The TNFD: harmonising standards for stewardship on nature

In this third Q&A of a series with LOIM experts, our stewardship team considers what the Taskforce on Nature-Related Financial Disclosures (TNFD) framework means for our engagement actions. The first insight gave investors the big picture of the framework while the second insight delved into implications for companies and asset allocation.

 

Need to know: The TNFD recommendations lay the foundations that we use in our stewardship activities to express investor expectations on nature and biodiversity As it promotes collaboration between governments, investors and industry associations, the initiative helps build a shared understanding of the importance of nature and the urgency of action Using the TNFD framework provides LOIM with a standardised approach to engage with companies and discuss nature-related risks and opportunities: it provides a common language and set of metrics for all investors

 

Q1. What are the key aspects of the TNFD in terms of stewardship and helping guide companies towards a nature-positive economy?

The TNFD has established a clear framework built upon four key pillars: governance, strategy, risk and impact management, and metrics and targets. These pillars closely align with those of the Taskforce on Climate-related Financial Disclosures (TCFD), making it easier for companies to understand and implement the TNFD recommendations.

The TNFD recommendations will help to frame our engagements with companies on nature and biodiversity. It provides context and lays out the foundations that we can then express to companies in terms of investor expectations.

By following the recommendations and providing the recommended disclosures for each pillar, companies can effectively align their operations with a nature-positive economy. This framework not only helps companies mitigate risks but also provides opportunities to generate innovation, sustainable growth, and a positive impact on nature.

 

Q2. Why is the framework’s collaborative approach important?

The TNFD promotes collaboration among various stakeholders, including governments, investors and industry associations. This approach fosters collective stewardship by facilitating knowledge sharing and dialogue. The initiative aims to build a common understanding of the importance of nature and the urgency of action.  

This is perfectly in line with our stewardship ambitions for 2023 and beyond. On the one hand, we aim to increasingly favour collaborative initiatives over individual engagements in order to leverage on the influencing power of the collective. On the other hand, we strive to expand beyond direct corporate engagement and engage across the value chain, including with industry associations, policymakers and sovereigns.

The TNFD framework will also serve as a reference for our proxy voting activities – where we set out our expectations of investee companies regarding their commitment to the protection and restoration of nature and biodiversity ­– and corresponding voting instructions where we are equity shareholders.

 

Q3. How does LOIM engage with companies on how they are responding to and managing nature-related risk?

LOIM recognises the importance of engaging with companies on nature-related risks and has developed a comprehensive approach to address these issues. Through our 3+1 framework, LOIM has identified land and oceans as one key system requiring transformative change. Our engagements with companies focus on several topics related to nature-related risks. These are:

Disclosures. One area of engagement is centred around disclosures. LOIM actively participates in the annual non-disclosure campaign run by the Carbon Disclosure Project (CDP) and encourages companies to respond to the forest survey. This questionnaire focuses on gathering information from companies regarding their impact on forests and deforestation-related risks. The survey is part of the CDP's broader efforts to encourage corporate transparency and action on environmental issues.

Deforestation. Another significant area of engagement for LOIM is deforestation. LOIM has developed a dedicated engagement framework that incorporates an in-house deforestation management risk tool. This tool allows LOIM to assess companies' deforestation risks and engage with them on developing robust strategies to mitigate these risks.

Notable initiatives. LOIM also actively participates in collaborative initiatives aimed at addressing nature-related risks and promoting sustainable practices. Two notable initiatives that LOIM is part of are the FAIRR Manure Management Campaign and Nature Action 100.

Targeted biodiversity engagement. LOIM focuses on biodiversity challenges in sectors that are essential to the sustainability transition. For example, we individually engage with companies operating in the aluminium industry, recognising its significance in various transition sectors and its potential impacts on biodiversity. Through targeted engagements, LOIM encourages companies to integrate biodiversity considerations into their operations and supply chains, promoting responsible practices that support the transition.

More generally, we use frameworks, tools and sector-specific engagements to ensure a comprehensive understanding of how companies are addressing nature-related risks. Through ongoing dialogues and collaborative efforts, we aim to facilitate the transition towards a more sustainable and nature-positive economy.

 

Q4. How will the TNFD framework impact LOIM’s stewardship?

The TNFD framework will have a significant impact on LOIM's stewardship efforts on nature. It will enable us to initiate and structure our dialogue with companies regarding their nature-related impacts and dependencies. By adopting the TNFD framework, LOIM will have a standardised approach to engage with companies and discuss nature-related risks and opportunities.

One key benefit of the TNFD framework is that it provides a common language and set of metrics for all investors. This allows LOIM to align its approach with other investors, fostering collaboration and enabling effective comparison and benchmarking of companies' nature-related disclosures. In joining the Nature Action 100 collaborative engagement initiative, we have joined forces with other investors to engage with companies on biodiversity and nature-related issues based on the TNFD framework.

 

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