Understanding TNFD: Integrating Nature Risks and Opportunities in Financial Decisions

In September 2023, the TNFD published its framework. It is designed to be easily applicable as it is aligned with ISSB and GRI and replicates the structure of all 11 climate-related TCFD disclosures. The Taskforce works closely with the Science Based Targets for Nature (SBTN) for the relevant metrics and targets. The TNFD assumes that large companies will report in accordance with the TNFD by the 2025 financial year. The task force makes it easy for companies. It has developed 14 recommended disclosures that are consistent with TCFD and ISSB, take into account different approaches to materiality and use the latest scientific evidence.

Table of Contents

What is the TNFD Framework?
The concepts in the TNFD framework
Is TNFD reporting mandatory?
What added value does TNFD reporting offer my company?
How can a TNFD report be prepared?
How I can help
FAQ

What is the TNFD Framework?

The TNFD Framework, also known as the Task Force on Nature-related Financial Disclosures, is a framework that aims to promote the integration of nature and biodiversity aspects into financial decisions. Similar to the well-known TCFD (Task Force on Climate-related Financial Disclosures), the TNFD aims to promote transparency and disclosure in relation to the impact of financial activities on nature.

The aim of the TNFD framework is to help financial institutions and companies of all sizes to identify and assess natural risks and opportunities and integrate them into their decision-making processes. This should ultimately help to promote long-term environmental sustainability and protect biodiversity.

The TNFD framework was developed in response to the growing realization that nature and biodiversity play a critical role in economic activity and that the financial community can play an important role in promoting conservation and sustainable use.

But how many companies can say with certainty that their business is not based on some form of commodity or has no negative impact on nature? Certainly some sectors are more in focus than others (e.g. food and beverage, pharmaceuticals, metals & mining, chemicals, textiles, energy and infrastructure), but any organization with vulnerable supply chains needs to assess and optimize its nature-related risks to prevent disruption and ensure long-term business viability. For example, understanding the case of Rügenwalder Mühle provides insights into how companies can embrace sustainability and nature-positive practices.

The concepts in the TNFD framework

TNFD defines natural capital as the stock of renewable and non-renewable natural resources such as plants, animals, air, water, soil and minerals. Natural capital consists of stocks of environmental assets (e.g. forests, coral reefs, agricultural areas) that can be found in the four domains (land, freshwater, ocean and atmosphere) and can be subdivided into ecosystems. These ecosystems are divided into biomes, which are usually determined by plant life, rainfall and temperature. Examples include tundra, coral reefs and savannahs, but also the urban and industrial biome.

These ecosystems provide benefits through ecosystem services, which are categorized into three types of services:

1. provisioning (e.g. crops, timber and water).
2. regulation and conservation (e.g. water flow and climate).
3. cultural (e.g. recreation and services).

Biodiversity is a distinct concept within nature and refers to the variability of organisms in the four domains. It is an essential characteristic that enables ecosystems to be productive, resilient and adaptable. One risk is that over the medium and long term, cumulative effects can drive ecosystems to a tipping point through environmental change and, in extreme cases, lead to an irreversible loss of biodiversity. This aspect is the focus of many regulations. As a result, SBTN's metrics and targets include biodiversity alongside freshwater, land, ocean and climate (the latter integrating SBTi).

For further insights on biodiversity credits and how they relate to the TNFD framework, see our comprehensive guide on Navigating Voluntary Biodiversity Credits.

Is TNFD reporting mandatory?

In countries such as the United Kingdom and Switzerland, publication based on the TNFD has already been made mandatory.

The TCFD was also optional at the beginning, but was ultimately incorporated into the CSRD through the development of the European Sustainability Reporting Standards (ESRS). It is to be expected that the TNFD will also find its way into EU directives, similar to how the implementation of ESG criteria has become a standard practice in sustainability reporting across Europe.

Why is the TNFD framework important for the promotion of biodiversity?

The link between financial practices and biodiversity is crucial for the long-term sustainability of our planet. Financial decisions can have a significant impact on nature, whether by investing in environmentally damaging projects or by promoting sustainable practices.

The TNFD framework plays an important role in integrating biodiversity into financial decisions by helping financial institutions and companies to identify and assess nature risks and opportunities. By disclosing this information, investors can make more informed decisions and encourage companies to pursue sustainable practices.

Examples of positive impacts of the TNFD framework on biodiversity include promoting investment in sustainable agriculture, protecting ecosystems and supporting companies committed to biodiversity conservation.

How does the TNFD Framework promote sustainable finance practices?

Sustainable finance practices are critical to advancing environmental and biodiversity goals. The TNFD Framework helps to integrate environmental factors into financial decisions by helping financial institutions and companies to identify and assess natural risks and opportunities.

By integrating environmental factors into financial decisions, investors can help promote sustainable practices and encourage companies to pursue environmentally friendly initiatives. Success stories of sustainable finance practices through the TNFD framework include investing in renewable energy, promoting environmental protection projects and developing financial products that support biodiversity conservation. More insights can be found in our article on navigating climate risk.

What added value does TNFD reporting offer my company?

Reporting in accordance with the Taskforce on Nature-related Financial Disclosures (TNFD) can create added value for your company for several reasons:

1. Risk management: TNFD reporting helps companies to identify, assess and manage nature-related risks. This includes both physical risks (e.g. natural disasters caused by climate change) and transitory risks (e.g. regulatory changes or shifts in market preferences). An improved understanding and management of these risks can help to minimize potential financial losses.

2. Investor relations: Investors and financial market players increasingly value sustainable investments and want to understand how companies manage environmental and sustainability risks. By reporting to TNFD standards, companies can be transparent about their risks and opportunities related to nature, which increases investor confidence and potentially leads to a better valuation in the market.

3. Regulatory compliance: In some regions and countries, requirements for the disclosure of sustainability risks are enshrined in law. TNFD reporting can help companies to comply with these regulatory requirements and avoid potential legal consequences at an early stage.

4. Market opportunities and innovation: Analyzing natural risks and opportunities can encourage companies to develop new business models, products or services that are both environmentally friendly and innovative. This can lead to differentiation in the market and open up new business opportunities.

5. Reputation management: Companies that take their responsibility towards the environment seriously and demonstrate this through appropriate reporting can strengthen their image and brand. This can improve customer loyalty and provide a competitive advantage over companies that are less transparent. Green claims will soon have to be substantiated.

6. Partnerships and collaboration: TNFD reporting can also open doors for partnerships with other companies, governments and NGOs. Such collaborations can be helpful in developing and implementing sustainable practices and technologies.

7. Long-term sustainability and competitiveness: By actively managing natural risks and opportunities, your company can ensure its long-term sustainability and competitiveness. This will help you to remain economically successful in a changing world.

By reporting in accordance with the TNFD, companies not only demonstrate their commitment to transparency and sustainability, but also position themselves strategically in an increasingly environmentally conscious and regulated market environment.

How can a TNFD report be prepared?

To better understand a company's nature-related interactions, the TNFD recommends using a LEAP (Locate, Evaluate, Assess and Prepare) approach to understand nature-related interactions and assess a company's environmental footprint.

The TNFD recommends that all organizations consider two basic guiding questions to ensure alignment with goals and expected outcomes of a LEAP assessment.

1. Create a working hypothesis: what are the organization's business processes and activities that are likely to have significant nature-related dependencies, impacts, risks and opportunities?

2. Align objectives and resources: Given the current level of capacity, capability and data within the organization, and given the company's objectives, what resource considerations (financial, human and data) and timelines are required and agreed for conducting an assessment?

Some companies that have piloted the LEAP approach have found it challenging to obtain reliable internal and external asset-level data along their value chains, as this is not usually part of the supplier intake process. Other pilot companies noted that their organizations had already collected this data for other due diligence activities (supply chain due diligence is worth mentioning here), such as carbon accounting or human rights reporting.

FAQ: Understanding the TNFD Framework

What is the TNFD Framework?

The TNFD Framework, also known as the Task Force on Nature-related Financial Disclosures, is a framework that aims to promote the integration of nature and biodiversity aspects into financial decisions. Similar to the well-known TCFD (Task Force on Climate-related Financial Disclosures), the TNFD aims to promote transparency and disclosure in relation to the impact of financial activities on nature.

Is TNFD reporting mandatory?

In countries such as the United Kingdom and Switzerland, publication based on the TNFD has already been made mandatory. The TCFD was also optional at the beginning, but was ultimately incorporated into the CSRD through the development of the European Sustainability Reporting Standards (ESRS). It is to be expected that the TNFD will also find its way into EU directives, similar to how the implementation of ESG criteria has become a standard practice in sustainability reporting across Europe.

Why is the TNFD framework important for biodiversity?

The link between financial practices and biodiversity is crucial for the long-term sustainability of our planet. Financial decisions can have a significant impact on nature, whether by investing in environmentally damaging projects or by promoting sustainable practices. The TNFD framework plays an important role in integrating biodiversity into financial decisions by helping financial institutions and companies to identify and assess nature risks and opportunities. By disclosing this information, investors can make more informed decisions and encourage companies to pursue sustainable practices. Examples of positive impacts of the TNFD framework on biodiversity include promoting investment in sustainable agriculture, protecting ecosystems, and supporting companies committed to biodiversity conservation.

How does the TNFD Framework promote sustainable finance practices?

Sustainable finance practices are critical to advancing environmental and biodiversity goals. The TNFD Framework helps to integrate environmental factors into financial decisions by helping financial institutions and companies to identify and assess natural risks and opportunities. By integrating environmental factors into financial decisions, investors can help promote sustainable practices and encourage companies to pursue environmentally friendly initiatives. Success stories of sustainable finance practices through the TNFD framework include investing in renewable energy, promoting environmental protection projects, and developing financial products that support biodiversity conservation. More insights can be found in our article on navigating climate risk.

What added value does TNFD reporting offer my company?

Reporting in accordance with the Taskforce on Nature-related Financial Disclosures (TNFD) can create added value for your company for several reasons:

• Risk management: TNFD reporting helps companies to identify, assess and manage nature-related risks. This includes both physical risks (e.g. natural disasters caused by climate change) and transitory risks (e.g. regulatory changes or shifts in market preferences). An improved understanding and management of these risks can help to minimize potential financial losses.
  
  
• Investor relations: Investors and financial market players increasingly value sustainable investments and want to understand how companies manage environmental and sustainability risks. By reporting to TNFD standards, companies can be transparent about their risks and opportunities related to nature, which increases investor confidence and potentially leads to a better valuation in the market.
  
  
• Regulatory compliance: In some regions and countries, requirements for the disclosure of sustainability risks are enshrined in law. TNFD reporting can help companies to comply with these regulatory requirements and avoid potential legal consequences at an early stage.
  
  
• Market opportunities and innovation: Analyzing natural risks and opportunities can encourage companies to develop new business models, products or services that are both environmentally friendly and innovative. This can lead to differentiation in the market and open up new business opportunities.
  
  
• Reputation management: Companies that take their responsibility towards the environment seriously and demonstrate this through appropriate reporting can strengthen their image and brand. This can improve customer loyalty and provide a competitive advantage over companies that are less transparent. Green claims will soon have to be substantiated.
  
  
• Partnerships and collaboration: TNFD reporting can also open doors for partnerships with other companies, governments and NGOs. Such collaborations can be helpful in developing and implementing sustainable practices and technologies.
  
  
• Long-term sustainability and competitiveness: By actively managing natural risks and opportunities, your company can ensure its long-term sustainability and competitiveness. This will help you to remain economically successful in a changing world.

How can a TNFD report be prepared?

To better understand a company's nature-related interactions, the TNFD recommends using a LEAP (Locate, Evaluate, Assess and Prepare) approach to understand nature-related interactions and assess a company's environmental footprint.

The TNFD recommends that all organizations consider two basic guiding questions to ensure alignment with goals and expected outcomes of a LEAP assessment.

• Create a working hypothesis: what are the organization's business processes and activities that are likely to have significant nature-related dependencies, impacts, risks and opportunities?
• Align objectives and resources: Given the current level of capacity, capability and data within the organization, and given the company's objectives, what resource considerations (financial, human and data) and timelines are required and agreed for conducting an assessment?

Some companies that have piloted the LEAP approach have found it challenging to obtain reliable internal and external asset-level data along their value chains, as this is not usually part of the supplier intake process. Other pilot companies noted that their organizations had already collected this data for other due diligence activities, such as carbon accounting or human rights reporting.

How I can help

I advise your company on integrating the TNFD framework implications into your sustainability strategy to achieve compliance and create value by optimizing business processes and governance mechanisms.

I analyze your company's interactions with the environment, identify key nature-related impacts, risks and opportunities, conduct a gap analysis of your current systems, provide guidance in the competitive and best practice context, develop an action plan for TNFD reporting preparation and advise on the stakeholder-oriented preparation of the TNFD report. Reach out today to discuss how we can work together to enhance your company's sustainability efforts and financial performance.