A Task Force on Nature Related Financial Disclosure (TNFD) Requirements Explainer - Last Updated: June 28, 2022

What is the Task Force on Nature Related Financial Disclosure (TNFD)?

The Task Force on Nature-related Financial Disclosures (TNFD) is a set of guidelines to help companies disclose nature and environment-related financial risks and opportunities to investors, lenders, insurers, and other stakeholders. TNFD is an international initiative that builds on the framework and model established by the Taskforce on Climate Related Financial Disclosures (TCFD).

TNFD as a Regulatory Requirement

TNFD's predecessor, TCFD, is one of the leading sustainability reporting and climate risk standards for large corporations around the world. In the United Kingdom, the Financial Conduct Authority (FCA) has made annual TCFD reporting mandatory for over 1,300 of the country's largest UK-registered companies and financial institutions. This includes most of the UK’s largest publicly-traded companies, banks and insurers, as well as private companies with over 500 employees and £500 million in turnover.

Whereas TCFD focuses on climate risk, TNFD extends TCFD by providing a new set of recommendations to help organizations develop strategies and disclosure around nature and environmental risks, including biodiversity loss and and ecosystem deterioration.

TNFD has already been endorsed by the G7 Finance Ministers from the U.S., EU, UK, Canada, Germany, France, Italy, and Japan, and we expect it to become a favored ESG risk framework starting in 2023.

How TNFD is Designed and Structured

Like TCFD, TNFD recommends a company's board and executive leadership discuss, answer, and report annually on 10 questions about the company's nature-related risks, opportunities, and strategy. TNFD is divided into four sections:

1. Governance - The organization's governance and leadership around nature-related risks, strategy, and opportunities
2. Strategy - The actual and potential impacts of nature-related risks and opportunities on a company's business and financials, and the strategy to address, adapt, and/or reduce those risks
3. Risk Management - The process the company uses to identify, assess, and manage nature-related risks
4. Metrics and Targets - The metrics and targets used to assess a company's nature-related risks, opportunities, and performance

TNFD defines nature as the natural world, with an emphasis on the diversity of living organisms (including people) and their interactions among themselves and with their environment. In terms of boundaries for defining "nature"-related risks and opportunities, TNFD recommends evaluating four realms:

1. Land
2. Freshwater
3. Oceans
4. Earth's Atmosphere

How should companies identify and assess nature-related risks and opportunities? Here, TNFD recommends a four-stage, nature-related risk and opportunity assessment process called LEAP (Locate, Evaluate, Assess, Prepare)

1. Locate - Identify and locate your organization's most material interface points with nature across its operations and value chain
2. Evaluate - Evaluate your top nature-based dependencies and impacts
3. Assess - Map your top risks and opportunities
4. Prepare - Develop governance structure, systems, processes, and information to respond and report around nature-related risks and opportunities to investors and other stakeholders

TNFD then recommends companies apply four general requirements across all four pillars when preparing disclosures:

1. Identification of material nature-related risks and opportunities should be based on an assessment of nature-related dependencies and nature impacts
2. Consideration of the organization’s interface with nature at specific locations should be integral to the assessment, recognising that nature-related dependencies and nature impacts occur in specific ecosystems
3. Consideration should be given to how the organization ensures that the correct skills and competencies are available to assess nature-related risks and opportunities, and oversee strategies designed to respond to those risks and opportunities
4. A statement should be provided regarding the scope of current disclosures and what further disclosures are planned in the future

Metrics and Targets in TNFD vs. TCFD

Unlike other sustainability reporting frameworks like GRI, TNFD does not recommend nature-related risk metrics or KPIs. We expect this will pose challenges for organizations looking for clear metrics and actionable structure.

Whereas TCFD endorses Scope 1, 2 and 3 greenhouse gas (GHG) emissions as a universal sustainability KPI, the current beta version of TNFD provides no equivalent metrics guidance. How your organization chooses to design and measure the implementation and success of its science-based targets for nature and risk management is currently left to the reporting company. Our hope is future versions of TNFD return with clearer recommendations in this area.

Specifically, TNFD notes:

While the measurement of natural capital and ecosystem services has progressed, there is not yet consensus in the market – in principle or in practice – on a comprehensive approach to measuring nature-related dependencies, impacts, risks and opportunities. A landscape assessment undertaken by the TNFD found that there are more than 3,000 different nature-related metrics in use already today by standards bodies, policy making and regulatory bodies and in major scientific reference reports. The lack of standardisation of nature-related metrics limits corporate and financial institution measurement, management and reporting of nature-related risks and opportunities and poses challenges for providing comparability in a practical way across and within sectors, one of the key requirements emphasised by market participants.

Broadly, TNFD aligns itself with the goals of:

In many ways, the corporate equivalent would be even more complex, broad, and multifaceted than a Net Zero of Carbon Neutral pledge, but we suggest companies consider this analogy as an initial reference point. Moreover, either principle could be scoped down by boundaries like geography and/or value chain, making it more actionable and relevant to a specific organization.

In version 0.2, TNFD introduces and outlines a draft architecture for measurable "impact drivers," which can also serve as reference inspiration for nature-based KPIs:

Source: TNFD, v0.2

TNFD and the International Sustainability Standards Board (ISSB)'s Sustainability Standards

Recently, there's been significant international activity to consolidate and standardize global sustainability guidance and reporting standards. From the outset, TNFD states its intent to align itself with the International Sustainability Standards Board (ISSB)'s Sustainability Reporting Standards.

This is encouraging news. For one, it reduces standards clutter. Second, it also suggests TNFD will adopt IFRS-endorsed environmental sustainability metrics, which should streamline TNFD reporting, as well as provide clearer nature-based KPIs for future TNFD disclosure.

Required TNFD Questions

To meet TNFD's disclosure requirements, your organization is required to answer and report the following questions each year:

1. Describe the board’s oversight of nature-related risks and opportunities
2. Describe management’s role in assessing and managing nature-related risks and opportunities
3. Describe the nature-related risks and opportunities the organization has identified over the short, medium, and long term
4. Describe the impact of nature-related risks and opportunities on the organization’s businesses, strategy, and financial planning
5. Describe the resilience of the organization’s strategy, taking into consideration different climate and nature-related scenarios
6. Describe the organization’s processes for identifying and assessing nature-related risks
7. Describe the organization’s processes for managing nature-related risks
8. Describe how processes for identifying, assessing, and managing nature-related risks are integrated into the organization’s overall risk management
9. Disclose the metrics used by the organization to assess nature-related risks and opportunities in line with its strategy and risk management process
10. Describe the targets used by the organization to manage nature-related risks and opportunities and performance against targets

A Few Helpful Recommendations

Your Next Steps With TNFD Reporting

Right now, TNFD is still in draft form, with the final version targeted for release in September 2023. That's welcome news, because it gives organizations time to invest in sound TCFD governance and practice understanding. Those learnings can then be applied to TNFD as well - ahead of investor and regulatory adoption.

For organizations in the earlier stages of their ESG and climate risk reporting journey, we have a few general recommendations, additional reading, and suggested next steps:

Materiality assessment - Before preparing your first TCFD or TNFD report, it’s often beneficial to conduct a “Materiality Assessment” to help clarify your what your company's climate, environmental, and nature-related risks, opportunities, and reporting objectives are. A materiality assessment is a project which determines and ranks the most material themes for your business based on market data, stakeholder interviews, and surveys. For example, a an argriculture company might focus on nature-related risks around land management, wildlife ecosystems, and related natural system impacts. A A bank should look at its portfolio and asset environmental ecosystem risks from climate change, deforestation, and other biodiversity implications. Pick and rank the most relevant nature and biodiversity themes depending on your organization’s industry, business model, risk exposure, value chain, and geographic footprint.

Nature, climate, and ESG data systems and process - While this might go without saying, in order to report your organization's climate or environmental performance, you need to know what it is - with a high degree of accuracy. Your materiality process can help guide you toward the main nature-related risks and strategy themes to focus, but we recommend taking that further with dedicated sustainability software to measure all your environmental KPIs. Many organizations start their sustainability reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger companies - and it's important to have climate and nature-related reporting systems that provides full audit measures, activity logging, and secure user access permissions to help organizations stay ESG compliant. Ongoing report archiving, version control, and governance are also important to think about, since you'll be reporting every year.

Further reading - Our free guides to climate risk, sustainability measurement, and ESG reporting provide additional, detailed guidance and insights on how to measure and report your nature-related performance and risks.

Nature-related disclosure is starting to appear inside mandatory reporting regimes, most notably through the EU’s ESRS. For where nature reporting sits within the wider regulatory landscape, see our overview of global ESG regulations.