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Nature redefined and revalued: Is your company ready for the TNFD?

Corporations and financial institutions controlling more than US$14 trillion in assets have now agreed to disclose how their businesses impact nature.

Australian businesses are really starting to rethink – and acknowledge that we need to rethink – our relationship with nature.

Ross Barton, Manager of Climate Change & Sustainability Services, Ernst & Young 

More than half the world’s economic output – around US$44 trillion – is moderately or highly dependent on nature, according to the World Economic Forum

While trillions of dollars of economic value may be tied to health of our living systems, the lives of every human being are “entirely dependent on nature,” said Helen Oakman, Manager of the Net Zero Nature Markets team in NSW Government. 

Helen moderated a powerhouse panel of experts at the 2023 AdaptNSW Forum who explored the corporate and financial risks related to nature – and the potential bottom line benefits when we protect our precious natural assets. 

Shining a light on nature dependency and impacts 

The Taskforce on Nature-related Financial Disclosures, or TNFD, was officially launched in June 2021 to help decision makers in business and capital markets access better quality information through corporate reporting on nature.  

The TFND has “shone a light” on the dependence and impacts of business on nature and how this is “inextricably linked with risk in the financial system,” Helen noted. 

In September 2023 the TNFD released its first set of recommendations, including general requirements for nature-related disclosures structured around four pillars – governance, strategy, risk and impact management – as well as aligned metrics and targets. 

Just a few months later, in January 2024, the first 320 companies in 46-plus countries committed to making nature-related disclosures based on TNFD’s recommendations.  

These early adopters include leading publicly listed companies representing US$4 trillion in market capitalisation and US$14 trillion in assets under management. Among the signatories are the largest single owner in the world’s stock markets and 25% of the world’s systemically important banks. 

This collective action sends a powerful message to the market and is a “milestone moment for nature finance and for corporate reporting,” TNFD Co-Chair David Craig has said. 

So, what happens next? 

Data collection, comparison and complexity 

Ross Barton is Manager of Climate Change & Sustainability Services at Ernst & Young. Ross led an Australian TNFD Pilot Study, sponsored by the Australian Government’s Department of Climate Change, Energy, the Environment and Water, to investigate the nature impacts of more than 25 Australian businesses across five nationally significant value chains.  

EY looked at industry readiness, identified data gaps and limitations, and explored the role of government in facilitating uptake, Ross shared with the AdaptNSW Forum audience. 

EY found material impacts and dependencies across each value chain. One of the biggest common challenges was gaps and limitations in data, Ross said. 

Assessing the impact of business activities on nature is complex. While climate impacts are measured in tonnes of CO2 “in nature you've got biodiversity, water, pollution, waste… all of these metrics have different methods for measuring, tracking and reporting,” Ross said. 

“Unlike climate, where you emit one tonne of CO2 in Sydney and that has same influence as one tonne of CO2 in Perth, nature-related risks and opportunities, impacts and dependencies are location specific.” This makes collecting and then comparing data an especially challenging task. 

“It's going to take time to collect all the information, develop a process, consult with stakeholders to complete a robust TNFD disclosure,” Ross added. “The key thing is just getting started sooner rather than later… There's no better time for Australian businesses than right now.” 

Biodiversity focus and financial opportunities 

In dissecting the TNFD, it can be easy to lose sight of its purpose, Alison Osborne, Agribusiness Sector Lead at Westpac, noted.  

Sustainability specialists can spend a lot of time on reporting and disclosures that have little real-world impact.  

 But scrolling through a list of the extinct, endangered and threatened species in Australia serves as a reminder of what the TNFD is trying to achieve.  

There are immediate opportunities for finance to support nature restoration and recovery. Research undertaken by Australia’s Threatened Species Recovery Hub has found that invasive species of flora and fauna affect 82% of our biodiversity, and this is one area for finance to take the lead.  

The Australian Government’s Threatened Species Action Plan has also identified opportunities to work with the finance sector to address investment in critical areas of biodiversity and habitat loss. 

Risks and rewards of voluntary reporting 

Reporting against the TNFD is voluntary – at least for now. What penalties do companies face when they don’t step up? Companies that fail to disclose may find rating agencies “come down hard” and costs of capital increase, suggested Mladen Kovac, Director of Natural Capital with the NSW Government. 

Mladen, who leads a team of experts to deliver environmental economic policy advice across major government programs, said disclosure has the power to drive “system change” and to direct finance flows to corporate activities that are good for nature. There are many challenges ahead in “operationalising natural capital thinking,” and governments will play an important role in the transition. 

This is probably the largest behavioural economics experiment the world has ever seen. It is looking to shift mindsets of the entire economy – all corporate sectors, up and down the value chain. 

Mladen Kovac, Director of Natural Capital, NSW Government. 

Overall, the TNFD recommendations offer a framework for organisations to report – and importantly act to reduce their exposure to risk and have a more positive impact. 

And the benefits for business are enormous. Aside from securing the future of our precious natural capital, the United Nations has found the nature positive transition could generate up to US$10.1 trillion in annual business value and create 395 million jobs by 2030. 

The Taskforce for Nature-related Financial Disclosure (TNFD); why you need to care

AdaptNSW 2023 Forum

The AdaptNSW 2023 Forum, ‘navigating uncertainty together', attracted 350-plus attendees who heard from more than 85 presenters across 30 breakout, panel, workshop and keynote sessions in December 2023. Check out the program highlights and watch recordings of key sessions.