Accounting for the natural world
Nature is an essential component of our economy, and financial institutions and corporations have a significant impact on the environment.
The degradation of nature and biodiversity poses a significant risk to the global economy, and in June 2020 the Taskforce on Nature-related Financial Disclosure (TNFD) was established to enable businesses and financial institutions to measure and report on their impacts on the natural environment. In April 2023, TNFD published the latest beta version of its reporting recommendations (version 0.4).
TNFD aims to develop a framework for nature-related financial disclosures similar to that of the Task Force on Climate-related Financial Disclosures (TCFD). The TNFD recognises that nature-related risks and opportunities can have a significant impact on a company's bottom line. However, there is currently no consistent or comparable framework for nature-related financial disclosures, making it challenging for businesses and investors to understand their impacts on nature.
Unlike other standard setters such as the ISSB and EFRAG, TNFD and TCFD have published frameworks rather than standards; they provide principles rather than prescribing specific disclosures and reporting metrics. In practice, this makes it very difficult for the users of a sustainability report to compare and contrast companies’ disclosures. As a result, these frameworks are particularly problematic for SMEs that form part of a listed group’s supply chain, since each customer will have different metrics they wish to obtain and disclose. We recommend that SMEs engage their customers at the outset when seeking to implement the TNFD framework, and ensure that their data collection / analysis processes allow for maximum flexibility if a customer changes its definitions or metrics.
While the TNFD framework is focused on nature-related financial disclosures, it is important to note that this initiative is not solely for accountants. TNFD recognises that reporting on nature-related risks and opportunities requires expertise from various disciplines, including environmental science, sustainability, and biodiversity conservation. This initiative is inclusive and invites input from a wide range of stakeholders.
The framework will enable businesses to assess the risks and opportunities associated with nature and biodiversity and integrate this information into their decision-making processes. The framework will also help financial institutions to assess the risks associated with investments in companies that have significant impacts on nature.
The TNFD recognises that businesses and financial institutions need to work together to address the challenges facing our planet. The initiative seeks to promote collaboration between businesses, investors, policymakers, and civil society to address nature-related risks and opportunities. Ultimately, the TNFD aims to create a more sustainable and resilient global economy by ensuring that businesses and financial institutions are accountable for their impacts on nature.
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