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TNFD framework launch floats nature-related risks to corporates' attention

Jovi Ho
Jovi Ho • 9 min read
TNFD framework launch floats nature-related risks to corporates' attention
Singapore's Rail Corridor. Although the TNFD establishes a voluntary reporting framework, it could quickly become a market standard, much like the TCFD, says MSCI researchers. Photo: Bloomberg
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Following several months of consultation, the Taskforce on Nature-related Financial Disclosures (TNFD) published on Sept 18 its inaugural risk management and disclosure framework, designed to create a global standard for corporate reporting of biodiversity- and nature-related risks.

Launched in 2021, the TNFD comprises 40 senior executives drawn from leading financial institutions, corporates and market service providers, with combined assets of over US$20 trillion ($27.5 trillion).

SGX Group is part of the 1,200-strong TNFD Forum, which helped develop the beta version of the framework released in March 2022.

The TNFD’s 14 disclosure recommendations aim to inform better decision-making by companies and capital providers, and ultimately contribute to a shift in global financial flows towards “nature-positive outcomes” and the goals of the Kunming-Montreal Global Biodiversity Framework, which was borne out of the UN Biodiversity Conference (COP 15) in December 2022.

TNFD says its recommendations build on those of the Task Force on Climate-related Financial Disclosures (TCFD) and are consistent with the global sustainability standards of the International Sustainability Standards Board.

Although the TNFD establishes a voluntary reporting framework, it could quickly become a market standard, much like the TCFD became the global baseline for corporate climate disclosure, say Arne Klug, Gillian Mollod and Sylvain Vanston, research analysts from MSCI ESG & Climate Research.

See also: Less than 30% of firms worldwide feel ready for independent ESG audit: KPMG

“Currently, consistent data on nature and biodiversity is scarce, which affects models that depend on it,” says the MSCI team. “By design, the TNFD takes its approach from the TCFD. Both initiatives are designed to harness risk management and disclosure to help channel capital towards sustainable outcomes.”

The TNFD framework extends the TCFD’s four pillars — governance, strategy, risk management, and metrics and targets — to nature.

The TNFD includes a core set of 14 indicators for reporting across sectors, together with recommendations for sector-specific reporting. The framework also recommends a set of additional disclosure metrics.

See also: COP29 Presidency sets out agenda, emphasises upcoming work on New Collective Quantified Goal

Businesses and investors who want to be TNFD-aligned would, at minimum, report data for the core disclosure metrics, say Klug, Mollod and Vanston in a Sept 21 note.

British pharmaceutical and biotechnology giant GSK, formerly GlaxoSmithKline, has announced plans to publish its first TNFD disclosures from 2026, based on 2025 data.

The TNFD will announce an inaugural list of “TNFD adopters” — companies that have indicated their intention to adopt the recommendations — at the World Economic Forum at Davos in January 2024.

For now, the MSCI researchers warn of challenges like complexity, a lack of transparency in supply chains and limited data. “For investors and financial institutions, collecting data on corporate supply chains or pinpointing specific impacts by location could continue to present significant hurdles. The TNFD framework aims to provide guidance on how to reduce those gaps in the future.”

Though challenges remain, the TNFD adds impetus to the standardisation of nature-related financial reporting, they add. “The inaugural framework offers companies, investors and financial institutions a new global baseline for measuring and reporting biodiversity-related risks, dependencies and impacts.”

Nature-based solutions

The science is clear — there is going to be no path to reach global climate goals without unlocking the power of nature-based solutions, says Thomas Brzostowski, interim Singapore country director at The Nature Conservancy (TNC).

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“It’s just that simple and that important. Forests, wetlands, grasslands, mangroves and other ecosystems serve as these vital carbon sinks, and protecting these ecosystems, restoring degraded habitats and supporting farmers and landowners with regenerative land-use practices have the potential to realise about one-third of the emissions reductions needed to limit global warming and keep the climate within safe boundaries,” says Brzostowski in his keynote speech at the Singapore Carbon Market and Investor Forum on July 19.

Such natural assets play a really critical role in helping to protect people and coastal infrastructure from the increasingly severe impacts of climate change, rising sea level storms and more, he adds. “However, only about 8% of global climate investment currently goes to nature-based solutions for climate, despite being a third of the solution.”

The global environmental non-profit group officially expanded into Singapore in July, growing its Asia-Pacific network that already spans Australia, China, Hong Kong, Indonesia, India, New Zealand, Mongolia and Myanmar.

Supported by the Singapore Economic Development Board, TNC says its new office at The Great Room in the Afro-Asia Building will serve as a strategic global centre for partnerships, innovation and scientific research, focused on addressing the “interconnected crises” of climate change and biodiversity loss.

Over the past 70 years, TNC has helped to “protect and improve the management of [some] 125 million acres or 50 million hectares of land”, says Brzostowski, “about the size of Spain”. “But we know we need to do more, faster. The world has years, not decades, to tackle the integrated biodiversity and climate crises.”

Brzostowski, who has been with TNC since 2016, moved from New Zealand to set up the Singapore office. Here, TNC aims to drive sustainable solutions by supporting the growth of a “high-integrity market” for nature-based solutions like carbon credits.

Through the Southeast Asia Climate and Nature-based Solutions Coalition, TNC and seven other environmental and conservation non-profit groups across Southeast Asia are accelerating the adoption of nature-based solutions in the region.

By partnering trading companies and the finance sector, TNC says it will help address “commodity-driven land conversion”, such as the clearing of forests, peatlands, mangroves and other natural areas for agriculture.

Finally, TNC hopes to collaborate with leading academic and research institutions “to deepen the understanding of nature’s role in addressing climate change”.

“Over the next few years, more and more investors will be asking how businesses plan to support the [Kunming-Montreal Global Biodiversity] Framework, targets and transition strategies towards promoting nature-positive outcomes,” says Brzostowski.

“Publicly disclosing progress against science-aligned targets and setting supportive global climate and biodiversity goals is a critical part of the integrity of environmental markets. Thankfully, there are a number of initiatives growing around the world to help companies navigate this very complex and everevolving space.”

Investing in ‘biodiversity champions’

Compared to the work of the TCFD, which aims to standardise the reporting of emissions, putting a single number to biodiversity loss is more challenging, says Sonya Likhtman of US-headquartered investment manager Federated Hermes. “There are lots of issues, and biodiversity can mean a very different thing, depending on the company.”

But there are lots of things that can be measured, adds Likhtman. She lists the five main drivers of biodiversity loss: changes in land and sea use, direct exploitation of species, climate change, pollution and invasive alien species.

“Carbon is still an important metric that’s related to biodiversity. You can’t just do carbon by itself; you have to also look at water, waste, deforestation and land use change,” she says. “It’s about choosing the metrics that are most material to that company or sector and that’s what the TNFD is working towards.”

Likhtman is lead engager for the firm’s Biodiversity Equity Fund and also works in EOS, the stewardship and engagement team at Federated Hermes. “We engage on behalf of our own funds, and also on behalf of a set of external stewardship clients.”

At these meetings, her agenda is shaped by what is material to each company. “Sometimes we have an engagement that’s focused on one issue, and it’s a real deep-dive with an expert in that company; sometimes it’s a higher level, maybe we’re meeting a board or management member.”

The F&B industry, in particular, is highly dependent on biodiversity and ecosystem services, says Likhtman. “Agricultural systems, healthy soils, water flow, a stable climate, pollinators — all of those ecosystem services are so valuable to the industry. So, there’s a business imperative to act to ensure the long-term availability of these inputs from nature.”

Here, Federated Hermes touts its Biodiversity Equity Fund. Launched in April 2022, it is the only global fund that invests in “biodiversity champions”, says fund manager Ingrid Kukuljan. “In our opinion, biodiversity loss poses the biggest systemic threat to our planet, and we believe that businesses that are addressing this problem will be the long-term winners as they are exposed to scalable and secular growth factors.”

As of March 31, its top five holdings are: Tetra Tech (5.58%), Aecom (5.52%), Tomra Systems (4.74%), Kerry (4.67%) and Brambles (4.29%).

New York Stock Exchange-listed Aecom and Nasdaq-listed Tetra Tech are leading global providers of professional infrastructure consulting services, says Kukuljan.

They provide solutions to land and water pollution, as well as the encroachment of the built environment on biodiversity, she adds.

Meanwhile, Oslo-listed Tomra Systems is a global solutions provider that minimises waste in the food, recycling and mining industries, says Kukuljan. “Tomra has a large installed base worldwide with 81,000 reverse vending machines, about 13,000 food sorting installations, 8,200 recycling units and 190 mining machines.”

Dublin- and London-listed Kerry is a leading developer of taste and nutrition solutions for the F&B and pharmaceutical markets.

Kerry’s supply chain impacts biodiversity, and some raw materials pose a higher risk of tropical deforestation, says Kukuljan. “These include palm oil, soy, coffee and cocoa.”

In turn, Kerry has committed to a number of 2025 targets, including no deforestation across “high-risk supply chains” and 100% reusable, recyclable or compostable plastic packaging.

For palm oil, soy, coffee and cocoa, 100% of direct volumes will be deforestation- and conversion-free by end-2025, notes Kukuljan. Forest conversion is the clearing of natural forests to use the land for another purpose, such as agriculture, mining or urban development.

Finally, Australia-listed Brambles operates the world’s largest pool of reusable pallets, crates and containers through a “share and reuse” model, says Kukuljan, which enables a circular economy and reduces demand for natural resources. “The average lifespan of a Brambles pallet is 10 years, in comparison to under one year for white wood.” White wood refers to general exchange, non-rental pallets.

Conservation and nature financing has historically been the remit of public finance, says Likhtman, and the role of private finance was not always recognised. “But there is a huge gap in how much needs to be financed and [this is] an important role for private finance to play.”

The most important point is to get started, she adds. “We can’t wait until we’ve solved climate change to get going on biodiversity. These are issues that go hand-in-hand and they’re very closely interlinked… So, raising the topic with companies is already very impactful. What are you doing about the risks associated with biodiversity loss? How are you thinking about your impacts and dependencies on nature and ecosystem services? Bringing that to companies’ attention, I think, is a very important step.” 

Photos: Albert Chua/The Edge Singapore

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