With two-thirds of companies yet to disclose any information on their impact beyond climate, the Task Force on Nature-Related Financial Disclosures (TNFD) warns Chief Sustainability Officers that there is no reason for further delays.
In an interview with CSO Futures this week, TNFD Technical Director Emily McKenzie shared her advice for Chief Sustainability Officers: “It’s time to get started. There is no reason to delay. The overall objective is not to perfect something now, but to begin a process whereby, year on year, the disclosures expand and improve and provide better insights on nature-related dependencies, impacts, risks and opportunities.”
The advice comes as CDP just released new data showing that only 38% of the 24,000 companies that use its platform for climate disclosures are reporting data around their impacts on nature, such as forests and water.
Companies not preparing ‘set to lose out’
According to CDP, most of the companies that do report on nature believe acting now is less costly than not managing these risks: 73% of those that disclose forest metrics and 50% of those that report on water have “identified environmental opportunities with the potential for substantive financial or strategic impact on their business”.
Climate and nature action are becoming more and more intertwined, as evidenced by the EU’s Nature Restoration Law and the integration of food (the sector with the largest impact on nature and biodiversity) into climate targets at COP28. Governments are also negotiating the next wave of commitments at the ongoing climate change conference in Dubai, and the current global stocktake draft includes wording around “restoring and sustainably using nature and ecosystems for effective and sustainable climate action”.
Sue Armstrong-Brown, Director of Thought Leadership, Impact at CDP, warns that organisations “must rapidly embrace a more comprehensive approach to environmental disclosure”: “This includes going beyond only climate to robust disclosure on nature. With the launch of the TNFD recommendations and more regulation expanding to include nature-related disclosure, companies not preparing are set to lose out.”
TNFD recommendations: ‘The key is flexibility’
McKenzie believes there’s nothing preventing companies and Chief Sustainability Officers from beginning the process right away, reminding CSO Futures readers that half of the recommended disclosures are qualitative. “This means that you can proceed even if some needed data is lacking. As we progress, we expect the data available to become more robust and precise. And, year by year, the metrics should become more comparable and consistent. Companies can build up their disclosure ambition, making it more robust over time,” she adds.
Those that already disclose their climate risks in alignment with the Task Force on Climate-Related Financial Disclosures (TCFD) are well placed to understand the requirements, since the TNFD recommendations are based on those of the TCFD “with minimal language changes to provide market participants with maximum consistency”.
Only three recommendations have been added in the TNFD disclosures: one around the importance of considering nature-related issues across value chains; one requiring disclosure of locations where an organisation has material nature-related issues or is interfacing with sensitive ecosystems; and one requiring disclosure of the organisation’s engagement with Indigenous Peoples, Local Communities and affected stakeholders within the context of the organisation’s broader policy and approach to human rights, McKenzie points out.
But across all recommended nature disclosures, “the key has been flexibility”, she says: “Take the issue of materiality. There’s a debate about whether organisations should explain their impact on nature or nature’s impact on them – or both. Our recommendations are deliberately flexible enough to align with a firm’s preference on materiality across different reporting jurisdictions without dictating one course to them. In other words, we let the company decide.”
Nature action set to accelerate in the next two years
By releasing its 2023 disclosure data factsheet during COP28, CDP hopes to highlight areas for action for negotiators, and reinforce the call for greater accountability and “more holistic global environmental ambition”.
Besides the landmark Emirates Declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action signed by 134 countries last week, other COP28 efforts to include nature in climate action include a fund proposed by Brazil on Friday to help countries with tropical forests keep them intact. The fund would aim to raise US$250 billion from governments and the private sector.
Investors are also showing growing interest in understanding and managing nature-related risks in their portfolios: Fidelity International announced its first nature roadmap last month, setting out commitments and the strategies it plans to use to assess and reduce the natural impact of its financing activities – with a goal to release its first nature-related disclosures by 2025.
“We are not expecting everyone to get there overnight. But in a recent global survey we conducted, more than two-thirds of organisations said they would be able to start reporting against TNFD’s recommendations by the financial year 2025,” said McKenzie.