Nature-related Risk and Opportunity Management and Disclosure
The Taskforce on Nature-related Financial Disclosures (TNFD) was launched in June 2021 as a response to the urgent need for better understanding and management of nature-related risks and opportunities. It was initiated by a group of organisations including Global Canopy, the UN Environment Program Finance Initiative (UNEP FI) and the World Wide Fund for Nature (WWF). The TNFD framework is a standardised approach for organisations to assess and disclose their dependencies and impacts on nature, enabling better-informed decision-making and risk management.
Understanding nature and the ecosystem
Ecosystems generate a continuous stream of advantages, or “ecosystem services”, to individuals and the economy. Ecosystem services are fundamental in recognising companies' reliance on natural resources and critical for managing corporate risks. A decline in natural capital will inevitably lead to a reduction in the provision of ecosystem services, which are indispensable for the productivity and robustness of organisations and society. Environmental assets supplying ecosystem services that profit businesses and the communities in which they operate demonstrates the interconnection between nature, society, and the economy. The diagram below illustrates this process:
Figure 1 Nature, business and society (extracted from Guidance on the identification and assessment of nature related issues: The LEAP approach)
TNFD builds on TCFD framework
TNFD follows a similar structure to the TCFD, using the same four thematic areas: Governance, Strategy, Risk Management, and Metrics and Targets. This alignment ensures that companies familiar with TCFD can easily adapt to TNFD, facilitating a complete view of climate and nature-related risks and opportunities. It replicates the 11 TCFD Recommended Disclosures (now incorporated into the ISSB reporting baseline) to help enable integrated climate and nature-related reporting.
How companies benefit from aligning to TNFD
- Enhance Risk Management: TNFD reporting helps companies identify and assess nature-related risks, such as supply chain disruptions, regulatory changes and reputational risks associated with biodiversity loss. By understanding these risks, companies can develop strategies to mitigate them and improve their business resilience.
- Improve Decision-Making: By integrating nature-related considerations into decision-making, companies can make more informed choices about investments, operations and partnerships. This can lead to more sustainable and profitable business strategies.
- Seize Opportunities: TNFD reporting also highlights opportunities for companies to benefit from nature-positive actions, such as investing in sustainable supply chains, developing new products and services and accessing new markets. This can lead to competitive advantages and improved financial performance. It also encourages early action by companies and financial institutions to begin reporting nature-related dependencies, impacts, risks and opportunities.
- Support Regulatory Compliance: As governments throughout the world introduce new regulations and policies to address biodiversity loss, TNFD reporting can help companies stay ahead of regulatory requirements and avoid potential penalties.
- Climate-nature nexus: TNFD employs an integrated approach to climate- and nature-related risks, scaling up finance for nature-based solutions.
Nature-related risk and opportunity assessment—the LEAP approach
TNFD has developed an integrated assessment approach called LEAP to guide organisations on nature-related risk and opportunity assessment. The LEAP approach has four phases:
- Locate the interface with nature
- Evaluate dependencies and impacts
- Assess risks and opportunities
- Prepare to respond and report
Common types of nature-related risks and opportunities encountered by companies
Nature-Related Risks |
Nature-Related Opportunities |
Habitat Degradation and Loss: Companies can face risks from the loss of ecosystem services, such as water purification, pollination and carbon sequestration, which can affect their operations and supply chains. |
Sustainable Products: Developing and marketing products that have a lower environmental impact can open up new markets and attract environmentally conscious consumers. |
Resource Scarcity: Overexploitation of natural resources can lead to scarcity, affecting the availability and cost of raw materials and water. |
Ecosystem Services: Companies can explore opportunities to provide or restore ecosystem services, such as carbon sequestration, water purification and pollination, which can generate new revenue streams. |
Natural Disasters: Increased frequency and intensity of extreme weather events, such as floods, droughts and wildfires, can disrupt operations and supply chains. |
Green Financing: Companies that demonstrate a commitment to sustainability can gain better access to green financing and investment opportunities. |
Compliance Costs: Stricter environmental regulations and policies to protect biodiversity can increase compliance costs for companies. |
Incentives and Subsidies: Governments can offer incentives and subsidies for companies that adopt nature-positive practices. By identifying and managing these risks and opportunities, companies can develop more resilient and sustainable business strategies that contribute to global efforts to halt and reverse biodiversity loss. |
Consumer and Investor Sentiment: Negative public perception of a company due to environmental damage can lead to loss of customers and investors. |
Stakeholder Trust: Demonstrating a commitment to biodiversity conservation and sustainable practices can enhance a company's reputation and build trust with stakeholders. |
Market Shifts: Changes in consumer preferences towards more sustainable products and services can affect demand for existing products. |
Resource Efficiency: Implementing more efficient use of natural resources can lead to cost savings and reduced exposure to resource scarcity risks. |
By identifying and managing these risks and opportunities, companies can develop more resilient and sustainable business strategies that contribute to global efforts to halt and reverse biodiversity loss.
