La Française AM: Ensuring that the bulls and the bears start working with the bees

Oct 20, 2023

The Taskforce on Nature-Related Financial Disclosures (TNFD) has managed to galvanise the movement on nature-related reporting in just two years – a feat which required about seven years for the Task Force on Climate-related Financial Disclosures (TCFD).

The forty-man strong taskforce (TNFD), weighing over US$20 trillion in assets under management, has reigned in the support of a large group of market and non-market stakeholders, soliciting input from more than 1 200 institutions and pilot-testing by 200 companies and financial institutions to prepare the final set of recommendations. Its open innovation approach is to be applauded.

So, it was amidst an overwhelming crowd of investors, corporates and regulators, that the TNFD released, on September 18^th, its final Recommendations for nature-related risk management and disclosures for corporates and financial institutions.

A suite of Additional Guidance documents was also released on the LEAP (Locate, Evaluate, Assess, Prepare) approach, science-based targets, engagement with affected stakeholders, biomes and scenario analysis, including a specific 'Additional guidance for financial institutions'. There are several other discussion papers that will be formalised after further consultation and feedback.

The goal of the framework has always been to encourage corporates and financial institutions to use disclosures for better decision making and ultimately to contribute to shifting global financial flows towards a nature-positive future, as envisaged in the Global Biodiversity Framework (GBF). The relative importance of private financing in that target is clearly reflected in the priority given to the financial sector, both in the testing phase and in the release of Additional Guidance documents.

Noteworthy additions to TNFD recommendations

Although inspired by the TCFD, the TNFD has a much broader scope. Whereas the TCFD had a strong focus on investors and financial materiality, the TNFD aims to allow all kinds of companies to prepare all kinds of disclosures for all kinds of audiences and purposes.

Organised around the four pillars (Governance, Strategy, Risk & Impact Management and Metrics & Targets), the TNFD framework includes further recommendations on locations, value chain and local people & indigenous communities.

These, along with the additional guidance documents, make sure a whole-of-value-chain and whole-of-society approach is followed. Nature is complex and the TNFD has made sure to capture this as much as possible.

The final set of recommendations, compared to the most recent beta version (release in March 2023), holds no major surprises. An additional metric, a plastic footprint, has been included in the set of 15 core metrics that all companies reporting under the framework will be required to disclose, regardless of their sector. As expected, the biodiversity footprinting metric, MSA.km², is not included in the set of recommended metrics under the framework but can be used in communications.

Early adopters, leading by example

With the recommendations now published, the TNFD intends to focus its efforts on promoting their adoption and is looking to early-adopters to set the pace. TNFD has reported that it expects 35% of institutions within the 'TNFD forum' to start using the disclosure recommendations by 2025 or earlier.

On the day of the release, Glaxo SmithKline committed to publishing its first TNFD disclosures starting in 2026, based on 2025 data. Equally encouraging, during several launch events across the globe, several companies, including Barclays and Reckitt Benckiser, expressed their support and intention to explore the recommendations in the coming days.

An inaugural cohort of TNFD Adopters, companies and financial institutions intending to adopt the recommendations, will be put under the limelight; their names will be announced at the World Economic Forum, this coming January in Davos.

In order to further enhance adoption, it is widely anticipated that regulators and lawmakers will incorporate the TNFD’s framework into their corporate reporting requirements, as done with the TCFD. The TNFD recommendations are also expected to feed into standards set by the International Sustainability Standards Board (ISSB), which is highly expected to serve as a baseline to harmonise sustainability reporting globally. Similarly, the Carbon Disclosure Project (CDP) has announced its intention to align its questionnaires with TNFD recommendations.

While no concrete plans have yet been announced, the TNFD has received millions of dollars in funding from Australian, Dutch, French, German, Norwegian, Swiss and UK governments — as well as from the UN.

Across the globe, government officials are publicly supporting the initiative. President Emmanuel Macron noted France’s active support of the TNFD, alongside Thérèse Coffey, UK Environment Secretary, who specifically called for UK businesses and financial institutions to engage with the TNFD recommendations. UK Treasury Lords Minister, Joanna Penn further indicated that the UK saw an opportunity with the TNFD to move faster on a regulatory regime for nature-related financial disclosures, as it did with the TCFD a couple of years ago.

Challenges remain

Although the TNFD is a major step forward, challenges lie ahead. It is going to be a daunting task for organizations to assimilate and filter what is relevant and feasible amidst the wide suite of disclosure recommendations and guidance documents.

For financial institutions, there is the added challenge of depending on the availability, quality and comparability of corporate disclosures. Thus far, organisations have been allowed discretion in determining materiality and the scope of their disclosures. Hence, it is highly likely that companies of a same sector will have different levels of disclosure. And there is always the looming threat that positive action be sidelined in favor of disclosures and 'Greenwashing'.

Additionally, work still remains for the TNFD guidelines to be included in finance-based reporting and requirements (i.e., ISSB standards) and to be more widely adopted by regulators. However, we have to acknowledge that disclosures are just a first step in taking action.

We cannot improve what we cannot measure, but thankfully, the TNFD recommendations represent a solid starting point for measuring where we are on nature and biodiversity. And as Tony Goldner, the Executive Director of the TNFD, said on the eve of the launch at the New York Stock Exchange, 'If we acknowledge that ‘business as usual’ is no longer an option and that nature needs to be brought into the heart of business and financial decision making, then we need a new mascot.' Bulls and bears need to work with bees.