The TNFD: a framework for nature-positive investing

In this first Q&A of a series with LOIM experts, our Chief Nature Officer, Marc Palahi, considers how the Taskforce on Nature-Related Financial Disclosures (TNFD) framework promotes nature-positive investing by making nature a core and strategic risk management issue alongside climate change.

Launched in September 2023, the TNFD is a global, market-led, science-based and government-supported initiative to help companies and financial institutions factor nature into decisions. The TNFD recommendations provide companies and financial institutions with a risk management and disclosure framework to identify, assess, manage and, where appropriate, disclose nature-related issues.

 

Need to know: The TNFD initiative standardises guidance to support business and finance in integrating nature into their decision-making It offers a conceptual framework and a set of recommended disclosures Businesses that seize the opportunity to align with the principles can build sustainable value, boost stakeholder confidence and manage growing regulatory risk

 

Q1. Why is the TNFD important and why is a framework necessary for companies and financial institutions to disclose nature risks?

Nature is our most important capital and the basis for human health and wellbeing. The global economy depends 100% on nature, and therefore it is of crucial importance to understand these economic dependencies, both in terms of risks but also opportunities to create value and generate returns. Nature-positive investing is required to transform our economy so that we can transition towards a net-zero world that prospers in harmony with nature rather than at the expense of it.

A framework is needed to enable companies to understand and identify nature-related dependencies, impacts, risks and opportunities. This framework is a huge step towards providing standardised guidance to support business and finance in integrating nature into decision making. Ultimately, it supports a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.

 

Q2. What do the TNFD recommendations cover and how does this create potential for change?

The recommendations of the TNFD are aligned with the Kunming-Montreal Global Biodiversity Framework. The TNFD offers a conceptual framework and a set of recommended disclosures structured around four pillars: governance, strategy, risk and impact management, and metrics and targets.

The recommendations include six general requirements:

1. The application of materiality.
2. The scope of disclosures.
3. The location of nature-related issues.
4. Integration with other sustainability-related disclosures.
5. The time horizons considered.
6. The engagement of Indigenous peoples, local communities and affected stakeholders in the identification and assessment of the organisation’s nature-related issues.

 

Q3. How does the TNFD framework go about quantifying nature?

Nature is complex and multifaceted, and needs a framework based on robust principles – including science-based approaches and evidence – that is adapted to capturing this complexity. The TNFD’s LEAP approach – locate, evaluate, assess and prepare – helps to understand the key risk drivers and impact drivers, and key data sets used to measure nature.

The TNFD guidance leverages the work already done on climate disclosures in the Taskforce on Climate-Related Financial Disclosures (TCFD) framework because climate and nature are interrelated. The TNFD uses both global and sectoral metrics as well as additional disclosure and assessment metrics to provide a coherent framework adapted to nature.

 

Q4. The recommendations are not mandatory at the moment. Why should companies and investors start considering them now?

Over the next two decades, we need to put forward the greatest economic transformation in human history in order to move from an extractive and fossil-based economy towards a regenerative and circular economy that prospers in harmony with nature and is, ultimately, powered by nature. Businesses that seize the opportunity to align with the principles of the TNFD will lead the transition, building sustainable value and resilience in their operations and supply chains, as well as boosting stakeholder confidence and managing growing regulatory risk.

 

Q5. How could the framework help investors tap into the opportunities associated with nature-positive investing?

The TNFD framework is designed to help organisations understand their dependencies, risks and impact on nature, and act accordingly. Ultimately, such understanding and transparency will help to transform entire value chains across sectors – including food, fashion, building construction and chemicals– that have grown at the expense of nature and the climate. The initiative is a necessary step to create new nature markets and shift global financial flows away from nature-destructive approaches towards nature-positive business.  

 

Q6. In your role as Chief Nature Officer, you represent a kind of investment advocate for nature. Can you expand on this and what impact are you hoping to achieve?

My role is fundamentally about building a science-informed understanding of our economic dependencies on nature, both in terms of risks (how climate change and nature loss can disrupt and affect existing assets and sectors) and opportunities for creating value (investing in nature-based solutions and bio-based value chains). My contribution focusses on translating this knowledge into better investments that can catalyse the economic transformation that we need in order to achieve a nature-positive, net-zero economy by 2050.

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