The UN & TNFD: Stewarding Systems Change

10 June 2021

The market-led and UN-supported Taskforce on Nature-related Financial Disclosures (TNFD) was launched on 4 June 2021. It is designed to support a shift in global financial flows away from nature-negative toward nature-positive outcomes by providing a practical reporting framework for companies. In this blog, UNDP and UNEP FI, as the global Accelerator team bringing together the TNFD – as part of four founding partners including Global Canopy and WWF – reflect on the new initiative’s opportunity for business, why it’s needed and why the United Nations stands behind this key element of the global green transition.

UNEP Executive Director Inger Andersen notes, “Nature is a major global priority on par with climate and needs a similarly consolidated response from the financial and corporate sectors. The launch of the TNFD is a critical step in growing awareness and stimulating action on nature-related risks and opportunities. It will help in the redirection of global financial flows towards more nature-positive sectors and activities. UNEP is proud to see the TNFD come to fruition and stands ready to support the Taskforce in achieving its goals.” See growing TNFD endorsements here.

Why does the TNFD matter?

More than half of the world’s GDP is dependent on nature, which underpin billions of livelihoods. The world’s economy depends on a steady flow of ecosystem services, resources for consumption, pollination of crops[i], water filtration, waste decomposition, carbon sequestration and climate regulation worth around USD $125 trillion annually (WWF 2017). Instead of valuing this natural capital, humanity has wiped out 83% of wild mammals and half of all plants, and the past five years are among the highest in deforestation.

Our economies are impacted by financial institutions and corporations, where investment and supply chain risks are accounted for only when they are deemed ‘material‘ for business. A telling trend for example is that ‘grey’ finance outpaces investments in ‘green’ sustainable forest management by a factor of more than 100:1 – including private sector investments and government subsidies.

The materiality of nature-related risks is often invisible because the realized or potential costs associated with nature degradation, are transferred to consumers, society at large or other third-parties, rather than being built into the balance sheets of companies. Such costs are considered externalities to the economy under the current regulatory and fiscal systems. Underpricing nature-related risks by companies when forecasting returns has been business-as-usual. Most companies are unable to clarify uncertainties associated with nature, and so are unable to reflect this in balance sheets or investment risk assessments.

Existing reporting metrics on nature are either too cumbersome, too expensive or cannot be directly compared. A KPMG survey found that less than 25% of major companies have reported on impacts or dependencies on nature in their sustainability reporting.

Another market opportunity of note is the growing shift to ESG (environment, social, governance screened or themed) investments globally. According to the IMF, over the last decade the volume of ESG-tagged funds has grown $856 billion in assets: a 143% increase from 2010. Regulators too are stepping up: Indian regulator SEBI adopted mandatory sustainability reporting for listed firms in 2021. Yet, tagging investments as ‘green’ remains arbitrary for some asset classes, and nature-related risks are not routinely accounted for by ‘environment’ or ‘sustainability’ tags, which is of concern. As the number of sustainable and ESG-oriented indices rise, corporates are encouraged to adopt more sustainable and ESG strategies to increase their chances of index inclusion (Planet Tracker 2021).

UNDP Administrator Achim Steiner explains, “Aligning global financial flows with nature is an essential path to protect biodiversity, support communities, meet climate targets and achieve the Sustainable Development Goals. Financial institutions and businesses are increasingly realizing that loss of nature has material impacts on a company’s operational costs, reputation, risk and profitability, and potential implications for financial stability at the macro-level. As the Task Force on Climate-related Financial Disclosures (TCFD) did for climate, the launch of the TNFD will aid in better understanding of nature-related risk and provide an opportunity for redirection of global financial flows towards more nature-positive and beneficial outcomes for society.

Why is the UN supporting the TNFD?

Achieving the Sustainable Development Goals is a fundamental driver for economic and business growth (PRI 2017). However, the accelerated loss of nature is putting our collective future at risk. Restoration of natural vegetation and afforestation are essential to meet international targets and crucial for a future that stays within 1.5 degrees of warming. Investing 0.1% of global GDP could avoid breakdown of ecosystems, explains a new UNEP FI report. In fact, action for nature-positive transitions could generate an additional US$10.1 trillion in annual business value by 2030 – a big opportunity for business notes the World Economic Forum.

As stewards of nature and global prosperity anchored by people and planet, the UN welcomes the 7 guiding principles that will serve as a compass for the TNFD and a catalyst to deliver the SDGs.

7 principles proposed as a compass for TNFD:

  1. Market Usability: Develop frameworks directly useful and valuable to market reporters and users, notably corporations and financial institutions, as well as policy and other actors.
  2. Science-based: Follow a scientifically anchored approach, incorporate well established and emerging scientific evidence and aim to incorporate other existing science-based initiatives.
  3. Nature-related Risks: Address nature-related risks that include immediate, material financial risks as well as nature dependencies and impacts and related organisational and societal risks.
  4. Purpose-driven: Be purpose driven and actively target reducing risks and increasing nature-positive action by using the minimum required level of granularity to ensure achievement of the TNFD goal.
  5. Integrated & Adaptive: Build effective measurement and reporting frameworks that can be integrated into and enhance existing disclosures and standards. Account for and be adaptive to changes in national and international policy commitments, standards and market conditions.
  6. Climate-Nature Nexus: Employ an integrated approach to climate- and nature-related risks, scaling up finance for nature-based solutions.
  7. Globally Inclusive: Ensure the framework and approach is relevant, just, valuable, accessible and affordable worldwide, including emerging and developed markets.

The G7-supported TNFD aims to provide a standardized and integrated approach to the disclosures of nature risks and opportunities, based on the financial materiality approach, that can be readily used by companies. Anchored in science-based evidence and committed to being globally inclusive, the TNFD will provide tested recommendations as tools to companies and regulators to embed nature in balance sheets and national accounts to accelerate the transition to a truly sustainable economy, acting as an effective bridge between “knowing and committing” and “doing and reporting”.

Here are proposed recommendations for the technical scope and operating model developed over 9 months by the 74 organizations of the Informal Working Group for the TNFD  and it’s 130+ its Observer Group that span influential financial institutions, corporates, governments, multilaterals, regulators, NGOs and consortia.

UNDP and UNEP FI look to further consolidate development dividends by connecting TNFD to aligned market enablers like the NGFS, FSB, IFRS, G20 and more. From linking to UNEP FI’s lessons learned from supporting TCFD pilots to shaping markets with leaders of the UN-convened Principles for Responsible Investment, Principles for Responsible Banking, Principles for Sustainable Insurance, Sustainable Insurance Forum to the Net Zero Asset Owners Alliance – totaling thousands of the most influential financial players. UNDP welcomes the opportunity to convene visionary governments, regulators, central banks, and multilaterals to expand the value and use of TNFD’s disclosure framework, and incentivize the global shift of financial flows to nature-positive outcomes.

The TNFD is an important element of the green transition that all countries have committed to via the Sustainable Development Goals. Developing countries may be disproportionately affected by this transition, without targeted measures for ensuring just transition for a nature-nurturing economy. Therefore, in parallel to the roll out of the TNFD, we invite governments to consider fiscal instruments, such as nature-positive subsidies, repurposing of nature-negative subsidies, or performance-based payments to assist in alleviating these side-effects and smoothing the transition for those least advantaged.

UNDP and UNEP FI welcome the ambition of the TNFD, the practical vision of the newly announced Co-Chairs and the opportunity to support the TNFD in its next phase.

 

Learn more about the TNFD here: https://tnfd.info

[i] 35% of all food depends on bees and other pollinator species

Facebooktwitterlinkedin