The Taskforce on Nature-related Financial Disclosures (TNFD) released the Nature-related Risk & Opportunity Management and Disclosure Framework.

The TNFD is a global, market-led initiative with the mission to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks and opportunities. The framework incorporates nature-related risk and opportunity analysis into the heart of corporate and financial decision-making. The framework prototype is now available for feedback from market participants.

More than half of the world’s economic output – AUD$56.8 trillion of economic value generation – is highly or moderately dependent on nature. Despite this, most organisations inadequately account for nature-related risks and opportunities in their decision-making.

Demand for disclosure from investors and others is widespread. For many investors, company disclosures on climate are considered essential for their full disclosure of material risks. Organisations should describe the organisation’s governance around nature-related risk and opportunities. Large asset managers play a catalytic role since they influence the organisations they invest in to provide nature-related financial disclosures and strengthen their management of nature-related risks and opportunities.

Governance

Organisations should discuss how the board of directors and management assess and manage nature-related risk and opportunities. This information supports assessments of whether nature-related risks and opportunities receive appropriate board and management attention.

Strategy

Organisations should disclose the actual and potential impacts of nature-related risks and opportunities on the organisation’s businesses, strategy, and financial planning, where such information is material. The board and management should evaluate the resilience of the organisation’s strategy, taking into consideration different scenarios.

Risk management

Organisations should describe how they identify, assess, and manage nature-related risks. They should discuss how processes for identifying, assessing, and managing nature-related risks are integrated into the organisation’s overall risk management.

Metrics and targets

Organisations should describe quantitative and qualitative performance indicators and aims related to nature-related risk and opportunities, based on nature dependencies and impacts. They should describe the targets used by the organisation to manage nature-related risks and opportunities and performance against targets.

The TNFD draft disclosure recommendations provide guidance for all sectors. Further specific guidance for individual sectors will be developed and included in subsequent beta releases of the TNFD framework. Proper identification of material nature-related risks and opportunities should be based on an assessment of nature-related dependencies and nature impacts. Consideration of the organisation’s interface with nature at specific locations should be integral to the assessment, recognising that nature-related dependencies and nature impacts occur in specific ecosystems. Organisations should describe the board’s oversight of nature-related risks and opportunities, including processes and frequency by which the board and/or board committees are informed about nature-related risks and opportunities.

Organisations should describe how resilient their strategies are to nature-related risks and, where relevant to the organisation, future scenarios consistent with increased nature-related physical and transition risks. They should consider discussing the impact on product and services, supply chain and value chain, nature-related adaptation activities, investment in research and development, operations, acquisitions or divestments, access to capital, and the scenarios and associated time horizon(s).

The TNFD’s LEAP approach for corporates involves four core phases of analytic activity:

1. locate the interface with nature
2. evaluate dependencies and impacts
3. assess risks
4. prepare to respond to nature-related risks and opportunities and report.

These four core phases are broken down into 17 analytic components for corporates and each framed by a guiding question.

Organisations can use the TNFD framework to promote more informed investment, credit, and insurance underwriting decisions. The TNFD also aims to provide better information to support strategy and risk management at the board and management level, and ultimately improve capital allocation and asset valuation decisions by corporates. The TNFD draft disclosure recommendations may also be used by public authorities to assess and manage systemic nature-related risks and inform macro-prudential policies and responses.