Tackling nature-related reporting and the TNFD

Although nature is closely connected to climate change, nature-related reporting is generally far less mature than climate change reporting. But, with the release of the final Taskforce on Nature-related Financial Disclosures (TNFD) framework this week, this is all about to change. As TNFD is the second ‘Taskforce’ based framework, a lot of the same reporting principles and approaches developed for the Taskforce on Climate-related Financial Disclosures (TCFD) will be very transferable, as will our reporting recommendations that we have already published^[1]. However, unsurprisingly, many of the same challenges are also likely to apply.

Building on the advice in our Don’t get scared, get started article, we wanted to understand the current status of nature-related reporting. Our review focused on the annual reports of 35 FTSE 350 companies in sectors^[2] with potential impacts and/or dependencies on nature, on the basis that they should have something to report. And we certainly found evidence that these companies have nature on their agenda. 46% of these companies made reference to the TNFD, even if this was just in passing, and one company in the sample published a brief initial disclosure using the draft TNFD guidelines.

In terms of challenges, there was limited linkage between most companies’ nature-related dependencies, impacts, risks and opportunities, and their business model or strategy. Just 6% of our sample identified biodiversity as either a principal or emerging risk (though it was part of a broader ESG principal risk in 37% of cases). The lack of integration is not surprising, as a lot of companies are still working out what the topic means for them.

So, whether you are just getting started or are looking to develop your reporting, we have set out below five simple questions to ask yourself, along with some observations about what we saw in our review process.

Five questions to get real value from your nature-related reporting

1. How will you make it easy to understand any significant nature-related impacts, dependencies, risks and opportunities identified by your business?

Currently, companies rarely make it clear why nature is important to their business and, therefore, why the related content is included in the annual report. Just 9% of our sample made it clear how dependent the company’s business model and strategy are on nature, and 60% provided no indication at all.

And, while 20% of our sample discussed the connections between nature and the assets or locations of the business, companies tended to highlight specific examples or case studies without really explaining their importance. 

2. How will you show where the business is on its nature journey?

The TNFD framework aims to allow companies to build their disclosures over time because nature is a very broad topic - broader in many ways than climate change where many companies often focus primarily on emissions. It can be a major task to determine where and how a business may be exposed to nature-related risks, particularly when also considering the value chain. It might be more straightforward to assess a company’s impact on nature, as opposed to impacts on the business resulting from nature change, but, even given the make-up of our sample, 46% of these companies provided no assessment of their impact.

Companies can feel under pressure to demonstrate that they are making progress while the assessment process is underway. Progress year-on-year is important, but there needs to be a balanced story overall, including any case studies that are used.

3. How will you get across the company’s overall ambition, and how it plans to get there?

The TCFD has shown that creating a goal, and explaining the related actions and metrics to track progress, is one of the more challenging areas of reporting. This is largely due to the fact that goals will often be set for many years in the future, and creating a plan to achieve these can involve making many assumptions and judgments.

Our review found there was a tendency to make a broad statement on the company’s ambition for nature-related issues, such as to have a ‘biodiversity net gain’, but it wasn’t always clear how this would be achieved. And, where actions were outlined, it wasn’t always apparent how they were relevant to the goal.

4. How will you show that the business is measuring the financial impact of nature-related risks and opportunities?

The financial impact of nature-related change is at the core of the TNFD framework, as it is with the TCFD framework. But, as we’ve seen from companies’ experience with TCFD, this is probably the single most challenging aspect of reporting, so we were not surprised to find that the companies in our sample did not yet provide quantified information. Qualitative reporting can be the first step towards quantification and, encouragingly, we found 17% of our sample provided some qualitative insights into the potential impact.

5. How can you get the most from information outside the annual report?

In the majority of cases we looked at (77%), companies did not specifically link from the annual report to other sources for further information on nature-related issues. However, there often was information on the corporate website, or in sustainability reports, that could have been useful. Having done the extra work, companies may wish to take credit for it by providing readers with better signposting.

Summing up

While it is still early days for nature-related reporting, it was encouraging to see companies taking their first steps ahead of any mandatory reporting requirements. In addition, it is reassuring that the learnings from TCFD reporting will undoubtedly stand many companies in good stead as they get started on their TNFD journey. The mandatory requirements are also not far away, with biodiversity and ecosystems reporting part of the European Sustainability Reporting Standards (ESRS), and the ISSB considering biodiversity and ecosystems as a possible next project. Now is definitely the time to get on with tackling this increasingly important and high profile topic.

^{[1] Still early days: A review of year two of TCFD reporting - May 2023, The green shoots of TCFD reporting: An analysis of the first 50 companies to report under the Listing Rules - May 2022
[2] Included sectors such as mining & energy, consumer goods, utilities and retail.}