UK: Taskforce On Nature-related Financial Disclosures (TNFD) Recommendations: How Can You Comply?

Introduction

The TNFD recently published the final version of its recommendations to identify, assess, manage and disclose nature-related issues (the Recommendations). The framework provides organisations with guidance on how to report nature-related risks and aims to encourage financial institutions and companies to incorporate these risks and related opportunities into their decision-making processes.

Scope of the Recommendations

The 14 TNFD Recommendations are based on the same four pillars as the Task Force on Climate-related Financial Disclosures (TCFD) (see our article: New climate-related reporting requirements introduced for public and private companies and LLPs). The Recommendations have been developed in an effort to support streamlined sustainability reporting globally and build on the foundations of the TNFD's previous draft frameworks.

Who do the Recommendations apply to?

Reporting under the Recommendations currently remains voluntary and there is no clear scope yet of which organisations may be caught if the Recommendations are implemented into legislation. The TNFD's suggested approach to adoption is to deepen an organisation's understanding of the fundamentals of nature. To make the business case for nature and gain buy-in from the board and management, start with what the organisation has by leveraging other work, plan for progression over time and communicate the organisation's plans and approach. It should also encourage collective progress through engagement, monitoring and evaluation of the organisation's own adoption progress, and register the organisation's intention to start adopting the Recommendations.

What disclosures are required?

Governance

Organisations must describe the board's oversight of nature-related dependencies, impacts, risks and opportunities and describe management's role in assessing and managing these. Within this, they must also describe the organisation's human rights policies.

Strategy

Organisations must describe the nature-related dependencies, impacts, risks and opportunities they have identified over the short, medium and long term, and the effect these have had on their business model, value chain, strategy and financial planning. They must set out any transition plans or analysis of these factors which are in place, and describe the resilience of their strategy to nature-related risks and opportunities, taking into consideration different scenarios. Organisations must disclose the locations of assets and/or activities in their direct operations where possible, as well as upstream and downstream value chain(s) that meet the criteria for priority locations.

Risk and impact management

Organisations must describe their processes for identifying, assessing and prioritising nature-related dependencies, impacts, risks and opportunities in its direct operations and upstream and downstream value chain(s), as well as their processes for managing these. They must set out how these specific nature-related processes are integrated into and inform their overall risk management processes.

Metrics and targets

Organisations must disclose the metrics used to assess and manage material nature-related risks and opportunities in line with their strategy and risk management process, as well as the metrics they use to assess and manage dependencies and impacts on nature. They must set out the targets and goals they use to manage nature-related dependencies, impacts, risks and opportunities and their performance against these.

Interaction with other frameworks

The TCFD recommendations have become the leading climate reporting framework across many jurisdictions. The overarching aim of the Recommendations is to emulate what the introduction of the TCFD recommendations did for climate-related disclosures, but in relation to nature-related disclosures.

The 14 disclosures under the Recommendations are wider in scope than the TCFD recommendations. In particular, the Recommendations incorporate three recommendations which are nature specific. The close alignment of the Recommendations with the TCFD framework and the International Sustainability Standards Board (ISSB) standards is intended to harmonise reporting and facilitate the adoption of the Recommendations with as minimal administrative burden as possible.

By maintaining consistency with the ISSB standards IFRS 1 and IFRS 2, as well as the TCFD recommendations and the Global Reporting Initiative (GRI) Standards, the Recommendations aim to accommodate different jurisdictional approaches to the concept of materiality. The Recommendations take into account both the demands of parties involved with capital allocation decisions and the concerns of impact-focused stakeholders. The Recommendations have been developed upwards from a robust scientific platform, including assessments of the Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES) and climate input from the Intergovernmental Panel on Climate Change (IPCC).

Intended impact

Looking forwards, the TNFD is preparing additional sector guidance for especially high-impact areas, which will be released prior to COP28. The TNFD will begin to record voluntary adoption of the Recommendations over the course of 2024, before publishing an annual status update report setting out market uptake. The manner in which the Recommendations will impact the statutory reporting landscape should become clearer over the next few months. The UK government stated in its Green Finance Strategy that it will consider how the Recommendations should be implemented domestically in the final quarter of 2023.

Central to the Recommendations is the encouragement of direct voluntary adoption, the influencing of the voluntary disclosure standards landscape, and the subsequent shaping of future statutory reporting obligations.

Across our Legal, Technology and Risk Consulting teams we have significant experience of supporting businesses with change programmes and sustainable finance initiatives and requirements. This includes assisting organisations to assess impacts, conduct gap analyses, build programme plans and policies to deliver the required changes as well as providing ongoing support to them as they develop their governance, oversight and reporting processes. If you would like any further information about the Recommendations and how your business can incorporate the Recommendations into its decision-making processes and reporting, please contact us.

With thanks to Rebecca Bell for her contributions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.