TNFD releases third beta version of disclosure framework ahead of Global Biodiversity Summit

The third version introduces some new disclosure recommendations ahead of what is supposed to be a “Paris moment” for biodiversity in Montreal.

As environmental ambitions continue to grow, much attention has focused on climate. A key focal lens for this has been the annual Conference of the Parties to the UN Framework Convention on Climate Change, including the recently concluded negotiations in Sharm el-Sheikh (COP27). However, COP27 also included days focused on cross-cutting issues such as water and biodiversity. This marks part of an important trend in 2022: the increasing prominence of natural capital in the consideration of environmental sustainability.

The Taskforce on Nature-Related Financial Disclosures (TNFD) released several beta versions of its Nature-Related Risk and Impact Management and Disclosure Framework (TNFD Framework) this year. The most recent of these updates (version 0.3) was published in early November, a few days before COP27 on climate and about a month before COP15 on biodiversity in Montreal. As discussed in our summary of TNFD v0.2, the TNFD Framework aims to establish a standardized risk management and disclosure framework for organizations to address nature-related risks, playing the same role for nature as the Task Force on Related Financial Disclosures of climate (TCFD) played for the climate.

Highlights from beta version 0.3

While the TNFD Framework shares many fundamental aspects with the TCFD recommendations, version 0.3 adapted the core features of the TCFD framework to better reflect considerations unique to natural capital, as well as to incorporate more general concepts that have gained traction since the TCFD recommendations were adopted. completed. This new version includes disclosure guidance on:

• the organization’s approach to “locate the source of inputs used to create value” that can generate nature-related consequences, effectively embedding supply chain considerations into the risk and impact management pillar;
• stakeholder engagement considerations; and
• the relationship between the various nature and climate targets.

Version 0.3 also includes additional disclosure guidance for financial institutions, the first of several sector-specific guidance documents to be published. In addition, version 0.3 extends the TNFD Framework’s approach to materiality from simple to dual materiality, looking not only at how nature affects the company, but also how the company affects nature.

Next steps in framework development

TNFD plans to publish one more beta version of the TNFD Framework in March 2023, before publishing final recommendations in September 2023. Indicated priorities for the next phase of development of the framework include:

• determining the “core” disclosure recommendations that will be the baseline for the adoption of the TNFD;
• draft guidance on scenarios for certain strategy disclosures recommended under the Framework;
• draft guidelines for additional industrial sectors as well as natural areas/biomes; and
• illustrative use cases, case studies and examples of the TNFD Framework in various sectors, including illustrative disclosures.

However, the TNFD may also adapt its Framework to address any developments arising from the Conference of the Parties to the UN Convention on Biological Diversity in Montreal next month. Observers expect the Montreal summit to include the release of details on the Post-2020 Global Biodiversity Framework, which is expected to be as important to action on biodiversity and natural capital as the Paris Agreement on climate change was.

Elizabeth Mrema, one of TNFD’s co-chairs, serves as executive secretary of the UN Convention on Biological Diversity, allowing for a natural vantage point to consider aligning the two initiatives. However, the final form of the Global Biodiversity Framework may still influence further revisions of the TNFD Framework guidelines until September 2023.

As both frameworks move toward completion, biodiversity and natural capital will become higher priorities in stakeholder considerations. Latham & Watkins will continue to monitor developments on this topic and is appropriate to advise clients to understand how natural capital will need to fit into their strategy and disclosures.