TNFD: Unveiling economic and environmental benefits of biodiversity

TNFD impact on nature
TNFD provides a roadmap for businesses to understand, manage, and disclose their impact on biodiversity.

Unleashing the power of TNFD: Biodiversity is essential for our planet. Various businesses rely on the ecosystem services and biodiversity that nature provides. It is well known that 75% of global food crops depend on animal pollination, and 70% of cancer drugs derive inspiration from nature. Marine and terrestrial ecosystems, capturing 5.6 gigatons of carbon annually, play a crucial role in carbon sequestration, offsetting more than half of the total emissions caused by nature. (Ann & Harry, 2022)

According to a 2020 World Economic Forum report, prepared in collaboration with PwC, over half of the global GDP — $44 trillion — is moderately or highly dependent on nature. In the Asia-Pacific region, nature-positive development opportunities are estimated at $4.3 trillion, potentially creating over 230 million jobs by 2030. (Lawrence & Sharmine, 2022) This, combined with biodiversity’s critical role in climate change mitigation, emphasises the urgent need to halt and reverse ecosystem degradation. (Merriman, 2023)

Recognising its importance, several countries have implemented measures to protect biodiversity. For instance, Costa Rica has doubled its forest area, thanks in part to its 1998 Biodiversity Law, which includes payments to citizens for forest conservation and ecosystem restoration. This approach has brought approximately $4 billion to Costa Rica through ecotourism. China’s ‘Grain for Green’ programme, which compensates farmers for afforesting sloping lands, has resulted in the largest afforestation project to date (Ann & Harry, 2022).

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In 2011, Japan initiated its Biodiversity Fund (JBF) and developed a 10-year strategy with action plans. In 2022, the United States announced various nature-related policies, including a national nature assessment and a natural capital account, to develop non-economic performance metrics for nature and promote nature-based solutions for various issues. (Pierce, 2023)

These initiatives fall short to keep pace with the damage inflicted on biodiversity and nature. The World Economic Forum has listed ‘biodiversity loss’ as one of the top five global economic risks in recent years. Protecting biodiversity is crucial not only for ecosystem restoration but also for addressing the climate crisis and reducing pollution (Swain et al., 2023). Fortunately, recent years have seen new initiatives such as SBTN, TNFD, GBF, TCFD, and WBCSD’s Nature Positive.

Climate change and biodiversity

To date, companies have primarily focused on climate-related impacts. However, nature-related risks and opportunities are still relatively new in their environmental strategies. (Sylvaine et al., 2022) Biodiversity risk disclosure is still lagging behind climate risk disclosure. (Jaffé et al., 2023) Unlike climate reporting, which revolves around carbon dioxide emissions, nature is inherently complex, involving various biomes, species, natural resources, and their interrelationships. (Robert G Eccles, 2023) As the world prepares for COP28 in Dubai and reflects on COP15 in Montreal, a “Paris moment” for biodiversity is still awaited. (Swain et al., 2023)

Studies show that climate change contributes to 11-16% of biodiversity loss. (Ann & Harry, 2022) Therefore, addressing biodiversity and climate change together is essential. Some climate change mitigation efforts, such as renewable energy development, have inadvertently harmed biodiversity. For instance, solar farms have transformed grazing lands, and wind farms have increased bird mortality, especially in migratory paths. Similarly, hydropower plants can negatively impact aquatic life. (Bryony & Emily, 2023) In Chile, lithium extraction for batteries has affected algae and shrimp populations, essential to two threatened flamingo species. (Park, 2023)

TNFD – A framework to manage impact on nature

The Taskforce on Nature-related Financial Disclosures, or TNFD, introduced in July 2020 and formally launched in 2021, looks to build a robust framework for corporates to understand, disclose, and manage their impacts on nature. It recommends a 4-step LEAP approach: Locate interfaces with nature, evaluate dependencies and impacts, assess risks and opportunities, and prepare responses and reports. The TNFD aligns with various global sustainability standards and disclosure requirements, including those by the ISSB, GRI, ESRS, CSRD, SASB, EFRAG, and TCFD. (Kara, 2023)

The TCFD, created by the FSB following a G20 request, has become a leading framework for mandatory climate disclosures. Various countries, including the UK, the US, and Canada, have implemented TCFD-aligned disclosure regulations. In contrast, the TNFD, though similar in structure to the TCFD, is supported by a diverse group of financial institutions, corporates, and market services providers. It emphasises transparency in capital markets regarding the financial impact of climate change and nature loss. (Climate, 2023; Timothy, 2023)

Post-2020 global biodiversity framework

The GBF, adopted at COP15, engages the business and finance community in implementing its targets. The TNFD’s recommendations align with the GBF, emphasising comprehensive assessments of nature-related impacts and dependencies. It advises companies to develop metrics and targets based on GBF targets. (Swain et al., 2023)

Science Based Target Network, established in 2020, builds on the climate-focused SBTi. It aims to provide clarity on setting and measuring science-based targets for nature. The TNFD and SBTN are aligned with the GBF and emphasise stakeholder engagement, sharing common concepts and definitions for business-nature relationships. (Nugroho & Center, 2023)

The TNFD has faced criticism for potential greenwashing, lack of community engagement, non-standardised methodologies, and unverifiable data in reports. Despite these challenges, the TNFD stresses the importance of clear, third-party verified disclosures and has released additional guidance for addressing nature-related issues and engaging indigenous communities. (Hawkes, 2022; Murdoch, 2023; Merriman, 2023)

The way forward

Over 1200 businesses have joined the TNFD Forum, receiving endorsements from the G-7, G-20, and various international organisations. The TNFD plans to publish a list of companies intending to adopt its recommendations at the 2024 World Economic Forum in Davos. (Keating, 2023) The TNFD’s adopters initiative aims to enlist leading companies and financial institutions committed to adopting the recommended disclosures by 2024 or 2025. Their names will be published on the TNFD website in January 2024. (Luxton, 2023)

Organisations reporting under the EU Corporate Sustainability Reporting Directive will face separate biodiversity-related disclosure obligations. The extent to which harmonisation will be achieved remains uncertain. (Bryony & Emily, 2023; Swain et al., 2023)

As preparations for the first Global Nature Positive Summit in Sydney in October 2024 continue, there’s anticipation for a shift from nature-negative to nature-positive projects. Organisations and financial institutions are encouraged to familiarise themselves with these frameworks for effective implementation and impactful results.

(Pankaj Satija is Executive In Charge of Ferro Alloys and Minerals Division of Tata Steel Ltd. The views expressed in this article are of the author and not necessarily those of the company he is associated with.)

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The author is Managing Director, TATA Steel Mining Ltd. The views expressed in this paper are personal.