Sustainable Finance: Why you should take note of TNFD
Green transition 10 June 2021 Lara Alvarez
A new market-led initiative aims to integrate environmental risks and opportunities into the investment decisions of all financial institutions and enterprises. In this article, our environmental economist, Lara Alvarez explains what it is and why you should take note. And eventually take action.
By Lara Alvarez
TNFD. Experts and decision-makers closely following the development within sustainable finance will know this abbreviation. Others may want to pay attention as of now. Today marks the official launch of the Task Force on Nature-related Financial Disclosures (TNFD) which is considered a giant step towards all organisations having a common framework to report and act on evolving nature-related risk and opportunity.
Backed by e.g. WWF and UNDP, the new Task Force aims to give organisations a clear picture of their environmental impact, and support a shift in global financial flows away from nature-negative outcomes and toward nature-positive. The theory being that a greater understanding of environmental impacts, improved supportive data, and clear decision-making criteria will scale up finance for nature-based solutions and reduce environmental degradation.
This builds upon the Task Force's success on Climate-related Financial Disclosures (TCFD), which is focused on mainstreaming the climate-related financial risks and opportunities into decision-making and has evolved from a voluntary set of recommendations to part of the regulatory framework in a growing number of countries.
Indeed, TNFD emphasises the interactions among climate and nature impacts and supports organisations to comprehend the scale of change needed to affect nature- and climate-positive change through their strategy and risk management processes. Furthermore, the TNFD aligns with the global targets of the Convention on Biological Diversity’s Global Biodiversity Framework seeking “no net loss by 2030 and net gain by 2050.”
Why is this important?
Estimates show that over 50% of global economic output – US$44tn of economic value generation – is moderately or highly dependent on natural resources and their flows, and that action for nature-positive transitions could generate up to US$10 trillion in annual business value and create 395 million jobs by 2030.
TNFD seeks to integrate and align existing initiatives, frameworks, and standards relevant to the natural economy, driving positive action and promoting ease, consistency, and volume of disclosure. These include, amongst others, the Natural Capital Protocol and BS 8632 Natural Capital Accounting for Organisations.
The TNFD framework promotes a four-pillar approach, structured around how organisations operate: governance, strategy, risk management, metrics and targets. Further, it will use the TCFD structure for classifying nature-related risks and opportunities: physical risks resulting from nature loss, and risks associated with the transition to a nature-positive economy (including policy, legal, technology, and market changes).
It is clear however that the TNFD framework will face unique challenges related to accessing decision-relevant data, metrics and methodologies that will require addressing during its development.
Why should organisations embrace TNFD?
We expect TNFD to become a mainstream and mandated approach to doing business in the near future.
Just as the pressure on businesses to act on the TCFD’s recommendations increases with time as part of the growing global efforts to address climate change, so will the pressure to act on TNFD’s recommendations in order to halt nature loss and address the looming biodiversity crisis. And it has the strong political wind in its sails, with the G7 Finance Ministers in June 2021 expressing unequivocal support for the TCFD and stating that they look forward to reviewing the recommendations from the new Task Force on Nature-related Financial Disclosures.
Organisations seeking TNFD alignment will have to expand the type of environmental disclosures and the approach they take to these, moving away from the traditional reporting of production outputs (e.g. tons of CO2 emissions, m3 of effluent discharges) to identify, assess and manage systemic nature-related risks and inform estimations of long-term risks specific to them.
This requires consideration of how the organisation (positively or negatively) impacts nature but crucially also how nature may (positively or negatively) impact the organisation’s financial performance in the short, medium and long term.
Leaders and early adopters have a unique opportunity to shape and test the TNFD framework, bringing their experience to the further development of the framework. But more crucially, in applying the framework organisations will generate decision-useful information on their impacts and dependencies on nature, and their associated risks and opportunities. This information will enable them to enhance the resilience of their operations and generate nature-positive impacts.
With the framework anticipated to be launched in 2023, the market's pace will be crucial. If a critical mass is achieved, the TNFD has the potential to have a real contribution to the reversal of nature loss and ecosystem degradation, and in doing so, support climate change mitigation.
How can Ramboll help?
Ramboll has a long track record in the application of natural capital and ecosystem services frameworks and provides strategic advisory services on the incorporation of natural capital considerations into decision-making. We are members of the TNFD Observer Group and will become members of the Stakeholders Group going forward.
This role has provided us with a unique insight to the framework and how to maximise the value of its application for organisations in all sectors.
In addition, we bring detailed experience in the application of the TCFD and the consideration of both physical and transition risk assessment for business in all sectors and all geographies. This work is supported by our esteemed climate scientists, strategy consultants, and environmental economists like me.
Please get in touch if you would like to know more or would like support for our organisation to take the first steps.
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