The fourth beta version establishes draft disclosure metrics as well as biome and sector guidance — with final TNFD recommendations due in September 2023.

The Taskforce on Nature-Related Financial Disclosures (TNFD) published the fourth (and final) beta version of its framework (Version 0.4) at the end of March 2023. Version 0.4 introduces more specific guidance on metrics, as well as risk management considerations for particular sectors and biomes. The final recommendations, which are slated for publication in September 2023, seek to leverage the successes of the Task Force on Climate-Related Financial Disclosures (TCFD) and COP15 to facilitate quick uptake by a variety of entities.

This blog post summarizes the key takeaways from Version 0.4 and sets out five general principles for companies to consider as they contemplate using the TNFD framework or disclosing natural capital information more broadly.

Highlights From Version 0.4

Version 0.4 provides more detailed guidance on metrics to facilitate organizations’ adoption of the TNFD framework.

The proposed metrics are divided into three tiers:

1. Core metrics (global) — metrics that are broadly applicable, regardless of sector. Version 0.4 includes: (a) 10 dependency/impact metrics, structured as KPIs, on specific nature-related topics; and (b) five core risk/opportunity metrics, which are financial metrics on revenue and asset exposure related to various nature-related considerations.
2. Core metrics (sector) — metrics that relate to particular sectors to help compare disclosures across reporting entities. The particular number and type of metrics vary by sector. Version 0.4 includes a sample annex for food and agriculture, with 10 additional “sector core” metrics, including land use conversion, pesticide use, and feed and product sourcing.
3. Additional metrics — metrics that may be particularly relevant to a reporting entity’s business model or interface with nature. TNFD provides multiple examples but notes that its lists are not necessarily exhaustive.

TNFD is also developing sector- and biome-specific guidance for disclosures and the risk/opportunity assessment process. In addition to providing updated guidance for financial institutions, Version 0.4 includes first-time guidance for mining and metals; agriculture and food; oil and gas; and electric utilities and power generation (including wind and solar farms). Version 0.4 also provides initial guidance for four biomes: tropical forests; rivers and streams; intensive land use systems; and the marine shelf. TNFD plans to release guidance for additional sectors and biomes in the coming months on a rolling basis.

Next Steps for TNFD

Version 0.4 is the final beta version planned for the TNFD framework. Consultation on this version will close on June 1, 2023, at which point TNFD will incorporate final feedback before publishing the final recommendations in September 2023.

As the TNFD recommendations near finalization, companies and investors should consider how they plan to respond. Although the TNFD is a voluntary framework, it has already received support from various financial institutions and regulators. TNFD could therefore quickly follow in the steps of the TCFD — which published final recommendations in 2017, and which many now view as the leading voluntary framework for climate-related reporting around the world. Reporting entities seeking to use the TNFD will have to consider how to integrate natural capital into their existing ESG efforts and priorities.

How Companies Can Prepare

Below are five general principles for companies to consider as they contemplate TNFD and natural capital disclosures more broadly.

1. Determine the relative importance of natural capital among ESG priorities. As not all ESG topics are equally pertinent across companies, it is important to determine the degree to which natural capital matters to the organization. If the company has performed an ESG materiality assessment, consider where natural capital (or related sub-topics like water availability or biodiversity) falls vis-à-vis other matters in the assessment. Companies that have not historically considered natural capital in their ESG materiality assessments might consider doing so in the future. In any event, companies should also consider the extent to which they are in “priority sectors” for the TNFD, as these sectors may be subject to more substantial and immediate pressure from stakeholders to provide disclosures on their approach to natural capital.
2. Assess processes already in place, or able to be adapted, to collect data relevant to natural capital. Companies that already have an internal ESG infrastructure can leverage that infrastructure as new ESG topics, such as natural capital, rise in prominence. In certain situations, companies may need to amend policies and discussion agendas to include natural capital. However, the ability to leverage existing infrastructure also applies in more technically driven aspects. Similar to how TNFD has followed many of the same steps as TCFD, companies may wish to consider how they could use existing climate-related disclosure processes to address natural capital questions.
3. Prepare with relevant stakeholders. Successfully expanding a company’s ESG efforts requires the input of multiple stakeholders, both internal and external. As with other ESG matters, internal governance and controls should feature among the initial considerations. Boards and management may need to be educated on the increasing prominence of natural capital for the company’s operations, not only to support oversight, but also to make such oversight effective.
   Companies should carefully consider which of their external stakeholders will be key to their success. For example, suppliers will likely be an important interface for many companies’ nature-related risks, impacts, and dependencies (as will clients, for financial institutions). Engaging with them can help determine what is feasible, while also signaling the company’s attention to natural capital considerations and the need for capacity-building. As an added bonus, these parties may already be collecting certain information, which may help prioritize how the company rolls out any efforts.
   In determining key internal teams to focus on, companies should consider which teams are particularly important to their operations or climate-related work, including employee interfaces with priority external stakeholders.
4. Consider how existing efforts and obligations may be impacted. As ESG expectations, including from regulators, continue to proliferate, companies may find new interactions among their work streams. Understanding the company’s existing obligations (both regulatory and voluntarily committed to) is a necessary first step to reducing the risk of any issues with such interactions. For example, US-listed companies may need to consider how TNFD disclosures may impact their obligations under the SEC’s pending climate rule. One of the more immediate interactions would be TNFD Strategy D, which includes a description of “interactions with…areas of water stress,” which may trigger additional disclosures under proposed Item 1502 (including the percentage and value of assets impacted). Other, less direct overlaps are also likely to impact some companies.
   Companies should consider similar potential interactions with other regulations, including in other jurisdictions. For example, many jurisdictions that have adopted taxonomy regulations that include environmental objectives related to natural capital (e.g., “water and marine resource management” and “ecosystem conservation and biodiversity”). Even for companies that are not directly pursuing these objectives, TNFD-related disclosures may directly impact analyses associated with the “do no significant harm” requirements in place for many such taxonomies. Perhaps more notably, companies within the scope of the EU’s Corporate Sustainability Reporting Directive will need to report significant amounts of natural capital-related information (in particular, pursuant to ESRS E3 (water and marine resources) and ESRS E4 (biodiversity and ecosystems)), and so should consider the interplay between their forthcoming regulatory requirements and any voluntary reporting under TNFD.
5. Talk with third-party advisors. Companies do not need to, and arguably should not, handle these considerations alone. Companies should determine whether their current advisors are capable to assist on these issues and look to identify additional support as needed. Such support will likely include audit and legal professionals, as well as subject-matter experts if such expertise is not available in-house.