Explaining Nature-Related Financial Disclosure Requirements and Benefits
Explaining Nature-Related Financial Disclosure Requirements and Benefits
Introduction
Nature loss is accelerating at an unprecedented rate, threatening not only the health of ecosystems but also the global economy. With over $44 trillion of economic value generation—more than half of global GDP—moderately or highly dependent on nature, businesses can no longer afford to ignore the financial risks stemming from biodiversity loss and ecosystem degradation.
To address this urgent challenge, the Taskforce on Nature-related Financial Disclosures (TNFD) has emerged as a globally recognized framework, guiding companies and financial institutions in assessing, managing, and disclosing their nature-related risks and opportunities.
In this article, we’ll explore what TNFD is, why nature-related financial disclosures matter, what the requirements entail, and the key benefits of aligning with the TNFD framework.
What Is the TNFD?
The Taskforce on Nature-related Financial Disclosures (TNFD) is a global, market-led initiative established to develop and deliver a framework for organizations to report and act on evolving nature-related risks. Its ultimate aim is to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive ones.
Launched in 2021, the TNFD is modeled after the Taskforce on Climate-related Financial Disclosures (TCFD) and is backed by a coalition of regulators, financial institutions, corporations, and environmental organizations. The framework provides guidance for companies to understand how nature affects their financial performance and how their operations, in turn, affect nature.
Why Nature-Related Disclosures Are Crucial
As the degradation of natural ecosystems accelerates, the economic implications are becoming increasingly visible. These include:
Disruptions in supply chains due to deforestation or water scarcity
Increased regulatory and compliance risks
Reputational damage linked to environmental harm
Physical risks like floods, droughts, and resource depletion
Nature-related disclosures help organizations identify, quantify, and manage these risks, ensuring resilience and long-term value creation. Beyond risk management, disclosures also provide a platform to demonstrate corporate responsibility, transparency, and leadership in sustainability.
With global efforts like the Kunming-Montreal Global Biodiversity Framework targeting corporate accountability in biodiversity impact, nature-related financial disclosures are quickly becoming essential rather than optional.
TNFD Framework Overview
The TNFD framework centers around four pillars, mirroring the TCFD structure:
1. Governance
Organizations must disclose the governance structure overseeing nature-related risks and opportunities. This includes board-level oversight, management responsibilities, and integration of nature into enterprise risk frameworks.
2. Strategy
Entities are expected to describe how nature-related risks and opportunities impact their business model, value chain, and financial planning across different time horizons (short-, medium-, and long-term).
3. Risk and Impact Management
Companies need to outline the processes used to identify, assess, and manage nature-related dependencies, impacts, and risks. This includes mitigation strategies, control mechanisms, and due diligence.
4. Metrics and Targets
Organizations should report the metrics used to monitor nature-related performance, the targets set, and progress toward achieving these goals. These may involve land use, biodiversity indicators, water consumption, or emissions from ecosystem degradation.
Key Concepts Introduced by TNFD
Nature-Related Risks and Opportunities
The TNFD differentiates between:
Physical Risks: e.g., soil degradation, water shortages, habitat loss
Transition Risks: e.g., policy changes, shifts in consumer behavior, liability exposure
Systemic Risks: Large-scale changes in ecosystems that affect entire sectors or economies
It also emphasizes identifying opportunities through nature-positive investments, ecosystem restoration, and innovation in sustainable products or services.
Dependencies and Impacts
A core TNFD innovation is the focus on nature dependencies (resources and services a company relies on from ecosystems) and nature impacts (how business activities affect nature). Understanding both allows companies to better manage their exposure and reduce their ecological footprint.
The LEAP Approach
TNFD encourages businesses to follow the LEAP assessment process:
Locate interfaces with nature across operations and value chains
Evaluate dependencies and impacts on nature
Assess nature-related risks and opportunities
Prepare to respond and disclose
This structured methodology supports strategic decision-making and fosters a deeper understanding of environmental materiality.
TNFD Disclosure Requirements: What Companies Need to Know
While TNFD reporting is currently voluntary, it's rapidly gaining traction among regulators and investors. The framework is designed to be integrated into existing sustainability and financial reporting systems, making adoption more efficient.
Reporting Recommendations
Describe board oversight and management’s role in nature-related issues
Disclose nature-related dependencies and impacts across the value chain
Assess how these risks and opportunities influence business strategy
Report on risk management approaches
Use quantitative and qualitative metrics relevant to the industry and geography
Set and monitor ambitious, science-based targets
Sector-Specific Guidance
TNFD offers sector-specific guidance for industries with high exposure to nature risks, including:
Agriculture and food production
Forestry
Mining and extractives
Financial services
Infrastructure and utilities
This allows for greater relevance and precision in reporting.
Benefits of Adopting TNFD Disclosures
1. Enhanced Risk Management
By mapping dependencies and nature-related risks, companies gain critical insights that strengthen their resilience to environmental shocks and reduce exposure to regulatory or operational disruptions.
2. Investor Confidence and Capital Access
Investors are increasingly prioritizing nature-based ESG metrics. Transparent disclosures signal strong governance and foresight, attracting capital and boosting stockholder confidence.
3. Reputational Advantage
Early adopters of TNFD are seen as leaders in sustainability. Clear reporting demonstrates environmental stewardship, builds trust with stakeholders, and enhances brand equity.
4. Alignment with Emerging Regulations
With the EU Corporate Sustainability Reporting Directive (CSRD), the UK’s Green Finance Strategy, and global movements toward biodiversity accountability, aligning with TNFD helps future-proof compliance.
5. Operational Efficiency and Innovation
Understanding and mitigating nature-related impacts can reveal opportunities to optimize resource use, cut costs, and innovate in product design and supply chain management.
6. Contribution to Global Goals
TNFD-aligned companies contribute to global efforts like the Sustainable Development Goals (SDGs) and the Global Biodiversity Framework, enhancing their role in driving a nature-positive economy.
Challenges and How to Overcome Them
While TNFD offers clear benefits, adoption also poses challenges:
Data Gaps and Measurement Complexity
Assessing nature-related dependencies and impacts can be data-intensive and complex. Overcoming this requires:
Investing in geo-spatial tools and biodiversity databases
Collaborating with environmental experts
Integrating third-party assessment tools, such as Refiq or ENCORE
Capacity Building and Internal Engagement
Many organizations lack internal expertise in biodiversity. Solutions include:
Training teams in TNFD and ecosystem services
Establishing cross-functional working groups
Seeking external advisory support
Integration with Financial Planning
Embedding nature-related risk in core financial models is still new for many. This can be addressed by:
Aligning TNFD reporting with existing risk frameworks (e.g., TCFD)
Engaging CFOs and finance teams early in the process
Developing nature-related scenario analyses
Who Should Start Reporting?
TNFD disclosures are relevant to any organization with direct or indirect interactions with nature. These include:
Companies in high-impact sectors like agriculture, forestry, mining, and construction
Financial institutions with exposure to nature-dependent investments
Retail and manufacturing firms with global supply chains
Early adoption provides a first-mover advantage as nature accountability becomes a regulatory and investor standard.
How to Get Started with TNFD
Understand the Framework
Familiarize your sustainability and finance teams with TNFD’s guidance, glossary, and sector-specific documentation.Map Nature Interfaces
Identify where your business interacts with nature across operations, value chains, and geographies.Use the LEAP Approach
Begin with a high-level LEAP assessment to identify key risks, dependencies, and impacts.Integrate into Strategy
Embed nature-related goals into business strategy, ESG objectives, and financial planning.Disclose Transparently
Use the TNFD framework to structure your public reporting in annual or ESG disclosures.
Conclusion
Nature-related financial disclosures are quickly becoming an essential component of corporate ESG strategies. The TNFD framework empowers companies and financial institutions to not only understand and mitigate their environmental impact but also to future-proof operations, enhance stakeholder trust, and unlock opportunities in the green economy.
While the journey may be complex, the rewards of transparency, resilience, and leadership in the sustainability space are well worth the effort. Now is the time to act—for nature, for business, and for the future.
Further Reading
For deeper insights and guidance, explore these key resources: