TNFD makes major contribution to sustainability reporting landscape
21 September 2023
Key takeaways
What you need to know:
- TNFD has published its recommendations and guidance to provide companies and financial institutions with a risk management and disclosure framework for nature-related risks and opportunities.
- These global recommendations are currently voluntary but jurisdictions including the UK have already said they will consider how they should be incorporated into domestic policy and legislation. The FCA has been a strong, public supporter of the development of TNFD and we expect the FCA to take the same policy position on TNFD reporting as it has done with TCFD reporting.
What you need to do:
- Use the TNFD guidance to identify, assess, manage and where appropriate disclose your organisation's dependencies and impacts on nature.
A summary of the major developments
The Taskforce on Nature-related Financial Disclosures (TNFD) has published the final versions of its disclosure recommendations and guidance. The recommendations aim to provide organisations with a risk management and disclosure framework to assess their dependencies and impacts on nature, the nature-related risks and opportunities material to them, and to support disclosures as part of their annual financial reports. Such disclosures are intended to provide decision-useful information to capital providers consistent with the International Sustainability Standards Board's (ISSB's) IFRS Standards and Taskforce for Climate-Related Financial Disclosures (TCFD) recommendations and thereby encourage a shift in global financial flows away from nature-negative outcomes. The TNFD recommendations also accomodate the material information needs of other stakeholders aligned with a broader materiality approach. The final versions follow the TNFD's beta version 0.4, which was published for consultation in March 2023, and there are some subtle but important changes between the final version and previous beta versions which firms should be aware of.
The TNFD disclosure recommendations have built on the TCFD's recommendations. There are some important differences in the way that climate and nature-related risk and opportunities are assessed. For example, whereas carbon can be categorised as an economic asset measured in tonnes of carbon dioxide or its equivalent, biodiversity dependencies and the physical transition risks associated with biodiversity loss are more complicated.
"Nature is no longer a corporate social responsibility issue, but a core and strategic risk management issue alongside climate change."
TNFD
The 14 TNFD recommendations are grouped according to the four TCFD pillars (governance, strategy, risk management and metrics & targets) and 11 of the recommendations mirror those of the TCFD with 3 additional recommendations.
The TNFD recommendations are voluntary and businesses are encouraged to register as TNFD adopters. Early adopters will be listed at an announcement at the World Economic Forum in Davos in January 2024. Organisations are encouraged to make TNFD-aligned disclosures sooner rather than later even if this means only doing so for part of their business. However, TNFD requires organisations to make the scope of their disclosures clear as part of their report. If the TNFD recommendations follow the same trajectory as the TCFD recommendations, it is likely that they will be mandated by individual jurisdictions or reporting standards. The CDP has committed to align its disclosure platform for corporates with the recommendations. In March 2023, the UK government indicated in its Green Finance Strategy that it would explore how the TNFD framework should be incorporated into UK policy and legislation. The FCA has long been a strong proponent of TNFD reporting and is expected to mandate TNFD reporting in the same way as it has for TCFD reporting.
Starting in 2024, the TNFD itself will track voluntary market adoption through an annual report.
The TNFD recommendations are accompanied by a knowledge bank and several publications including guidance on how to adopt the recommendations. The guidance sets out seven key steps to take on the path to adopting the recommendations, including internal engagement, gaining buy-in from the board and management and clear communication of plans and approaches.
The TNFD recommendations are another significant development in the sustainability reporting landscape, which has evolved rapidly in 2023 through the publication of the ISSB's sustainability disclosure standards and the EU Sustainability Reporting Standards (see Disclosures required under the IFRS's Sustainability Disclosure Standards (ISSB S1 and S2) (ashurst.com) and First European Sustainability Reporting Standards (ESRS) adopted (ashurst.com)). However, some commentators have suggested that the TNFD recommendations will lead to further corporate greenwashing.
