What is the TNFD?

While companies and financial players today have a wide range of reporting frameworks and methodologies for issues relating to greenhouse gas emissions and their impact, those relating to biodiversity and nature in general suffer from a relative lack of resources. Yet this subject is becoming increasingly important, as demonstrated by the new law on nature restoration passed by the European Union.

The Taskforce on Nature-related Financial Disclosures (TNFD) is a global initiative designed to encourage companies and financial institutions to assess, manage and disclose their impact on nature and their exposure to biodiversity-related risks. It is intended to complement existing environmental transparency guidelines, and is based on the model of the Taskforce on Climate-related Financial Disclosures (TCFD).

TNFD focuses on reducing biodiversity loss by integrating methodologies specific to natural ecosystems into the risk analysis and management processes of companies and investors. The aim is twofold: to promote sustainable practices while enhancing transparency and stakeholder information.

Background and history of the TNFD

The creation of the TNFD was prompted by the global degradation of biodiversity. The accelerating extinction of species, the loss of natural lands and threats to essential ecosystems are giving rise to significant economic risks. These dangers include the disruption of supply chains, rising raw material costs and losses for many nature-dependent economic sectors, starting with agriculture and fisheries, essential for global food security.

In addition, there is a growing awareness among investors and companies that natural risks must be integrated into financial management, just like climate risks. By providing companies with a common framework for measuring and reporting their impact on and dependence on nature, the TNFD should therefore, like the reporting frameworks dedicated to climate, enable better identification of natural risks, while at the same time highlighting opportunities for conservation and sustainable innovation.

The TNFD was therefore born in July 2020, supported by four major international organizations: the UNDP (United Nations Development Programme), UNEP FI (United Nations Environment Programme Finance Initiative), the World Wildlife Fund and Global Canopy.

These four players set up a working group initially made up of 75 members, including 8 governments, 18 consortia and 49 representatives of companies and financial institutions (banks, insurance companies, investment funds, etc.) operating worldwide. The aim of this first working group was to :

• Make companies and investors aware of the importance of biodiversity-related risks.
• Establish standards and indicators to help assess these risks.
• Encourage informed decision-making on sustainability to support the preservation of biodiversity.
• Promote economic opportunities in ecological restoration and nature-based solutions.

The baton was then passed in 2021 to a new group of 40 members, mostly private players representing international financial institutions, transnational corporations and service providers managing a total of $20.6 billion in assets worldwide. Their primary objective has been to develop a clear and accessible framework for companies and financial institutions to assess, disclose and mitigate their impacts and dependencies on nature. To this end, they are working with numerous public and institutional players and specialists in environmental issues, such as the International Union for Conservation of Nature, CDP,ISSB, EFRAG and UNSD.

After a long period of work and consultation, the final framework was published by the organization in September 2023.

The TNFD working methods and disclosure framework

The TNFD proposes a set of structured recommendations to help companies and financial service providers transparently disclose their impacts and dependencies on nature. These recommendations, of which there are 14, are grouped around four main pillars and are based on a structured analytical framework, the LEAP approach, designed to standardize the assessment of nature-related risks and opportunities.

A method based on 7 fundamental principles

The TNFD's recommendations are based on seven key principles designed to make the framework accessible, scientifically sound and adaptable to different issues and regions of the world.

1- Ease of use in the marketplace: The TNFD has designed its recommendations to be directly usable by market players, including companies, financial institutions and political actors, ensuring that the framework is both accessible and operational for practical application.

2 - Science-based: Information must be based on established or emerging scientific evidence. This solid scientific basis ensures the relevance of the assessments and information shared.

3 - Risks linked to nature: The TNFD stresses the importance of taking natural risks into account, including not only immediate financial and material risks, but also those linked to the dependence of organizations and society on ecosystems.

4 - Goal-oriented: The framework aims to reduce risks to nature and increase positive-impact actions, using the minimum level of granularity necessary to achieve its goal.

5 - Integrated and adaptable: The TNFD framework is designed to integrate and adapt easily to existing environmental and extra-financial standards.

6- Link between climate and nature: Aware of the interdependence between nature and climate, the framework set up by the TNFD must encourage an integrated approach, favoring nature-based solutions and strengthening the links between climate and biodiversity issues.

7 - Global inclusion: Finally, TNFD is committed to ensuring that its framework is relevant and accessible to all on a global scale, for emerging markets as well as developed countries, to guarantee broad and inclusive adoption.

The 4 pillars of the Taskforce on Nature-related Financial Disclosures

The TNFD's recommendations are based on four pillars inspired by those of the Taskforce on Climate-related Financial Disclosures (TCFD), but adapted to the specific challenges of nature and biodiversity. These pillars serve as a structure to guide companies in their disclosure of nature-related information.

1 - Governance

This section describes how the Boards of Directors supervise, assess and manage impacts, risks and opportunities related to nature. It also describes the commitments made by management to local communities, indigenous populations and other stakeholders directly impacted by decisions taken, and the policy for managing these risks and opportunities.

2 - Strategy

Organizations must describe the nature-related dependencies, impacts, risks and opportunities they have identified as having a potential impact on their strategies, business model and financial planning. This pillar provides an understanding of how nature influences operations, supply chains and medium- and long-term plans, as well as the company's resilience in the face of different scenarios.

3 - Risk and impact management

This pillar covers the processes put in place to identify, assess and manage nature-related dependencies, impacts, risks and opportunities. It aims to ensure that companies rigorously assess their exposure to biodiversity loss and integrate these risks into their overall risk management system. This description must cover both the company's direct operations and its upstream and downstream value chain.

4 - Indicators and targets

In this section, organizations should detail the indicators they have decided to measure to assess nature-related dependencies, impacts, risks and opportunities. They should also indicate the targets and objectives they have set themselves, and their current level of performance in relation to these.

The TNFD's general requirements

In addition to these 14 recommendations, TNFD has issued 6 general requirements that complement the general obligations of ISSB IFRS-1. They apply to all 4 pillars in order to ensure the quality and consistency of information disclosed in organizations' reports. It is imperative that these requirements be taken into account by organizations reporting under the TNFD framework.

For each pillar, organizations must therefore take into account :

• Application of the materiality principle
• The scope of disclosure
• Locating nature-related issues
• Integration with other sustainability disclosures
• Time horizons taken into account
• Involvement of indigenous peoples, local communities and relevant stakeholders in the identification and analysis of the organization's nature-related issues

The LEAP approach: the TNFD's preferred analytical framework

To guide companies in their analysis of natural hazards, TNFD has developed the LEAP approach. This universal, iterative working method systematically examines the links between economic activities and natural ecosystems.

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The LEAP method consists of four steps:

1 - Locate

The first step is to carry out a precise mapping of the company's activities and those of its value chain, and then to identify the specific sites that interact with, impact on or depend on nature to a moderate or high degree. This step enables us to locate areas of risk and impact within specific biomes.

2 - Assess

The second stage involves carrying out a materiality analysis and analyzing the company's dependencies and impacts on nature in the areas identified, including the ecosystem services from which the company benefits at each of its sites. This includes an assessment of the impact and dependence of the company and its value chain on biodiversity, and an initial measure of the severity of this impact.

3 - Analyze

In this third step, the organization must measure the extent of the risks and opportunities associated with the impacts and dependencies identified above. It will also prioritize these risks and opportunities according to their potential impact. Finally, the company will carry out an analysis of the adjustment measures already taken to mitigate the risks, and adjust these measures on the basis of the initial results obtained.

4 - Preparing

This last part consists of establishing a strategy for action and information disclosure. This will involve defining indicators and targets for monitoring the company's performance. It also involves thinking about the disclosure format and the data that will be published publicly. This last step ensures that the company is ready to communicate effectively and transparently about its interactions with nature.

The LEAP approach is a structuring tool for companies wishing to align their practices with TNFD recommendations. It helps to highlight the company's specific interactions with nature, and to adjust strategies accordingly. It should be adaptable not only to all organizations, whatever their field of activity, but is also intended as a reference method for responding to other reporting formats, including the CSRD.

Specific recommendations by business sector and biome

In addition to general recommendations, TNFD also proposes specific recommendations by sector and by biome. The diversity of economic activities and natural environments calls for a differentiated approach to ensure adequate management of biodiversity-related risks. To this end, TNFD has developed :

Recommendations by business sector

Some sectors, such as agriculture, mining and forestry, have a direct and significant impact on nature, which merits a separate analysis. Other sectors, such as the financial sector, are indirectly exposed to biodiversity risks through their investments in high-impact industries, and are therefore also subject to differentiated analyses. The TNFD proposes tailored guidelines for each of these sectors to enable accurate and relevant risk assessment and disclosure.

To date, TNFD has published specific recommendations for 9 business sectors:

• Metals and mining
• Electric utilities and power producers
• Financial institutions
• Chemical products
• Food and agriculture
• Oil & Gas
• Forestry, pulp and paper
• Aquaculture
• Biotechnology and pharmaceuticals

Recommendations for 5 other sectors are still under development:

• Fishing
• Engineering, construction and real estate
• Building materials
• Beverages
• Clothing, accessories and footwear

Recommendations by biome

The nature and intensity of natural risks vary according to the type of ecosystem (tropical forests, wetlands, coral reefs, etc.). The TNFD has therefore also defined specific guidelines for companies operating in sensitive biomes or heavily dependent on them, taking into account the ecological particularities and risks linked to the degradation of each type of habitat.

These recommendations currently cover 6 biomes, divided into 3 categories:

• Land
  • Tropical and subtropical forests
  • Savannahs and grasslands
  • Intensive land use systems
  • Urban and industrial ecosystems
• Fresh water
  • Rivers and streams
• Oceans
  • Continental shelf

These recommendations provide a mapping of the sectors and activities that are strongly linked to them, as well as a description of the ecosystem services provided by these biomes. They also include a precise analytical framework for identifying and managing the impacts, dependencies, risks and opportunities associated with each biome.

Interoperability with CSRD and other international standards

In line with the principles it has set itself, the Taskforce on Nature-related Financial Disclosure has constructed its recommendations and methodology in such a way that they can be used as a reference disclosure method for most international non-financial reporting standards.

The methodological framework proposed by TNFD, and in particular the LEAP method, should make it possible to meet the requirements specified inESRS-E4(biodiversity and ecosystems) of the CSRD, in particular with regard to the disclosure of information concerning the anticipation and estimation of the financial effects of nature-related risks and opportunities.

EFRAG and the TNFD have already published a correspondence table between their two approaches, illustrating the high level of interoperability between the TNFD's recommendations and the European non-financial reporting framework.

However, there is a major discrepancy to be taken into account. While the CSRD has decided to apply the principle of double-materiality principle as a preamble to any analysis, the TNFD relies on simple materiality. This difference may lead companies relying on the TNFD framework to underestimate the amount of information they will have to disclose as part of their CSRD reporting.

TNFD is also working closely with ISSB to extend the work already carried out on the IFRS S1 and IFRS S2 standards dedicated to climate issues. The aim is to publish new reporting standards, this time dedicated to biodiversity issues. The two organizations are very close, particularly since the TCFD will be absorbed by the IFRS Foundation in December 2023.

A questioned methodology and approach

The TNFD has been the subject of a complaint from several NGOs targeting its approach based solely on financial materiality.

These organizations criticize the TNFD, as well as other creators of extra-financial reporting standards, for considering only the impact that nature- and climate-related risks can have on a company's financial performance and activities. Conversely, the principle of double materiality invites organizations to take into account not only the financial impact, but also the impact of their activities on nature.

According to many economic players and associations, limiting analysis to simple materiality is detrimental to the environmental transparency that is essential today. Indeed, this approach allows companies to restrict the scope of disclosure of their ecological impacts, creating a risk of greenwashing. By aligning themselves with the TNFD's recommendations, companies can claim to act in favor of biodiversity without fully assessing the direct and indirect effects of their activities on ecosystems.

This question of materiality also represents a major and often debated point of divergence between the CSRD and the GRI , which advocate a dual materiality approach, and the ISSB, which favors a vision focused solely on financial materiality.

Conclusion

In conclusion, the TNFD represents a major step forward in integrating biodiversity and nature issues into the strategies of companies and financial institutions. Its methodological framework offers concrete recommendations for assessing and managing ecosystem-related risks, and promotes greater transparency.

However, its approach based on financial materiality has been criticized for possibly limiting the scope of information disclosed, with some observers fearing a risk of greenwashing. This divergence from the dual materiality approach adopted by standards such as the CSRD highlights an essential debate for the future of sustainable finance. Is it a question of simply anticipating environmental upheavals, or of acting to limit their impact?

Despite these challenges, the TNFD lays the foundations for structured reporting and is helping to make companies more aware of their role in preserving biodiversity.

Sources :

• "COP16: TNFD accused of being the "new frontier of greenwashing" by NGOs", Novethic, 29/10/2024
• "How to develop a biodiversity strategy? A practical guide from TNFD" Axa Climate and BL Evolution, October 2024
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• "TNFD welcomes the ISSB's decision to commence work on nature-related issues".TNFD, April 2024
• "Guidance on the identification and assessment of nature-related issues: The LEAP approach", TNFD, October 2023
• "TNFD final framework launched: the biodiversity reporting revolution is coming!"BL Evolution, 19/09/2023
• "Taskforce on Nature-related Financial Disclosures (TNFD) Recommendations"TNFD, September 2023
• "TNFD, Taskforce on Nature-related Financial Disclosures: definition and issues"Youmatter, 19/04/2023
• "What is TNFD, the mission for the assessment and transparency of nature-related financial risks?"Agence Française de Développement, 26/10/2021
• "Taskforce on Nature-related Financial Disclosure (TNFD)", One Planet Summit‍
• "Nature-related Finance, Global Canopy