Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies. Central banks and financial supervisors are also increasingly recognizing nature loss as a source of systemic risk to financial systems and economies.
As climate-related sustainability reporting goes mainstream post the finalization of IFRS S1 and IFRS S2 standards, more organizations are recognizing that their business models and portfolios are highly dependent on nature and climate-related risks. Post release of the Taskforce on Nature-related Financial Disclosures (TNFD) recommendations in September 2023, nearly 320 entities from over 46 countries committed to start making nature-related disclosures as part of their annual corporate reporting for FY2023, FY2024, or FY2025.
Out of these 320 entities, 33% are financial institutions while 43% of these 320 entities are from Europe and 42% from Asia Pacific. This first cohort of adopters of the TNFD recommendations includes leading publicly listed companies across geographies and industry sectors representing USD 4 trillion in market capitalization; over 100 financial institutions, including some of the world’s largest asset owners and managers, representing USD 14 trillion in Assets under Management as well as banks, insurers, and other leading market intermediaries such as stock exchanges and audit and accounting firms. Among the notable financial institutions are NBIM (the largest single owner in the world’s stock markets, owning almost 1.5% of all shares in the world’s listed companies) as well as 7 of the 29 global systemically important banks (G-SIBs).
The TNFD has recently updated its recommendations that provide companies and financial institutions of all sizes with a risk management and disclosure framework to identify, assess, manage, and disclose nature-related issues. The recommendations include a set of general requirements for nature-related disclosures and a set of 14 recommended disclosures structured around the four pillars of governance, strategy, risk & impact management, and metrics & targets. The recommendations are designed to be consistent with the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB) standards. The TNFD recommendations are ready for adoption and emphasize the need for nature-related issues to be incorporated into enterprise and portfolio risk management processes.
TNFD is also seeking views, until March 20, 2024, on the additional draft guidance and metrics for financial institutions and guidance for eight sectors, toward application of the TNFD recommendations; the eight sectors are oil and gas, metals and mining, forestry and paper, food and agriculture, electric utilities and power generators, chemicals, biotechnology and pharmaceuticals, and aquaculture. The guidance for financial institutions applies to banks, insurance companies, asset managers and owners, and development finance institutions. The guidance is intended to be applied at the level of an entity and not a financial product. TNFD expects further developments on data and methodologies in the future and intends to publish the final version of this guidance in 2024. At present, the TNFD additional guidance covers:
- Identification and assessment of nature-related issues (the LEAP approach: Locate, Evaluate, Assess, Prepare)
- Sector-specific guidance on the LEAP approach and sector metrics
- Biome-specific guidance
- Additional guidance on two cross-cutting components of the LEAP approach: Scenario analysis and Engagement with indigenous peoples, local communities, & affected stakeholders
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