All talk, no teeth
The Taskforce on Nature-related Financial Disclosures (TNFD) has released its final recommendations for companies and asset managers to manage and report on nature-related risks. More than $20 trillion in assets from 60 countries were represented over the two-year period it took to finalize the report, and it contains fourteen recommendations around governance, strategy, risk and impact management, and metrics and targets. The TNFD's aim is to assist corporations and capital providers in making more informed decisions, shifting global financial flows towards "nature-positive outcomes."
Under the framework, companies and asset managers are asked to voluntarily disclose their governance of nature-related dependencies, impacts, risks, and opportunities, including the effects these have on their business model, strategy, and financial planning, the ways they identify, assess and monitor nature-related risks, and any metrics and targets used to manage these risks. The TNFD indicates that similar to the Taskforce on Climate-related Financial Disclosures' (TCFD) initiatives, the recommendations are consistent with the global standards of the International Sustainability Standards Board, the Global Reporting Initiative, and the European Union's SFDR.
Market adoption of the recommendations will begin on a voluntary basis. Also, the task force will keep track of the adoption of the principles via an annual report starting in 2024. The TNFD expects companies to publicly commit to adopting the disclosure and reporting framework starting this week, with GSK already announcing its adoption. Meanwhile, a list of all adopters is set to be published at the World Economic Forum in Davos in January 2024.
Co-chairs of the TNFD, David Craig, the founder of Refinitiv, and Elizabeth Mrema, the UN Environment Programme's deputy executive director, emphasize the urgency of accounting for nature-related dependencies, impacts, risks, and opportunities. Nature risk is already present in the cash flows and capital portfolios of companies, they said, and scaling up action to restore the resilience of nature is now a global policy and regulatory priority. Additionally, considering the increasing extreme weather events, collapse of ecosystems, and extinction of species, nature risk has become a strategic risk management issue that businesses can no longer consider as a mere corporate social responsibility issue.
James Alexander, CEO of UKSIF, said: "We are delighted to see the finalised TNFD framework, which we are optimistic can encourage more meaningful corporate disclosure of nature-related risks and opportunities and help investors support projects which benefit nature.
"We encourage international standard setters and regulatory authorities to consider how the framework can be rapidly adopted into corporate reporting requirements. The ISSB should now turn its attention towards introducing comparable and decision-useful disclosure standards for biodiversity and ecosystem services, drawing heavily on the TNFD's finalised framework.
"A new biodiversity-specific standard will better support our members to address the financial risks posed by damage to the world's biodiversity."
Elizabeth Mrema, co-chair of the TNFD and deputy executive director of the UN Environment Programme, added: "Nature degradation is increasing and, with six of the nine planetary boundaries already breached, nature risk is financial risk. Yet to date, businesses have mostly considered nature to be an unlimited and free provider of critical inputs into their operations and value chains.
"Scaling up action to restore the resilience of nature is now a global policy and regulatory priority, and it is business-critical, posing significant long-term financial impact if not acted upon. Increasingly extreme weather events, the collapse of ecosystems and the extinction of species presents physical risks to business. Policy-making and regulatory attention stemming from growing community concern about nature loss also creates elevated transition risks. Business as usual is no longer an option and business and finance can no longer consider nature and biodiversity as just a corporate social responsibility issue. It is now squarely a central and strategic risk management issue."
David Craig, co-chair of the TNFD and founder and former CEO of Refinitiv, said: "Nature loss is accelerating, and businesses today are inadequately accounting for nature-related dependencies, impacts, risks and opportunities. Nature-risk is sitting in company cash flows and capital portfolios today. The costs of inaction are mounting quickly.
"Businesses and financial institutions now have the tools they need to take action. Building on the language, structure and approach of the TCFD and consistent with the ISSB's sustainability reporting baseline, the adoption of the TNFD recommendations represent a step-change in the momentum and capacity for business and finance to identify, assess and disclose their exposure to nature-related issues in a manner consistent with climate-related-reporting."
The 14 recommendations span four main areas: governance, strategy, risk and impact management, and metrics and targets.
Under the framework, companies and asset managers will be asked to voluntarily disclose their organisation's governance of nature-related dependencies, impacts risks and opportunities; the effects these have on their business model, strategy and financial planning; in what way the business identifies, assesses and monitors nature-related risks; and what metrics and targets are used to manage such risks.
The TNFD explained its recommendations were built on the ones released by the Taskforce on Climate-related Financial Disclosures (TCFD), and are in line with the global standards of the International Sustainability Standards Board as well as the Global Reporting Initiative and the EU's SFDR.
At first, market adoption of the recommendations will be on a voluntary basis, which the taskforce will track every year via the publication of an annual report, beginning from 2024.
The TNFD said it expects companies to start announcing their intention to adopt the disclosure and reporting framework as early as this week - with GSK having already pledged its adoption - while a list of adopters will be released at the World Economic Forum in Davos in January 2024.
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