Measure to Manage: nature-related risks & opportunities

Following the launch of the third version of the TNFD framework (beta v0.3) we look at the new components and give guidance on what corporates and financial institutions can do now.

What is the TNFD and why is it important?

The Taskforce on Nature-related Financial Disclosures (TNFD) is a global, market-led initiative with a mission to develop a science-based risk management and disclosure framework for organisations. The TNFD is an important component of global efforts to help reverse the escalating nature crisis, which is pushing nature to the brink, and generating rapidly rising risks for businesses and their supply chains, while threatening stability in the finance system and wider economy. The TNFD's ultimate aim is to support “a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes” (TNFD, 2022).

What is new in v0.3?

This TNFD release v0.3 draws on market feedback on previous beta releases. Over 130 corporates and financial institutions are now also pilot testing the framework.

The previous two beta releases outlined three core components: a clear language system, a draft of disclosure recommendations, and practical guidance on nature-related risk management process:

Timeline of the TNFD Framework

The new components in beta v0.3 version include:

1. Updates and additions to concepts and definitions
2. LEAP (Locate, Evaluate, Assess and Prepare): enhancements to the approach
3. Further development of the approach to metrics and targets
4. Additional guidance on the disclosure recommendations for financial institutions
   

1. Concepts and definitions

In this release, fundamental concepts related to nature are updated and critical new ones are added, such as stakeholders and rights-holders.This shows that the TNFD recognizes broader stakeholder engagement as an important component in the risk and opportunity assessment.

For a complete overview of updated and new definitions and concepts, e.g. science-based targets (SBTN) and related to scenarios, refer to the TNFD for the glossary.

2. LEAP

TNFD’s beta v0.1 proposed a step-by-step approach to guide organisations through the assessment of their nature-related impacts, dependencies, risks and opportunities. The four phases of Locate, Evaluate, Assess and Prepare are further broken into sub-steps that help organisations answer critical questions and tasks to assess nature-related risks and opportunities.

There are four major revisions:

• Additions to the initial Scoping phase, before starting with the Location phase, organisations are asked scoping questions. The importance has been made clear for financial institutions, and now also for corporates, particularly for large ones with global and complex supply chains;
• The TNFD complements the Evaluate phase, with guidance for positive impacts. A positive impact on nature can be established by (i) reducing pressure on nature (impact mitigation), via e.g., circular economy measures and by (ii) regenerating and restoring nature and its services (positive impact);
• Throughout the Assess phase, the opportunities are now also considered alongside the risks;
• A further important addition is the ‘stakeholder and rightsholder engagement’ consideration which runs throughout all LEAP phases.

3. Metrics and targets

The metrics and targets section offers an integrated and overarching architecture for nature-related indicators, metrics and targets that can be applied in the LEAP approach.

The v0.3 release focuses on the third phase, Assess, in which impacts and dependencies are translated into risk and opportunities. By giving additional guidance on:

• Identifying the material risks and opportunities based on the output on impacts & dependencies of the Evaluate phase;
• Using the TNFD proposed magnitude metrics to assess the financial implications to the organisation of nature-related risks and opportunities;
• Prioritising the risks and opportunities by scaling them from high to low.

The above steps can be taken by learning from a set of illustrative categories of nature-related risks and opportunities and their proposed magnitude indicators.

4. Additional guidance

The TNFD is developing specific sector guidance for a defined set of priority sectors. In this version, it released a first set of supplemental guidance for financial institutions on the disclosure recommendations for three of the four TNFD pillars: Strategy, Risk management and Metrics & Targets. Financial institutions are recommended to disclose quantitative and qualitative information regarding their specific businesses, clients, products and services. For example, the disclosure on the processes for managing nature-related risks may include adjustments to the pricing of their products or the portfolio composition.

What can you do now?

We expect the TNFD to become a market-leading framework for nature-related disclosures given the rising expectations of organisations, institutional investors, and regulators. With growing convergence around global reporting standards and increasing focus on the net zero transition, regulation on nature is likely to follow.

Therefore, we recommend market participants be proactive and start using the framework by:

1. Engaging: Become a member of the TNFD forum, engage, keep up-to-date on the latest TNFD developments, and provide your feedback via the platform.

2. Testing: Start using pilot guidance of the TNFD framework to help you understand your organisation’s impacts and dependencies on nature and integrate nature alongside climate in your risk management framework.

• Are you a financial institution? Have a look into the specific supplement guidance for financial institutions to learn how the TNFD recommends you to disclose on nature.

3. Participate: Join the TNFD national consulting groups to engage with your peers and provide further feedback to the framework.

Our blogs explaining the previous versions of the beta framework, v0.1 and v0.2, give more background on the building of v0.3:

• A big LEAP towards a nature positive future
• Taking the next step for nature

Download our overview of the framework here.

Looking ahead

Beta v0.4 is expected in March 2023. This will include further developments on metrics and targets (including alignment with SBTN) and on guidance for specific sectors, such as agriculture & food, energy, mining & metals, as well as additional guidance for realms and biomes, e.g., tropical forests.

The final release (v1.0) in September 2023 is expected to deliver a complete set of disclosure recommendations and definitions with complementary guidance on data and scenarios, as well as on realms, biomes, sectors and nature-related issues. The final framework will also include the final version of the LEAP process.

How we can help

We can help you prepare for the TNFD and start to assess, disclose and manage your nature-related risks and opportunities. This includes supporting you to understand your organisation’s nature-related risks and opportunities; piloting the draft TNFD framework; implementing targets, strategies, and investments to mitigate risks. We have expertise and deep technical capability in nature and sustainability. Our support in the development of the TNFD and working with a wide range of organisations to prepare and pilot for the TNFD, makes us well placed to support you.