From measurement to action: getting prepared for TNFD

On 28 March, the Taskforce on Nature-related Financial Disclosures (TNFD) released the fourth version (beta v0.4) of its draft risk management and disclosure framework - the final beta version before its final release in September 2023. By highlighting new elements and changes made since v0.3 (released in November 2022), this blog provides insights for corporates and financial institutions to help them understand how to test the framework in the context of their own organisation.

These substantive enhancements and additions to the TNFD framework are another step forward in helping businesses to start to measure, manage and disclose their nature-related risks and opportunities. With six months to go before market-adoption of the final TNFD framework, organisations are encouraged to act now by piloting the draft framework and starting their journey towards a more sustainable, resilient future.

What is the TNFD and why is it important?

The TNFD is a global, market-led initiative that aims to develop a risk management and disclosure framework for organisations to report and act on evolving nature-related dependencies, impacts, risks, and opportunities. The TNFD was launched in 2021, with the ultimate aim of “supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”¹

The Taskforce consists of 40 members representing financial institutions, corporates, and market service providers, with over US$20 trillion in assets under management, and which is supported by a larger institutional base and a network of knowledge partners. The Taskforce has been developing the framework for over 1.5 years and will publish its final recommendations (v1.0) in September 2023 for market adoption.

“50% of the global economy is under threat from biodiversity loss. However, financial institutions and corporates currently do not have the information needed to understand how nature impacts the organization and how the organization impacts nature.” (World Economic Forum, 2023)

What’s new in v0.4?

The TNFD beta v0.4 release draws on feedback from market participants on the previous beta releases and pilots. The core components and overall structure of the framework are consistent with v0.3 and are expected to remain the same in v1.0.

The figure below highlights the additions and changes in v0.4, some of the key elements of which are described further below.

1) Updated disclosure recommendations and guidance:

Updated general disclosure requirements for all sectors: the beta v0.4 release contains a revised set of general requirements that organisations should consider when applying the TNFD framework cutting across the four disclosure pillars:

1. Approach to materiality;
2. Scope of disclosures;
3. Identification of nature-related risks and opportunities based on assessment of dependencies and impacts;
4. Integrating the location of the organisation’s interface with nature into the assessment;
5. Integration between nature-related disclosures and other sustainability-related disclosures (including climate); and
6. Stakeholder engagement.

General requirements 1, 5 and 6 are new and additional to those originally provided in beta release v0.1.

Revisions to recommended disclosures for all sectors: following feedback from market participants, v0.4 contains important revisions to recommended disclosures for all sectors under the four pillars (governance; strategy; risk and impact management; and metrics and targets). These revisions strengthen and clarify the disclosure recommendations in a number of areas, with implications for interpretation and application by all organisations (e.g. in terms of scope, application across the value chain, and time-horizons).

Updated disclosure guidance for financial institutions: beta v0.4 release now provides a complete set of draft guidance for financial institutions to support them in implementing each of the recommended disclosures, complementing the guidance for all sectors. The guidance is applicable to all financial services industries prioritised by the TNFD, including banks, insurance companies, asset managers, asset owners, and development finance institutions (including public development banks).

2) Updated LEAP approach​ and guidance for all sectors:

Scoping and locate phase approach: following feedback from pilot testing, the Taskforce has updated the scoping questions for corporates following a similar structure to those for financial institutions. Guidance on the ‘Locate’ phase has also been enhanced, including refining the set of criteria to identify priority locations (a key challenge identified in pilots).

Risk assessment in ‘Assess’ phase: the new guidance describes three methods for undertaking nature-related risk assessment: (1) heatmaps, to determine areas in which to undertake further ‘deep dive’ analysis; (2) asset tagging, to focus on sectors, impacts and/or dependencies identified in heatmaps as potentially material; and (3) scenario-based risk assessment, to better understand the financial value of nature-related risks by leveraging scenario analysis. While the new guidance is primarily targeted at financial institutions, it is also relevant for corporates, particularly large corporates with complex value chains.

LEAP as an iterative process: reflecting feedback received during pilots, the visualisation of LEAP has also been amended to reflect that the ‘Locate’ and ‘Evaluate’ phases are often undertaken iteratively (e.g. by being repeated at differing levels of detail during screening and deep dive analysis), providing useful insights for both corporates and financial institutions.

3) New draft metrics and metrics guidance:

The TNFD distinguishes between ‘assessment metrics’, which are used internally by report preparers to inform management decisions (linked to the phases of the LEAP approach), and ‘disclosure metrics’ to be published on a comply or explain basis. The release of beta v0.4 expands and revises the TNFD’s measurement architecture across both types of metrics with:

• A full set of draft assessment metrics (across all phases of LEAP);
• Updated guidance on applying metrics for the Locate phase of LEAP;
• New guidance onmetrics for the Prepare phase of LEAP (response metrics); and
• Draft disclosure metrics, split into: (1) core disclosure metrics (global core metrics for all sectors; and core sector metrics; and (2) additional disclosure metrics.

These developments provide valuable additional detail and clarity in this important aspect of the TNFD framework, helping organisations that are (or are considering) running pilots to develop and refine their approach. Organisations are encouraged to familiarise themselves with disclosure metrics for both their own particular sector AND the core global metrics. v0.4 also includes a worked example for the agriculture and food sector and tropical forest biome, to help users understand and apply the metrics.

The metrics framework will continue to be revised based on further feedback, particularly around more challenging areas of application (e.g. in the context of organisations with complex value chains).

4) Guidance on target setting and scenarios

Targets: this v0.4 release provides new guidance on target setting (part of LEAP and disclosure recommendations), recommending applying the SBTN framework to set science-based targets for nature, and ensuring coherence with the monitoring framework of the Global Biodiversity Framework (GBF), and other globally recognized initiatives and regulations.

Scenario analysis: v0.4 also includes new draft guidance on the use of scenario analysis to help organisations explore how their nature-related risks might evolve in the future, and to test the resilience of their business strategy and financial planning. Organisations are encouraged to explore (and provide feedback on) the approach, materials and general guidance provided so far, to support further refinement of this element of the TNFD framework in the final v1.0 due in September.

5) Updated and additional guidance:

Additional LEAP guidance for key sectors and biomes​: Beta v0.4 release includes additional guidance related to specific sectors and biomes, to help organisations apply the LEAP framework in their own context. Sector guidance covers four key sectors (financial Institutions; food and agriculture; mining and metals; and energy, including oil and gas, power generation and utilities), providing additional sector-specific guidance for implementation of the LEAP approach. Biome guidance covers four key biomes (tropical forests; marine shelves; rivers and streams; and intensive land systems), helping organizations to understand their interconnections with nature.

Updated LEAP guidance on stakeholder engagement​: the updated guidance highlights the importance of considering indigenous peoples and local communities in the decision-making processes. It aims to help organisations integrate societal and cultural aspects of nature-related issues into the LEAP approach and recommended disclosures.

What can you do now?

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

Therefore, we recommend that market participants are proactive and start to get prepared, for example 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 online platform.
   
   
2. Testing: Run a TNFD pilot to test how the draft framework applies to your organisation, and to help you understand and start to manage your nature-related risks and opportunities.
   
   Is your organisation active in financial services, food and agriculture, mining and metals, or the energy industry? Review the specific supplement guidance for your sector to learn how you can apply the TNFD framework and disclose on nature in your sector.
   
   
3. Participating: Join the TNFD national consulting groups in your region to engage with your peers and provide further feedback on the framework.
   

Timeline of the TNFD framework development:

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

- A big LEAP towards a nature positive future

- Taking the next step for nature

- Measure to Manage: nature-related risks & opportunities

Looking ahead

After almost a year and a half of TNFD development, the TNFD’s final framework and disclosure recommendations (v1.0) are expected to be published in September 2023 for market adoption. From 30 March until 1 June 2023, the TNFD will carry out the general feedback process gathering market feedback on beta v0.4 , and will hold a formal consultation process to allow organisations and individuals to give their feedback as a formal comment letter via the TNFD website.

How we can help you

We can help you prepare for the TNFD and start to assess, manage and act on your nature-related risks and opportunities. This includes supporting you to determine your readiness for implementing the TNFD framework; piloting the draft TNFD framework (including LEAP process) in your organisation; as well as implementing targets, strategies, and investments to mitigate risks, capture new opportunities and build long-term value.

With our deep expertise and technical capability on nature and sustainability issues, our ongoing involvement in developing the TNFD framework, and insights from working with a wide range of organizations to help them prepare and run pilots, we are well placed to support you.

Get in touch with Guy Williams, Deloitte’s global nature lead and representative on the TNFD, or one of the contacts below, to discuss how we can help.