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Consultation opened on nature-related risk disclosures framework

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Pension schemes have been urged to track the development of a framework that is designed to ensure that nature is factored into financial and business decision making in the same way that climate risks are.

The Taskforce on Nature-related Financial Disclosures (TNFD) has published an initial ‘beta’ version of its nature-related risk and opportunity management and disclosure framework for consultation. It hopes to finalise the framework by late 2023.

The draft new framework is modelled on a similar framework that focuses on climate-related risks. Disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD’s) recommendations have been mandated for many organisations in the UK. Pensions expert Carolyn Saunders of Pinsent Masons said that similar requirements to make disclosures on nature-related risk in line with the TNFD’s framework could follow in due course. It is only voluntary for organisations to make such disclosures currently.

Saunders said: “The interconnection between biodiversity and climate change is undeniable. Climate change is a major contributor to bio-diversity loss – as was starkly illustrated recently in the IPCC’s sixth assessment report – and conserving and managing bio-diversity is critical to addressing climate change.”

“Although this TNFD framework is in its early stages, it will feel familiar to those pension schemes that are currently working towards producing a report aligned with the TCFD’s recommendations in line with the statutory requirements, because the TNFD’s framework is organised around the TCFD’s four disclosure pillars – governance, strategy, risk management and metrics and targets,” she said.

“The TNFD has identified ‘the complex interplay with climate’ as a priority area for further development and is also keen to encourage integrated disclosures in future. In the circumstances, and given the growing understanding of the potential impact of nature on financial decision-making, it is reasonable to expect that pension schemes, in due course, will need to comply with TNFD principles,” Saunders said.

Organisations adopting the TNFD’s draft framework would be expected to disclose the specific nature-related risks they identify to their business over the short, medium and long-term, how management assess and manage those risks, what impact they anticipate those risks to have, and how resilient their strategy is to those risks materialising under various scenarios. They would also be expected to explain how nature-related risks are factored into the organisation’s broader risk management, and disclose the metrics and performance targets they apply and assess themselves against.

The TNFD said: “More than half of the world’s economic output – US$44 trillion of economic value generation – is highly or moderately dependent on nature. Yet most companies, investors and lenders today inadequately account for nature-related risks and opportunities in their decisions. The Taskforce on Nature-related Financial Disclosures (TNFD) was established in response to the growing appreciation of the need to factor nature into financial and business decisions.”

“The TNFD is a global, market-led initiative with the mission to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks, with the ultimate aim to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes. The TNFD framework is intended for use globally by corporates and financial institutions of all sizes,” it said.

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