First Beta Version of Nature-Related Risk Management Framework is Unveiled

24 March 2022 by Katy Quicke
blog author

The first beta version of the nature-related risk management and disclosure framework has been released by the Taskforce on Nature-related Financial Disclosures (TNFD) to help companies with corporate reporting.

The aim of the prototype framework is to tackle the risk of nature-loss to the global economy and reduce a negative impact on nature, by assisting companies to disclose nature-related risks and impacts.

The draft framework is made up of a trio of components; foundational guidance, disclosure recommendations and ‘how to’ guidance for nature-related risk and opportunity analysis.

It has been designed by the TNFD Taskforce comprising individuals from financial institutions, businesses and market service providers. Market participants will be encouraged to support the framework’s development via refining and improving processes and an open innovation approach.

The draft framework will be modified over the next 18 months through a consultation and development process which will engage market players and stakeholders, and TNFD hopes to accelerate the framework’s development prior to releasing its recommendations in Q3 2023.

Nature is a key consideration during decision-making processes such as strategy and risk management and mustn’t be ignored by financial institutions or businesses as the impacts pose a risk to companies, investors and lenders. The flipside, however, is that new business opportunities can arise and contribute to nature-positive outcomes.

The prototype will bring nature-related risk (such as biodiversity loss and degradation of the ecosystem) and opportunity analysis into the core of financial and corporate decision making.

TNFD’s disclosure recommendations are an extension of work already conducted by the Task Force on Climate-related Financial Disclosures (TCFD)and align the same disclosure recommendations where possible for more consistency surrounding sustainability reporting. The TNFD hopes this will accelerate the move towards integrated sustainability reporting combining climate and nature-related risk disclosures.

The beta framework is also designed to align with the global baseline for sustainability standards, under development by the International Sustainability Standards Board (ISSB). The TNFD is in talks with standards-setting bodies and regulatory authorities and will follow further developments related to sustainability reporting standards as they arise.

Consideration of location is an important feature throughout the TNFD Framework, and the beta release proposes a new location-specific disclosure to provide guidance on how to incorporate location-based nature-related dependencies, impacts and risks into enterprise and portfolio risk management processes.

David Craig, Co-Chair, TNFD, said: “Building an improved understanding of nature and nature-related risks and opportunities is a critical enabler of better corporate strategy, better capital allocation decisions, better governance and better risk management and disclosure practices.

“With climate change and nature-related impacts and risks increasing, it is essential companies incorporate natural assets into their strategic planning and risk management if they are going to succeed.

“The approach we are taking of developing this guidance with market participants through an iterative, open innovation process over the next 18 months will help to ensure our final recommendations are both science-based and practical to implement. We invite all market participants and stakeholders to review this first prototype of the framework and share their feedback.”

Elizabeth Mrema, Co-Chair, TNFD, said: “The TNFD process is a unique collaboration between market participants and the world’s leading authorities in the science of nature and standard-setting. The foundations we have laid are strong, driven by the market and grounded in science.

“My hope is that governments agree on an ambitious and effective post-2020 Global Biodiversity Framework, the negotiations of which are taking place this week in Geneva, that can then inform the metrics and targets work the Taskforce will continue to develop in the coming months. The process towards the Global Biodiversity Framework and the TNFD are two key initiatives, among others, that support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”

Katy Quicke, Senior Consultant, Sustainable Finance UK at Acre, said: Climate-related risk analysis and disclosures have been a top priority for financial institutions over the past couple of years, with significant resources and manpower allocated to TCFD analysis and reporting.  Now is the turn of TNFD, with the development of much-needed frameworks and guidelines to enable market participants to tackle the threat to global natural capital – an issue that, if unmitigated, arguably has greater potential than climate change to have a major long-term impact on our ecosystems and economies.

Tanith Allen, Director, Infrastructure & Manufacturing, Sustainable Business, Acre Also Commented: "This has been a highly anticipated launch among our networks and reflects the renaissance we’re currently seeing in sustainability reporting; not simply measuring and monitoring but using the data collected to develop holistic strategies with robust and scientific foundations.

The TCFD had a huge impact on corporate leadership, particularly on those in finance, when it was introduced, and engagement with the TNFD should help to further provide a clear structure for businesses to identify nature-positive opportunities within their operations and value chains. From a career perspective, I’d expect this to provide a route into corporate leadership roles for technical consultants, similar to what we’ve seen in the climate space."

Katy joined Acre in 2020 to specialise in Sustainable and Impact Investing executive search and advisory.  She has 7 years of dedicated financial services recruitment experience across banking, investment management and private equity.  Katy graduated with a BSc in Ecology from Durham University and is passionate about issues relating to sustainability, biodiversity and development.