To support the Taskforce on Nature-related Financial Disclosures (TNFD) with developing a robust framework for nature-related risks, Global Canopy and UNEP FI are testing TNFD core concepts and an exploratory disclosure framework with organisations operating or investing in soy supply chains

Companies and financial institutions are increasingly aware that they may be exposed to nature-related risks, but currently lack a comprehensive framework to assess and manage them. The market-led Taskforce on Nature-related Financial Disclosures (TNFD) aims to solve this challenge by delivering a risk management and disclosure framework for nature-related risks by 2023, ensuring alignment with the most widely-used frameworks and standards currently in the market. 

Delivering on this ambition will require extensive research, market-led testing and wider consultation over the next two years. Much will be done centrally through the TNFD itself, which recently announced its initial 33 Members and kicked off their work. But other market players and stakeholders are encouraged to contribute with aligned research and testing. Crowding in insights from a broad pool of players and sectors will help ensure the final TNFD framework is practical and usable for market participants. With its particularly high nature-related risk exposure, the food system is a good place to start. At the Food System Summit last month, the UN Secretary General highlighted that “food systems [are] responsible for up to 80 percent of biodiversity loss”.

Prioritising sectors with high impact and dependencies on nature

Global Canopy and UNEP FI, two of the founding partners of the TNFD, are currently undertaking the first TNFD-aligned testing project. The project will develop and test an exploratory framework for nature-related risks in the consumer staples sector with a group of select financial institutions and corporates, including McDonalds, Rabobank, Santander, Tesco and Vitasoy. WWF is providing additional technical input.

The project focuses on selected sub-industries within the consumer staples sector: food retail, packaged food and meats, food distribution and agricultural products. Data from ENCORE highlights that these sub-industries can have significant impacts and dependencies on nature, which in turn can lead to financial risks. 

Agricultural production for example can impact both freshwater and terrestrial ecosystems, but is also highly dependent on soil quality. Packaged food and meats companies both heavily impact and depend on water availability.

Within the consumer staples sector, the project focuses on soy supply chains in particular. Soy supply chains are chosen for their particularly high nature-related financial risks, and the relatively good availability of relevant data. Soy is one of the four main commodities linked to deforestation, and the loss of tropical forests is a significant driver of biodiversity loss.

Testing definitions, data and metrics

The project aims to explore the ability of organisations operating in, or financing, soy supply chains to assess, measure, and disclose nature-related risks in line with the proposed technical scope of the TNFD, which was released in June. 

A first step of testing an exploratory framework for nature-related risks involves assessing in a real-world context the concepts, definitions and recommendations set out in the TNFD’s proposed technical scope.

A key concept to test is the TNFD’s initial definition of nature-related risks. In addition to shorter-term financial risks, the TNFD proposes to include longer term risks represented by an organisation’s impact and dependencies on nature. This means organisations should consider not just how nature may positively or negatively impact the organisation’s immediate financial performance, but also how the organisation positively or negatively impacts nature  as a predictor of longer term risks to the business. Global Canopy and UNEP FI will assess how companies and financial institutions currently define nature-related risks, and the extent to which this aligns with the definition laid out in the TNFD’s proposed technical scope.

Another priority recommendation to assess are the four proposed pillars of the TNFD framework – governance, strategy, risk management, metrics and targets. The pillars are intended to structure and guide the disclosure of nature-related risks. They replicate the framework used by the Task Force on Climate-related Disclosures (TCFD). By aligning closely with the TCFD framework, the TNFD intends that over time, the two frameworks will be complementary and provide a comprehensive picture of climate- and nature-related risks.

A second step of developing and testing an exploratory framework involves assessing what data (including third-party data) and commonly used metrics are available, and which of these may be suitable for assessing and reporting on nature-related risks in the context of soy supply chains. This involves systematically reviewing the quantitative and qualitative nature-related metrics set by global standard setting bodies, as well as determining what relevant nature-related metrics financial institutions and corporates are currently using. 

Throughout, the project will explore more broadly the possible challenges and opportunities that participants may face in assessing, measuring, and disclosing nature-related risks.

Towards a global framework

Lessons learned from the development and testing of an exploratory framework in the consumer staples sector will be presented to the TNFD later this year. The findings will provide inputs into the various Working Groups of the Taskforce, in particular the groups focusing on definitions, data, standards and metrics, and the beta version of the TNFD framework. The findings will also help inform future TNFD-aligned testing projects, which will take place across a wide range of sectors and geographies throughout the duration of the TNFD framework development, until the final framework is released in 2023. 

Learn more: Join live streamed workshop 4 November

Join us virtually on 4 November at COP26 for a live-stream of an in-person workshop that will present the project, ‘TNFD Aligned Research and Testing: Nature-related risk reporting in soy supply chains’. The session will highlight the initial lessons learnt during testing and serve as an opportunity for audience members to ask questions and provide feedback on the project.

Register here.

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