Blog — S&P Global Sustainable1 — 11 May, 2023
How TNFD’s new core metrics can help corporations and investors measure nature impacts and dependency
Highlights
To address the risk of nature and biodiversity loss to long-term economic growth, companies and investors are seeking guidance on how to distill broad concepts into discrete points to focus on.
The recent framework update from the Taskforce on Nature-related Financial Disclosures (TNFD) can help market participants home in on relevant nature-related factors by setting out core metrics related to both impacts and dependencies and to risks and opportunities.
If corporate disclosure aligns with these core metrics and ramps up quickly, the global economy will gain the ability to take nature into account by crafting more resilient business plans, monitoring ongoing ecosystem impacts and rewarding sustainable business strategies.
Divya Mankikar is Global Head of Sustainability Market Engagement at S&P Global Sustainable1. She represents S&P Global on the TNFD working group that drafted the beta framework.
How does TNFD’s v0.4 beta framework help investors and corporates?
The Taskforce on Nature-related Financial Disclosures (TNFD) is a global initiative to develop a framework for businesses and financial institutions to assess and disclose their dependencies and impacts on nature, and to identify nature-related risks and opportunities.
In my capacity as Global Head of Sustainability Market Engagement, I have been joining the TNFD’s working group calls for the last year and half, and I’ve had a front-row seat in the evolution of the TNFD disclosure framework. In March, the TNFD issued its fourth and final draft for comment on the road to publishing final recommendations in September. With this new 0.4 beta draft, we now have core metrics: the baseline indicators that companies and investors are expected to provide because the TNFD considers them “relevant to most businesses in most sectors.”
This represents a major step forward for several reasons:
Clearing up confusion: With the 15 newly released core metrics, the TNFD framework can help investors and corporates compare the performance of different companies across industries and sectors and make more informed decisions as a result. This common baseline also enables companies to be transparent, which can help build trust with stakeholders and enhance their reputations.
Mitigating risks and seizing opportunities: The core metrics are consistent across sectors and require assessment of both risks and opportunities on a range of topics, including climate change, biodiversity loss and other environmental factors. Leveraging this information, investors and companies can then assess their exposure to risks and find ways to create value through sustainable business practices by assessing their dependencies and impacts on nature.
Supporting regulatory compliance: With this new insight into core metrics, the TNFD framework can help companies comply with existing and emerging regulations related to nature and environmental issues.
What are the metrics?
The TNFD’s framework includes 15 core disclosure metrics that apply globally and across industries, plus additional industry-specific disclosure metrics. Companies would need to disclose these metrics in order to align with the TNFD framework. A company could choose to use other metrics or frameworks to help it assess in line with the LEAP approach, which refers to Locate, Evaluate, Assess and Prepare — the process that companies can take to measure nature-related risks.
The core global metrics include 5 risk and opportunity metrics:
and 10 impact and dependency metrics:
What other frameworks complement the TNFD?
The TNFD’s latest guidance joins a growing chorus of frameworks that guide companies on how to disclose their impact on biodiversity or nature. Given the specificity of the core metrics, TNFD v0.4 also enables disclosure in line with these other frameworks:
- Convention on Biological Diversity (CBD): This is a global treaty that aims to conserve biodiversity, promote sustainable use of its components and ensure fair and equitable sharing of the benefits arising from the use of genetic resources. We wrote about the CBD’s December 2022 conference known as COP15 here. Through Target 15 of the newly agreed Global Biodiversity Framework, the CBD encourages companies to integrate biodiversity into their decision-making processes and to disclose their impact on biodiversity.
- Global Reporting Initiative (GRI):The GRI is the most extensively used international framework for sustainability reporting. The GRI standards include specific indicators related to biodiversity and ecosystems.
- Sustainable Development Goals (SDGs): The SDGs are a set of 17 goals adopted by the United Nations in 2015 to end poverty, protect the planet and ensure prosperity for all. Several of the goals, including Goal 14 (Life Below Water) and Goal 15 (Life on Land), are related to biodiversity and ecosystems. Many companies have committed to reporting on their contribution to the SDGs, including those related to biodiversity.
- Task Force on Climate-Related Financial Disclosures (TCFD): The TCFD was established by the Financial Stability Board to develop recommendations for voluntary climate-related financial disclosures by companies. While the TCFD does not specifically require companies to disclose their impact on biodiversity, it does encourage them to disclose the physical risks and opportunities associated with climate change, which can have significant impacts on biodiversity and ecosystems.
From climate to nature
Where possible, the TNFD sticks closely to the template of the climate-focused TCFD. As the TNFD framework moves from planning to implementation, stakeholders focused on biodiversity could learn from the trajectory of the TCFD. Specifically:
Companies: Since TCFD released its final recommendations in 2017, more than 3,900 companies have expressed support for the guidance, with the majority using the framework to inform their disclosure.
Regulation: Corporate disclosure regulations around the world reference the TCFD.
Shareowners: Shareowners are increasingly interested in managing the exposure to nature and biodiversity risk embedded in their portfolios, and they’re seeking guidance on the key metrics to measure progress. For example, Nature Action 100, inspired by Climate Action 100+, is “a global investor engagement initiative focused on driving greater corporate ambition and action to reduce nature and biodiversity loss.” Several of the Nature Action 100 founders are also TNFD Forum members.
With this last step from TNFD in issuing disclosure metrics, and once final recommendations are issued in September, businesses and investors will have a common language to determine a path that averts nature and biodiversity loss and to pursue growth plans that are nature positive.