The issue of nature and biodiversity is becoming an increasing priority for businesses in response to a changing climate, habitat degradation and loss of plant and wildlife species. Biodiversity loss presents foreseeable and material financial risks and opportunities to companies and so it is important to have a robust approach to identifying and managing the specific biodiversity-related risks and impacts for your organisation. There are also individual duties on boards of directors in relation to biodiversity and biodiversity risk, including those in the UK and the wider commonwealth.

That begs the question - how exactly should organisations consider and report on the specific, material biodiversity risks they face? And how can directors discharge their duties? This is where the Taskforce on Nature-Related Financial Disclosures (TNFD) comes in. In this article, we outline what the TNFD is, the reporting framework it provides and the key points businesses need to consider in applying this to their own organisation and situation.

What is the Taskforce on Nature-Related Financial Disclosures?

The TNFD describes itself as a "market-led and science-based initiative" - but what does this really mean?

Launched in June 2021, the TNFD's goal is the conservation and restoration of nature. The TNFD is an action group consisting of senior executives from a range of global businesses, including market service providers, corporations and financial institutions.

At the end of September 2023, the TNFD published an updated version of its framework for nature-related risk management and disclosure, which is structured around four key pillars: governance; strategy; risk and impact management; and metrics and targets. In essence, it provides a framework for how organisations can address nature-related risks and opportunities and is designed to allow them to report on their alignment with global goals, including the Kunming-Montreal Global Biodiversity Framework.

Having received endorsements from intergovernmental forums such as the G7 and G20, as well as a range of governments, regulators, non-governmental organisations, financial institutions, and corporate entities, the TNFD is a leading organisation in respect of nature-related issues.

Among the governments that have endorsed the TNFD and its framework is the UK, which has been one of the largest donors to the initiative. The UK Government has encouraged businesses to engage with the disclosure recommendations published by the TNFD and is considering how to incorporate the TNFD framework into UK regulations and policy.

Significant Canadian actors are also involved in the TNFD. The Government of Canada is a member of the TNFD Forum, alongside 67 other forum members[1]. There is also a Canadian Consultation Group, which works alongside other regional and national Consultation Groups, designed to support awareness of the TNFD recommendations and additional guidance, identify current knowledge and understanding gaps on nature-related issues, and build capacity for nature-related reporting across markets. Further, many Canadian organisations and corporations are members of the TNFD.

Who is part of TNFD and what does it do?

Currently, the TNFD is made up of approximately 40 senior executives from a range of entities, including financial institutions, pharmaceutical companies, food and drink producers and professional services providers.

At the core of the TNFD's approach is the understanding that obtaining reliable and comparable information about a business's environmental position - such as in relation to its reliance on depleting natural resources - improves the ability of decision-makers to tackle present and future risks facing their business. On this basis, the TNFD produces recommendations and guidance intended to provide businesses with the tools required to improve nature reporting capabilities. Further, the TNFD builds and complements the model developed by the Taskforce on Climate-related Financial Disclosures (TCFD).

The TNFD's recommendations are entirely voluntary, but they offer institutions the opportunity for realistic engagement with nature-related issues. Crucially, the recommendations have been created in consideration of the Kunming-Montreal Global Biodiversity Framework - a landmark agreement that came out of the 15th UN Biodiversity Conference (COP15) - in conjunction with the International Financial Reporting Standards (IFRS) Foundation's global baseline of sustainability-related disclosures and the reporting requirements of various jurisdictions.

What are the TNFD's recommendations?

The TNFD has divided its recommended disclosures under the four key pillars of: governance; strategy; risk and impact management; and metrics and targets.

Governance

The TNFD recognise that stakeholders such as investors, lenders and insurers are interested in a business' governance. Governance insights allow actors to evaluate whether a company is dedicating sufficient attention to nature-related issues, and whether companies have the requisite level of knowledge and skill to navigate those issues. The TNFD, therefore, recommends that businesses make disclosures relating to:

  • the number of members on their board with knowledge of nature-related issues;
  • the extent to which the company employs external experts to support the board in making decisions;
  • the frequency with which nature-related issues are discussed at board meetings;
  • whether a business has assigned nature-related responsibilities to individuals or committees;
  • how the board monitors progress;
  • how nature-related performance metrics impact remuneration, and;
  • other related factors.

The TNFD also highlights the importance of reporting on internal policies regarding stakeholder engagement and any human rights policies the company has in place. In particular, the TNFD emphasises the importance of engaging with Indigenous peoples and local communities who are impacted by the company's actions, with reference to international standards.

This last point is particularly important for those doing business in Canada as the Canadian Government has a legally recognised duty to consult and, where appropriate, accommodate Indigenous peoples. The Canadian corporate sector has also been called upon to adopt the UN Declaration of the Rights of Indigenous Peoples and commit to meaningful consultation with Indigenous peoples through the Truth and Reconciliation Commission of Canada's Calls to Action.

Strategy

Stakeholders are also concerned with understanding how nature-related issues impact a business' strategies, including how it plans to tackle nature-related dependencies in the short, medium and long-term. Alongside this, they want to know about the company's ability to respond to the risks and opportunities impacting its individual business and sector.

It is recommended that businesses disclose information such as:

  • their impact on nature, including not only the impact of their direct operations, but also the impact of other organisations in their value or supply chains;
  • the extent to which they are dependent on particular materials;
  • the risks and opportunities their business is facing or may face;
  • any nature-related commitments, targets or plans that the organisation has made and how they intend to achieve these; and
  • the indicators and metrics being utilised to measure the company's performance and the effectiveness of its approach.

Risk and impact management

The TNFD acknowledges that it is important for stakeholders to understand how organisations identify, assess and prioritise risks and opportunities. It recommends that businesses disclose an assessment of the quality of the data they rely on and how this impacts their analysis, the methodology for obtaining data that is not directly taken from their own operations and the scope of the value chain being considered in their analysis.

Metrics and targets

When organisations make disclosures regarding their performance on any issue, transparent metrics and targets are crucial. The TNFD, therefore, recommends a number of core metrics (as set out in Annex 1 of The TNFD's recommendations report from September 2023) and a range of additional metrics that businesses should include in their disclosure. Each metric should be accompanied by the targets and goals that the business has set for itself (with clear timeframes) and should explain any context that may be needed to understand the target.

How do I identify the nature-related issues that impact my business?

In order to help your business recognise, evaluate, manage and make disclosures in relation to nature-related issues, the TNFD has developed the LEAP approach. This involves four phases: locate, evaluate, assess and prepare.

Locate

The "locate" phase involves identifying the interface between your business and nature. This means considering the activities that your organisation undertakes and what is involved in your direct operations. You must then consider the extent of your dependencies and impacts on nature, including considering specific locations and ecosystems on which your business operations have an impact. It is especially important to consider whether any of these areas are sensitive locations, with the potential for negative impacts on nature.

Evaluate

The "evaluate" phase requires you to consider the organisation's dependency on environmental assets and the scale and scope of this dependency. It is also important to assess whether the business has any positive impacts on nature, and the extent of these. Crucially, it must look at which of the impacts identified, whether positive or negative, can be deemed to be material.

Assess

The next phase involves assessing the risks and opportunities that your organisation faces. It is important to consider the extent to which risks can be mitigated and opportunities can be pursued, and to undertake an assessment of these in order to establish which should be prioritised. The final step in this phase is identifying which of the risks and opportunities are material and should be disclosed, in line with the TNFD recommendations on disclosure.

Prepare

The final phase of the LEAP approach involves preparation. Having located, evaluated and assessed the nature-related impacts, dependencies, risks and opportunities for your business, then decisions must be made in relation to risk management, resource allocation and strategy. This involves setting targets and agreeing metrics to measure progress, as well as making disclosures that align with the TNFD recommendations.

How does this focus on reporting and disclosure impact my business?

Stakeholders such as investors, shareholders and customers are increasingly reluctant to become involved with companies who engage in poor environmental practices. Those with substandard environmental disclosures, or which do not participate in disclosure processes, are expected to see a gradual decline in investments and profits. Stakeholders are likely to shift their time, energy, and money towards companies that, if not making positive contributions, at least have a less detrimental impact on the environment - a trend we discuss more in our report "ESG: The Investor Perspective", which considers the key elements of ESG essential for helping companies to deliver improved performance in a changing world, while lowering risk and enhancing reputations.

Furthermore, boards of directors may have a duty to consider biodiversity risk according to the Commonwealth Climate Law Initiative's recent report and commissioned legal opinions - something we discuss further in our article on managing biodiversity risk in the boardroom.

By engaging with the TNFD recommendations, your business may be better prepared to face nature-related issues or tightening environmental regulations. To avoid trailing behind your competitors and to achieve long-term growth, it is important to engage with the realities presented by the decline of nature, biodiversity and natural resources and to take steps to defend your business from these threats.

How developed is your approach to managing biodiversity-related risks and impacts?

Identifying and fully understanding the biodiversity-related risks for your business is a key first step to managing those risks and considering where your organisation can contribute to nature-positive outcomes. The TNFD framework provides important structure and guidance to support organisations but it still requires a bespoke approach, aligned to each individual business, sector and market.

Our international ESG and Environmental Law teams are experienced in advising on the full range of legal issues relating to ESG - including in relation to environmental regulation, reporting and disclosure - and are consistently recognised by both Chambers and Partners and The Legal 500 for their work in this area.

To understand more about how to consider biodiversity risk, apply the TNFD's recommendations to your business, tackle nature-related challenges or comply with applicable regulations, please contact Ben Stansfield in the UK, or Liane Langstaff in Canada.

If you have any further questions on the points raised in this article, please contact Ben Stansfield, Liane Langstaff, Annabelle Percy or Victoria Flaherty.

Footnotes:

[1] The TNFD Forum is a global multi-disciplinary consultative group of institutions aligned with TNFD's mission and principles and that contributes to the ongoing development of the TNFD's guidance. However, forum members do not have a formal relationship with the TNFD.