Part 3: TNFD and its interaction with global standards

In the space of sustainable business practices, the Taskforce on Nature-related Financial Disclosures (TNFD) has emerged as a significant framework. In our previous two articles, we explored the applicability of this framework, how businesses can prepare for it, and the potential benefits of aligning with its reporting guidelines. Now, in this article, we will delve into how the TNFD framework interacts with other global frameworks and standards.

Before diving into the interaction between the TNFD and other frameworks, it's crucial to address recent developments. The TNFD recently concluded a consultation on its final recommendations and additional guidance, which was released in September 2023. This consultation garnered remarkable global engagement, with over 3,400 comments from 45 different countries, including more than 60 formal comment letters. 

Another significant development in the world of sustainability reporting is the publication of the first two standards by the International Sustainability Standards Board (ISSB). These standards, IFRS S1 and IFRS S2, are designed to guide businesses in reporting on their sustainability ambitions. However, when we examine their content, we find limited references to biodiversity or nature-related aspects. Instead, they refer to previous guidance from the Climate Disclosure Standards Board on water, biodiversity, and ecosystem services.

Nonetheless, the ISSB has initiated a consultation on its upcoming work program, which includes a specific focus on biodiversity and ecosystem services. This implies that while these topics are not prominently featured in the current standards, future developments may provide more detailed guidance in this area. We believe this could be a future standard potentially named IFRS S3 to continue following the S1 and S2 standards naming conventions.

One more acronym enters the fray – the European Sustainability Reporting Standards (ESRS). These standards aim to be interoperable with frameworks such as the TNFD and the Task Force on Climate-related Financial Disclosures (TCFD). Given that EU-listed companies, and those with substantial EU-generated revenues, are required to comply with ESRS, it becomes relevant to consider how this affects TNFD reporting.

ESRS introduces the concept of ‘double materiality’, which diverges from the TNFD's approach. While the TNFD framework allows businesses to choose their materiality approach, ESRS mandates both financial materiality and impact materiality. This means that environmental impacts are considered as important as financial matters. For UK-based companies doing significant business in the EU, this divergence in materiality approaches becomes a noteworthy consideration.

As the sustainability reporting landscape evolves, it becomes increasingly complex. Various frameworks, initiatives, and standards, each with its own nuances, demand the attention of business leaders and owners. The challenge lies in ensuring compliance with the most stringent set of standards applicable to your business, considering its operations across different jurisdictions.

While this complexity may seem daunting, it's essential to remember that these initiatives are working towards interoperability. They share common elements, including governance, strategy, impacts, risks, opportunities, metrics, and targets. Furthermore, the commitment of these organisations to harmonise standards ensures that businesses can navigate this intricate landscape more effectively.

What does the future hold for TNFD reporting beyond ongoing debates on materiality? Several developments are on the horizon, including the emergence of science-based targets for nature (SBTN). These targets cover aspects such as freshwater, land use and potentially biodiversity, and oceans. They align with the TNFD's emphasis on metrics and targets and promote sustainability actions aligned with scientific objectives. 

Additionally, the notion of ‘nature-positive’ actions is gaining traction, though it is still evolving and open to interpretation. Being ‘nature-positive’ implies leaving nature in a better state than it was found, and various organisations, including the UK Business and Biodiversity Forum and the International Union for Conservation of Nature (IUCN), are involved in defining and promoting this concept.

In this rapidly evolving landscape of sustainability reporting, it's essential for businesses to stay informed, adapt to changing standards and engage with the frameworks that align with their sustainability goals. While it may seem like a mishmash of initiatives, the overarching goal is clear: to encompass the entire value chain in the pursuit of sustainability.

As the TNFD framework and other global standards continue to evolve, businesses must remain proactive in embracing these changes and incorporating them into their sustainability strategies. It's worth noting that the UK Government is poised to introduce the Biodiversity Net Gain legislation a crucial step toward enhancing our environmental commitments. Furthermore, the Chair of the Environmental Audit Committee has urged the government to consider making TNFD reporting mandatory for companies, akin to TCFD.

While TNFD reporting isn't obligatory at present, it's prudent to anticipate that investors may soon begin requesting corporate disclosures regarding their impact on nature and evaluating their exposure to biodiversity risk. This proactive approach aligns with the broader trend of businesses and stakeholders prioritising sustainability and aligning their actions with the preservation of our planet's natural resources. The path to a more sustainable future may be complex, but it's a journey that every responsible business must embark upon.