
- Build internal capacity: Invest in training, tools, and board-level sponsorship to embed nature considerations into decision-making.
- Enhance data collection: Utilise existing tools like ENCORE, proxies for unavailable data, and location-specific assessments to address data gaps.
- Integrate nature into climate risk management: Leverage existing climate risk frameworks to incorporate biodiversity considerations.
- Explore commercial opportunities: Develop nature-positive financial products and strategies to mitigate risks while capitalising on emerging markets.
- Strengthen stakeholder engagement: Improve transparency and collaboration with Indigenous Peoples, Local Communities, and affected stakeholders to ensure inclusive decision-making.
Pilot testing: Next steps for financial institutions in the adoption of TNFD recommendations
UNEP FI will continue supporting institutions through its TNFD implementation programme. Key next steps include:
- Expanding capacity-building efforts to enhance understanding of nature-related risks.
- Developing methodologies for integrating biodiversity into risk management.
- Leveraging new tools and data sets to facilitate scenario analysis and reporting.
- Encouraging institutions to adopt TNFD recommendations proactively, aligning their strategies with emerging global biodiversity and sustainability standards.