After a two-year consultation process the Taskforce on Nature-related Financial Disclosures (TNFD) has issued a final set of 14 recommendations intended to corral capital in fight against environmental degradation.
Modelled on the Taskforce on Climate-related Financial Disclosures (TCFD), the TNFD framework aims “to inform better decision making by companies and capital providers, and ultimately contribute to a shift in global financial flows toward nature-positive outcomes”, according to a release.
In line with the TCFD trajectory, the new nature-based financial disclosure recommendations will likely be adopted by corporates, investors, regulators and others as reporting standards with some governments also expected to entrench the proposals in law.
“As with the adoption of TCFD’s recommendations, a number of governments have signalled their support for the TNFD and their intention to consider the recommendations of the Taskforce,” the report says.
The NZ government was the first to mandate TCFD-like reporting for a range of entities including banks, insurers, most listed companies and $1 billion plus licensed fund managers in a 2021 law – although other jurisdictions have since followed suit. Under the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act, about 200 NZ entities are due to produce their first climate reports next year.
While the new TNFD recommendations follow a similar structure to the climate-related precedent of four broad “conceptual pillars” – governance, strategy, risk and impact management, and, metrics and targets – the report notes some fundamental differences between the two subject matters.
“Nature-related impacts and dependencies, by contrast [to climate], are location specific, and therefore require local, context-specific assessment and responses. Understanding where interactions with nature occur is of paramount importance to the identification, assessment and management of nature-related issues,” the TNFD paper says.
And unlike the clear carbon-based climate metrics “there is no universally agreed global architecture for measurement and reporting for nature comparable to the Greenhouse Gas Protocol”.
Nevertheless, the TNFD designers – a global collaboration involving 34 taskforce members and input from 1,200 institutions across 58 jurisdictions – expect the framework to better-link capital allocation decisions to factors such as biodiversity and water quality.
Estelle Parker, Responsible Investment Association of Australasia (RIAA) executive manager, said the industry body would lobby both the NZ and Australian governments to formally adopt TNFD reporting.
RIAA was the official convenor of the NZ and Australian TNFD consulting group.
“The beauty of TNFD is that it provides investors with consistent, comparable information to inform decision-making and has sought to make information about something that is inherently complex accessible, bringing the language of science and finance together. This should sit alongside climate and financial information to help understand material risk,” Parker said in a statement.
In addition to the 154-page recommendation report, the TNFD released a series of “cross-sector guidance” notes covering subjects such as biomes, scenario analysis, target-setting and financial institution-specific issues.