Nature loss could threaten your company’s long-term value by driving up costs across operations and supply chains.
As these nature-based risks become more visible and financially significant, businesses will have to quantify their dependence on nature. For their own survival but also at the insistence of customers, regulators and investors.
Quantifying nature’s effect on your business and vice versa seems an insurmountable task. To help organisations navigate this complex waterway, the Taskforce on Nature-related Financial Disclosures (TNFD) was created. Let’s explain:
What is the TNFD?
The TNFD was launched in 2021 to provide a framework for organisations to identify, assess, manage and report on nature-related dependencies, impacts, risks and opportunities alongside financial considerations. Like the Task Force on Climate-related Financial Disclosures (TCFD), which helped organisations incorporate climate considerations into governance, strategy, risk management and reporting, the TNFD is helping businesses and investors do the same for nature-related issues.
By helping organisations better understand and report on their interactions with nature, the TNFD can drive action to protect and restore it, including adopting nature-based solutions, such as restoring wetlands or planting and protecting forests.
These actions can contribute to nature-positive outcomes and support the goals of the Kunming-Montreal Global Biodiversity Framework. Often described as the “Paris Agreement for Nature”, this globally adopted framework aims to stop and reverse nature loss by 2030 and support a sustainable future in which both people and nature can prosper by 2050.
What framework can organisations use to implement the TNFD recommendations?
A practical way to get started is to use the TNFD’s LEAP approach (Locate, Evaluate, Assess, Prepare), which provides a structured process for understanding nature-related risks and opportunities.
Through LEAP, organisations can:
- Identify where their operations and supply chains interact with nature
- Understand their key dependencies and impacts on nature
- Assess potential nature-related risks and opportunities
- Develop appropriate responses and disclosures
The approach is designed to help organisations make progress using the best information available, while improving their understanding over time.
For organisations looking for more practical guidance, the latest report in the WWF Financing Nature Series, Taking the LEAP from Framework to Practice, explores each stage of the LEAP approach in greater detail. The report also highlights the different ways in which sectors interact with and depend on nature, providing useful context for organisations beginning to consider nature-related risks.
Is nature-related risk only relevant to high-impact industries?
No. While some sectors, such as agriculture and forestry, directly depend on nature, others can carry significant indirect exposure through their supply chains.
Why is nature-related reporting so challenging?
Unlike with climate reporting, which has evolved over several decades, many organisations are still building the internal knowledge and expertise needed to understand and apply nature-related frameworks effectively. Nature-related data is fragmented and location-specific. Unlike carbon, which can be measured using a single, widely accepted metric, nature-related issues are far more varied and location-specific. Understanding them often requires multiple indicators, from water and soil health to biodiversity. Much of the risk also sits deep within supply chains, where visibility is limited, making it harder to measure and compare consistently.
Where should companies start?
Start with what you know — focus on the areas where nature-related risks are most likely to affect the business. From there, TNFD’s LEAP approach offers a practical framework for identifying where risks and opportunities lie, and for building on existing sustainability, climate and risk-management work.
Those performing management and oversight roles within a company should also ensure that responsibility for these issues is clearly assigned and that the necessary oversight and processes are in place to support progress over time.
Organisations can also join the TNFD Forum. The forum provides a platform for stakeholders to stay informed about developments and contribute to the advancement of nature-related risk management and disclosure practices.
Why are nature-related risks a board-level issue?
For boards, the TNFD has three clear implications:
- Risk oversight: The potential for nature-related disruptions across operations and value chains means these risks should be identified, assessed and managed as part of an organisation’s core risk management framework.
- Resilience: Hidden supply chain risks can become costly operational and financial problems if left unmanaged.
- Fiduciary duty: As nature-related risks become more financially relevant, boards have a responsibility to understand and consider their potential impact on the business.
How can organisations prepare for nature-related risks and disclosure requirements?
Assess and understand exposure. Understanding where the greatest risks lie helps organisations focus their attention and resources on the areas that matter most. Because these risks vary by location, a broad, one-size-fits-all view can overlook important exposures.
Prepare for growing reporting expectations. Organisations need to ensure material risks are properly identified and assessed so they can be disclosed in a financially meaningful way. This enables organisations to communicate relevant risks to investors and other stakeholders, while keeping pace with changing reporting requirements.
Embed into strategy. Nature-related risks and opportunities should form part of strategic planning and decision-making. Considering these issues alongside other business priorities helps organisations build resilience and adapt to a changing operating environment.
Monitor external developments. As nature-related regulation and disclosure practices continue to evolve, companies should ensure they understand what these changes could mean for them. Understanding these developments helps organisations anticipate change and respond in a timely and informed way.
Lisa Kusters is a Senior Advisor at Six Capitals with extensive experience in sustainability and ESG. She contributed to WWF South Africa’s Nature Finance in South Africa: Taking the LEAP from Framework to Practice, which explores the practical application of the TNFD LEAP approach.
Why acting on TNFD matters
Organisations that move on TNFD now will be better placed when disclosure expectations tighten. Six Capitals ESG Advisory offers targeted training to get your team up to speed. Contact us at info@sixcapitals.co.za.
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