The Taskforce on Nature-related Financial Disclosures (TNFD) released its final recommendations today. This is a historic moment to encourage and support action on nature. The groundbreaking framework enables companies to assess, disclose and manage nature-related risks and impacts which will lead to consistent and comparable reporting on nature-related risks and impacts by businesses and financial institutions worldwide. In this article, we explain the role of UNEP FI and our members in developing this innovative tool and outline how financial institutions can get involved.
A new chapter for business-led nature action
Our economy, financial stability and the broader resilience of society depend on nature. Yet the biological diversity of our planet is being lost at an unprecedented rate, exposing businesses to increasing, explicit and material risks. According to UNEP’s State of Finance for Nature report, the USD 4.1 trillion financing gap in nature must be closed by 2050 for the world to meet its climate change, biodiversity and land degradation targets. Currently, most of the financing aimed at nature-positive outcomes come from the public sector. To close the funding gap, the private sector must step up and increase their financing of nature.
The framework and guidance for the management and disclosure of nature-related risks and impacts released by the TNFD are a game-changer for corporates and financial institutions. Developed in consultation with a broad range of stakeholders, including leading businesses, policymakers, civil society organisations, knowledge partners and standard settings, TNFD’s pragmatic and science-based framework is the result of the deployment of an open innovation approach, which encourages co-creation by market participants, iterations of market consultation and global pilot testing. It provides an integrated risk and opportunity assessment method – the LEAP approach for businesses and financial institutions to assess, monitor, disclose and report on nature-related risks, dependencies, impacts and opportunities, and is a great enabler for business, financial institutions and other investors to integrate nature into their financial and business decisions.
The final recommendations released today help businesses and financial institutions anticipate upcoming regulatory shifts as a result of the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF). The disclosure recommendations, which are designed to allow for comparable reporting worldwide, are expected to improve transparency and accountability, therefore encouraging nature-positive actions. Moreover, as final recommendations from the TNFD are designed to mirror and complement the Task Force on Climate-related Financial Disclosures (TCFD), financial institutions that are already acting on climate risks can now use TNFD’s integrated approach to address nature-related financial risks at the same time.
Financial institutions interested in learning more about TNFD’s disclosure recommendations, sector metrics and current examples of disclosures specific to the sector should consult the Sector Guidance for Financial Institutions. Institutions interested in learning how to take their first steps, should consult the Getting Started Guidance co-authored by UNEP FI. A new guidance on the LEAP approach is also available now.
Piloting to success
As a co-founder of the TNFD, UNEP FI played a key role in the establishment, development and finalisation of the framework. Apart from providing technical support, as well as embedding and supporting high-level voices in the governance structure, such as that of TNFD’s co-Chair – Elizabeth Maruma Mrema, we have been one of the implementation partners of the TNFD pilot programme for the financial sector, which allowed participating financial institutions to test the beta version of the TNFD framework and provide feedback, thereby ensuring the framework’s relevancy to the wider private financial sector.
Through this programme, 50 financial institutions from 25 countries actively contributed to the shaping of the framework through sharing their feedback, lessons-learned and insights within an impressive 12-month time frame. Key findings from this innovative exercise can be found in this UNEP FI report. Thanks also to TNFD’s open innovation process and ‘whole of society approach’, stakeholders other than businesses and financial institutions, such as civil society organisations and indigenous peoples and local communities, have been widely consulted and engaged through the entire development process.
While the framework is a voluntary one, adoption is expected from the private sector, as sustainability frameworks such as the TNFD will lead to greater market transparency through disclosures. We encourage governments, supervisors and regulators around the world to now play a crucial role in the uptake of the framework, as has happened with the TCFD and other international standards-setting bodies, such as the International Sustainability Standards Board (ISSB), which is looking at risks beyond climate.
The road ahead
As a trusted partner of the financial sector, UNEP FI stands ready to support and guide financial institutions through the evolving and complex landscape of nature finance.
The release of the TNFD final recommendations provide a new pathway for financial institutions to act on nature loss. At the beginning of this journey, we call for all those interested in understanding and gaining hands-on experience with the application of the TNFD framework to join our TNFD pilot programme. In addition, we will continue to provide resources for financial institutions to take their first step and navigate through the complex landscape of nature action. Some of these planned resources will be applicable to all financial institutions, while others will be targeted at a specific industry. For example, a nature target-setting guidance in alignment with the GBF and the TNFD will be made available to banks towards the end of the year.
Building on the work we have been doing in the past years, UNEP FI will continue to support and accompany financial institutions in their journey to identify and address their impact on the natural world.