Our new series explores the Taskforce on Nature-Related Financial Disclosures (TNFD) framework. In part two, we look at the implications of the TNFD for financial institutions and what financial institutions should be doing to prepare for the TNFD. Read part one of this series here.
At a Glance
- The TNFD’s planned disclosures, which cover physical, transition, and systemic factors, will be instrumental in aligning financial institutions with global goals such as achieving no net loss of biodiversity by 2030.
- Under the TNFD framework, organisations are encouraged to disclose information on four pillars: governance, strategy, risk management, and metrics and targets.
- By adopting the TNFD framework, financial institutions can mitigate risks and seize opportunities to contribute to a more resilient global economy.
The launch of the TNFD framework has highlighted the critical need for financial institutions (FIs) to integrate nature-related considerations into their strategies, operations, and risk management. The TNFD disclosures cover physical, transitional, and systemic factors that influence both risks and opportunities related to nature.
The TNFD disclosures help align FIs with global goals, such as achieving net biodiversity gains by 2050. This framework enables FIs to build capacity, understand their nature-related impacts, assess nature-related risks and opportunities, and develop effective response strategies.
The impact of the TNFD will be different for different FIs. Banks, for example, will need to integrate nature considerations into their lending and investments, and assess risks and impacts on ecosystems. Insurers can use the TNFD for comprehensive disclosure to inform risk selection, particularly given the challenges of measuring ecosystem impacts.
Similarly, investment funds and private equity firms need to integrate nature-related considerations into their strategies and due diligence processes. Pension and super funds can gain long-term portfolio transparency and potentially divest from high-risk companies. Credit rating agencies, development banks, and fintech companies will all be affected by the need to consider nature-related risks and opportunities in their operations.
Disclosure on four pillars
Under the TNFD framework, organisations are encouraged to disclose information on four pillars:
- Governance: Organisations’ governance of nature-related impacts, dependencies, risks, and opportunities.
- Metrics and Targets: Metrics and targets for assessing and managing relevant nature-related impacts and dependencies, and associated risks and opportunities.
- Risk Management: Processes for identifying, assessing, and managing nature-related impacts and dependencies, and associated risks and opportunities.
- Strategy: The actual and potential impact of nature-related impacts and dependencies on business, strategic, and financial planning.
Part I. Understanding Carbon Border Adjustment Mechanism (CBAM)
Part I. The TNFD Framework: Understanding nature-related risks
Ready for a change in your organisation?
What FIs should do to prepare for the TNFD
The urgency of climate and nature-related issues requires FIs to take proactive steps. They need to integrate the collection of nature-related data into existing systems, as this will allow for easier access and reporting of the information. FIs need to ensure that their existing ESG disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB), or the Global Reporting Initiative (GRI), are aligned with the requirements of the TNFD, as these frameworks provide valuable insight into non-financial disclosures and data requirements.
As FIs begin to consider the nature-related impacts of their activities, operations, and investments, it is critical to develop strategies for measuring and collecting data on these impacts and associated risks. Board members need to understand how nature-related risks affect the business and operations of the institution.
The TNFD appears to be an important tool for FIs to navigate this complex terrain. By proactively adopting the TNFD framework, these institutions can mitigate risks, seize opportunities, and contribute to a more sustainable future.
How RenoirESG can help
With the TNFD poised to reshape FI’s approach to nature-related risks and opportunities, our team at RenoirESG can guide you through this transformation. Our consultants have a deep understanding of global sustainability trends, regulatory landscapes, and best practices. Here’s how we can help:
- Gap Analysis and Readiness Assessment: We can conduct a thorough assessment of your current state of readiness for TNFD compliance. This includes evaluating your existing risk management processes, governance structures, and sustainability practices to identify gaps and areas for improvement.
- Strategy Development: Developing a comprehensive strategy for TNFD compliance is critical. Our consultants can help you develop a clear roadmap that aligns with your organisation’s objectives and helps you capitalise on nature-related opportunities.
- Data Management and Reporting: TNFD compliance requires robust data collection, management, and reporting capabilities across portfolios. We can help you establish data collection frameworks, implement data quality controls, and design reporting mechanisms that meet TNFD requirements.
- Stakeholder Engagement: Engagement with stakeholders, including investors, regulators, and clients, is key to successful TNFD compliance. We can help you develop effective communication strategies and disclosure practices to increase transparency and build trust.
Is your organisation struggling to prepare for TNFD implementation?
