TNFD framework ‘transformational’ for nature-related risk disclosures

The Taskforce on Nature-related Financial Disclosures (TNFD) has published its final recommendations (154-page PDF/6.2MB), which the TNFD said is a “key milestone” in the relationship between nature, business and financial capital, as it helps to shift capital flows to nature-positive outcomes. 

The TNFD disclosure framework consists of conceptual foundations, a set of general requirements and 14 recommended disclosures structured around the four pillars of governance; strategy; risk and impact management; and metrics and targets. The finalised version comes 18 months after a first ‘beta’ version of the recommendations was published in March 2022 for consultation. 

Sharon E Smith, expert in climate change and sustainable finance at Pinsent Masons, urged companies to consider adopting the framework now as it is anticipated to be incorporated into international standards, such as those of the International Sustainability Standards Board (ISSB), as well as implemented into national legislation in due course.

“We anticipate that the TNFD will be transformational in enabling companies to identify, evaluate and assess their nature related impacts, dependencies, risks and opportunities, and incorporate these into their strategic business planning and reporting,” said Smith.

While it will take time for the framework to become mandatory and part of legal compliance requirements, she said that companies would be well advised not to wait for legislation.

“Companies should consider the TNFD framework now, so that they are well placed operationally when mandatory nature-related financial disclosures are implemented,” said Smith.

According to the TNFD, companies including GSK have started to announce their intention to adopt the recommendations, and more companies are expected to follow soon. GSK stated that it is committed to publishing its first TNFD disclosures from 2026, based on 2025 data.

The new framework is modelled on a similar framework that focuses on climate-related risks, known as the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. Disclosures in line with the TCFD recommendations have been mandated for many organisations in the UK. 

Fiona Ross, an environment expert at Pinsent Masons, said although the two frameworks are similar, the TNFD is more complex.

"Companies which are already disclosing in accordance with TCFD will be familiar with the four-pillar framework, which is also used in TNFD. However, the TNFD is more complex due to the complexity of interactions and impacts on the natural environment, and therefore it will require particular focus and resource in order for companies to report in a credible way," said Ross.

Hannah Brown, an expert in sustainable finance at Pinsent Masons, explained that there are several technical aspects among the 14 TNFD recommendations that could make their initial adoption resource-heavy, with the recommendation on application of materiality a good example. She said the framework offers flexibility around materiality assessments, recommending financial materiality as a baseline and suggesting the option to consider impact materiality, however, it is advisable to adopt a double-materiality assessment if reporting on TNFD, in line with the recommendation of the EU Corporate Sustainability Reporting Directive (CSRD) and the Network for Greening the Financial System (NGFS) framework.

“While resource-intensive, this approach offers a more holistic perspective on materiality, ultimately simplifying the reporting process as nature-related risks are unlikely to be fully accounted for by consideration of financial materiality alone,” said Brown.

Brown added that organisations must recognise the highly context-specific nature of mapping nature-related risks and opportunities, as TNFD requires consideration of diverse ecosystems and geographies. TNFD recommends disclosure on both direct and indirect interfaces with nature, as well as upstream and downstream activities in supply and value chains. TNFD also explicitly recommends certain social considerations, including engagement and consideration of affected stakeholders across geographies, likely including local communities and indigenous peoples, with potential to pose litigation risk.

“This complex nature will likely require an initial commitment of resource but will eventually outweigh the long-term costs of nature-related risk. This could include development of in-house expertise or collaboration with external specialists, as well as the creation of new reporting metrics and gathering of new data,” said Brown.

There is a growing suite of new nature-related reporting guidelines. Apart from TNFD, there are two new sustainability reporting standards developed by ISSB which will become effective from 1 January 2024 with first reporting against them expected from January 2025. The Network for Greening the Financial System (NGFS) has also recently published a ‘beta’ conceptual framework on nature-related financial risks.