On 6 October the Taskforce on Nature-related Financial Disclosures (TNFD) held its first Plenary meeting, bringing together the TNFD Co-Chairs, Elizabeth Maruma Mrema, Executive Secretary of the United Nations Convention on Biological Diversity (CBD), and David Craig, former CEO of Refinitiv and Group Leader of Data & Analytics Division at London Stock Exchange Group (LSEG), and the current 33 Taskforce Members. With the announcement of the composition of the taskforce in late September and the first meeting now completed, the process of developing the TNFD risk management and disclosure framework for the finance and business sector to better report on and manage their nature-related risks has now officially started.
The combined PRB, PSI and PRI membership has taken an active role in the TNFD membership with 13 out of the 14 members of the TNFD from financial services. UNEP FI has been one of the founding partners of the TNFD together with Global Canopy, UNDP, and WWF, and continues to support the development of the TNFD framework through their network and technical expertise with a focus on testing the framework with financial institutions.
TNFD Development Process
The TNFD will go through five phases of work from 2021 to 2023: Build, Test, Consult, Disseminate and Uptake.
During the Build phase, TNFD members will draft a practical Framework, using a data-centric, sectoral and staged approach to ensure it is actionable, accessible and built on cutting edge research and innovation from all regions. This will be based on among others UNEP FI’s and financial services experience in TCFD programs from 2017. In the Test phase, the draft TNFD Framework will be tested with financial institutions and corporates, in close collaboration with relevant financial regulators. Balanced representation across geographies from banks, investors, insurers, public finance institutions and corporates will be sought from high impact and high dependency sectors.
Then, the TNFD will conduct a consultation of the Framework informed by the testing experiences in the Consult phase. The consultation should help facilitate widespread adoption of the Framework in relevant sectors and geographies via strategic external consultations, and will actively build on recommended tools, measurement systems and reporting protocols among FIs, corporates and public authorities. The Disseminate phase will start with the launch of the TNFD Framework (expected during the second half of 2023) and support by strategic advocacy campaigns. In addition to increasing awareness, it will also assist with the application of the Framework and its wider uptake. The development and launch of the TNFD Framework will be the first step in assessing approaches for physical and transition risks and opportunities. It is expected that more detailed guidance will follow after 2023, including practical approaches for evaluating these risks using nature scenario analyses during the Uptake phase.
Readiness of the Financial Sector for TNFD Framework
Nature is moving from niche to norm. The ‘Paris’ moment for nature is underway with the pledge of over 50 countries to protect at least 30% of the world’s land and oceans by 2030 and the postponed 15th meeting of the Conference of the Parties (COP 15) to the Convention on Biological Diversity (CBD) taking place in October 2021 and April 2022. According to early movers from the sector, nature is the next big issue to be addressed after climate change. It is expected that the TNFD will mirror the TCFD development, and will become the de facto standard on nature-related risk disclosure.
However today, the financial sector is still a long way from effectively mainstreaming nature in the business. Despite rising public concern and recognition by businesses of the dramatic implications of biodiversity erosion, nature-related risks and opportunities are not yet systematically considered in the business strategies and asset allocation processes of financial institutions. In the next years, nature is becoming a material issue to financial institutions through:
- A shifting regulatory framework, from the 2020 report “Indebted to nature” by De Nederlandsche Bank, Central Banks are considering nature-related risk as a material risk, and financial regulators and governments are exploring regulation in the field.
- Significant portfolio exposure in sectors and/or geographies with high impacts or dependencies on nature (e.g. agribusiness-related value chains), or already suffering from the combined consequences of ecosystems overexploitation and climate change (e.g. scarcity of quality water resources, desertification and loss of vegetation cover, etc);
- Opportunities to invest in nature-related opportunities. Research by the WEF has shown that transitioning to a nature-positive economy could generate up to $10 trillion in additional annual business revenue and cost savings and create 395 million new jobs by 2030.
The Nature team supports the development of the TNFD and is available to support you: