What is the Taskforce on Nature-related Financial Disclosures?

The formation of the Taskforce on Nature-related Financial Disclosures was announced in July 2020, in response to growing global concern about the impacts of environmental changes on financial markets across the globe. Over the next three years, its founding members seek to create a guideline for measuring financial risk around nature-related issues and minimise the impacts of those risks through strategic financial disclosures.

Why is TNFD important?

The task force states that more than 50% of the world’s economic activity (specifically, its value generation) is dependent on nature. Moreover, the loss of natural resources, such as habitats, would present a huge financial risk. 

This means that there is an industry-wide lack of knowledge on the potential impacts of nature on financial performance, and vice versa a lack of knowledge around the by-products of financial activity on nature. However, climate change is relentless and will continue to occur.

The Taskforce on Nature-Related Disclosures (TNFD) has been formed because financial institutions are not currently realising the scale of this risk, or using their resources to manage it. Moreover, the widescale greenwashing taking place can be misleading for investors. Therefore, the TNFD aims to protect individuals against false green claims.

TNFD builds upon the pre-existing knowledge and frameworks of climate related financial disclosures. The purpose of this panel is to more effectively evaluate the financial and climate risk of various activities and to allocate capital accordingly (with more positive environmental impacts).

What is the Taskforce on Nature-Related Financial Disclosures?

The TNFD forum works together twofold in order to find, analyse and create a framework around:

• the impacts of financial institutions on nature
• the impacts of changes in nature on financial activity

Currently, the ‘knowledge base’ section of their resources touches upon a number of topics, including biodiversity loss, investment into Africa’s forests, the nature markets and the relationship between finance and ocean pollution. It is clear that there is a huge range of varying issues and likely that even once the framework is published, it will be subject to updates and changes.

Scope

There are four categories associated with the scope of the TNFD framework. The first is governance, which asks about what is currently in place to manage nature-related risk, and what further measures could be taken?

The second section relates to metrics, including whether companies are measuring the nature-related impacts of their business decisions, and how they are performing these calculations. 

The third part of the TNFD scope is around strategy. After calculating the impacts of their decisions, how are financial institutions changing their operations or investments in order to lessen their impact, or affect the environment in a positive way? What financial disclosure strategy should be enforced?

Finally, the scope mentions risk management. After identifying how changes in nature would affect business operations and investment allocations, how are financial institutions mitigating the risks?  

Timeline

After its introduction in July 2020, the taskforce on nature-related disclosures aimed to publish its original framework in 2023. However, there are a number of key phases that the regulation must undergo before compliance can begin.

1. The task force was announced in July 2020 and is then endorsed by the United Nations president. Interest was shown by a number of fundamental organisations
2. The tentative framework is created by 34 members, to be tested and revised in both emerging and developed markets
3. A consultation phase occurs in order to gather insights from regulators and environmental data sources
4. After revision, the official launch of the framework will occur
5. The TNFD will provide compliance for nature related financial disclosures and uptake guidance to financial institutions

Who must comply?

TNFD is comprised of 34 members from various organisations, such as the Managing Director from the Bank of America and the Chief of Staff at GlaxoSmithKline. These members are integral in the creation and testing phase of the framework.

After its proposed publishing in 2023, financial institutions across the globe will be required to comply with the disclosures and create nature-positive outcomes. While it’s not totally clear, we expect disclosures around risk, investments and impacts on both the financial and nature side to create sustainable development. 

Regulators will also play a key role in ensuring that compliance uptake occurs quickly and accurately. We expect updates from current disclosure procedures such as Regulation S-K to incorporate the new nature-related disclosures. 

It is important for industry players to stay up to date with the taskforce on nature-related financial disclosures, as well as other relevant regulatory updates. To ensure your business complies in all the right ways, demo our RegPlatform, which automates the end-end compliance journey for you.