Views on improving the integrity of global capital markets
10 March 2021

ESG Q&A: The Taskforce on Nature-Related Financial Disclosures

Posted In: ESG, Financial Reporting

We all live in the biosphere. Our economies, markets, and business depend on nature and its biodiversity, either directly or indirectly, for every aspect of our lives, from the water we drink, the homes in which we shelter, the products we use and services we offer, and the jobs that employ us. Yet we don’t do a very good job of accounting for and putting a value on the natural capital that permeates our lives. 

Luckily, a new group is on the case. The Taskforce on Nature-Related Financial Disclosures (TNFD) looks to set the standard for valuing the natural capital we depend on for our lives and livelihoods. We talked to Chris Hart, senior sustainable finance associate at Global Canopy—one of the four founding organizations behind the initiative to form TNFD—to better understand the issue of natural capital and how we can expect it to become part of the investing process.

CFAI:  Can you give us a broad overview of what the TNFD is, and what brought about its creation?

Just like climate-related risks, nature-related risks are material and systemic. But at the moment, companies and financial institutions have a low understanding of how their operations or investments impact or depend on nature. To integrate nature-related risks in their decision making, financial institutions and corporates need decision-grade data at the company, asset, and fund levels. This is where the TNFD comes in: the TNFD will develop recommendations for more effective nature-related disclosures across both impacts and dependencies on nature.

CFAI: Can you tell us a bit about the structure of the organisation. How is it set up to do what it does?

An Informal Working Group bringing together a TNFD was launched last year and is currently developing a detailed work plan and scope for the TNFD. The Informal Working Group has 73 members from across five continents. The group is made up of 48 financial institutions and corporates, 8 governments and regulators, and 17 think-tanks and consortia. A Technical Expert Group supports the IWG. An Observer Group totalling 67 organisations receives a monthly summary of the IWG discussions and are given the opportunity to comment on the IWG deliberations. The initiative to bring together a TNFD is being catalysed through a partnership between Global Canopy, the United Nations Development Programme (UNDP), the United Nations Environment Programme Finance Initiative (UNEP FI), and the World Wide Fund for Nature (WWF).

Later this year, the IWG will appoint and launch the Taskforce itself. 

CFAI: You hope to create a standard for natural capital disclosures—what is the timeline for that and what milestones should we be looking for?

After it launches later this year, the Taskforce will implement their work plan over the next two years. Assessing available data and methodologies to identify relevant metrics and indicators by industry sector will be central to the early stage of the work. As the TNFD develops its recommendations, they will be road tested by financial institutions. The TNFD will then deliver a reporting framework by 2023. 

CFAI: And what does success look like at the end of that process? What will a standard look like?

The TNFD aims to enable investors, banks, insurers, and companies to understand the financial risks associated with nature loss and degradation, and in turn, to integrate those nature-related risks in investment, credit, and insurance underwriting decisions. Ultimately, the aim is to shift financial flows from nature-negative to nature-positive.

The recommendations from the TNFD will complement the existing recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) to give investors, banks, insurers, and companies a complete picture of their environmental risks.

CFAI: Who are the main users of such a standard going to be? 

Investors, banks, insurers, and companies globally.

CFAI: What can investors do to support the efforts to better include natural capital in the investment process?

Engage with the TNFD and other collaborative initiatives, like the Finance for Biodiversity pledge. Collaboration is essential to tackle the complexities of integrating nature-related risks into financial decision making. Investors can also take immediate action by exploring nature-related risks in their own portfolios. The ENCORE tool has been used by the Dutch Central Bank, for example, to assess nature-related risks.

Photo Credit @ Getty Images / Nicolo Sertorio

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

Leave a Reply

Your email address will not be published. Required fields are marked *

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.