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Nature- vs climate-based financial disclosure
Despite key differences from TCFD framework, firms set to start TNFD reporting by 2026
The Asset 27 Sep 2023

The international standards for sustainability just added a new set of rules on September 18 2023 with the publication by the Taskforce on Nature-related Financial Disclosure (TNFD) of its report entitled TNFD Recommendations, which is intended to guide corporates and investors when reporting their dependencies, impacts, risks and opportunities regarding the natural environment.

To facilitate a standardized and comparable reporting basis, the language and structure of the recommendations contained in the report are consistent with existing international standards and frameworks, such as those of the Taskforce on Climate-related Financial Disclosure (TCFD).

For example, the four core pillars of the TCFD – governance; strategy; risk management (called risk and impact management in the TNFD); and metrics and targets – are retained in the TNFD’s recommendations. In addition, of the 14 disclosure recommendations used by the TNFD, 11 are replicated from the TCFD for nature-related issues, with three extra recommendations that are uniquely applicable to the nature context.

However, beyond the similarity in structure and language, the TNFD and TCFD recommendations have at least three differences – scope, architecture and emphasis – that the TNFD in the report suggests companies may wish to consider when adopting their recommendations.

Scope

The first is the scope of focus. As their respective names suggest, the TCFD recommendations focus on financial risks brought about by climate change, whereas those of the TNFD fix on the financial risks concerning the broader natural ecosystem.

Understanding and disclosing nature-related issues, the TNFD states, are more complex processes than understanding and disclosing climate-related ones. Specifically, climate change is a global process that develops within one shared atmosphere, while (nature-related) processes like biodiversity loss and land degradation are regional and local phenomena that require location-specific responses.

Architecture

The second distinction of the TNFD framework is its architecture of action and target setting. On this matter, the TNFD recommendations are less uniform than those of the TCFD at the local assessment level. For the TCFD framework, there is an agreed approach on metrics when assessing emissions, which is done according to the GHG Protocol – a convention developed by the World Resources Institute and the World Business Council for Sustainable Development that categorizes greenhouse gas (GHG) emissions into three “scopes” – and a consensus among the various participating institutions on reaching the target of net-zero.

However, as the report points out, there are neither agreed metrics nor clear targets for local assessment when adhering to the TNFD’s recommendations as nature-related issues are unique and context-dependent. 

Emphasis

Finally, the TNFD framework places great emphasis on companies’ value chains, particularly the dependencies and impacts on nature of activities along them. Specifically, the TNFD recommendations in the strategy and risks/impact management pillars stress that organizations should not only disclose nature-related risks and opportunities in their direct operations, but also in their upstream and downstream value chains.

Consequently, for organizations conducting TNFD reporting, geographic variation, the report points out, is central to their assessment of nature-related issues and disclosure of material ones. This focus on location is less relevant when analyzing and recording climate-related Scope 1, 2 and 3 GHG emissions. The TNFD recommends that organizations use the LEAP approach – locate, evaluate, assess, prepare – when identifying and assessing nature-related issues, and has published a separate companion guide for it.

Early days

As an ambitious initiative, the TNFD notes that its framework is still in its early stages, with the framework’s current goal being to encourage and catalyze the market’s understanding of nature and undertake internal measures to integrate nature-related issues into organizations’ overall risk management.

As the understanding of nature grows, the TNFD says that it expects, as was the case with climate-related issues, that a stronger consensus will emerge on nature-related issues. For example, the TNFD Recommendations report mentions a recent survey of TNFD Forum members, in which over 86% of 239 respondents from 36 countries and across 11 sectors indicate that they feel they can, based on their financial year 2025 outcomes, start reporting on the TNFD recommendations by calendar year 2026.

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