TNFD releases second iteration beta framework including initial guidance on metrics
The TNFD expands its beta framework for nature risk management and disclosure, including the Taskforce’s approach to metrics and specific sector guidance, and additional guidance to support pilot testing.
London, 28 June 2022: The Taskforce on Nature-related Financial Disclosures (TNFD) released version 0.2 of its beta framework for nature-related risk and opportunity management and disclosure. This release builds on the first iteration release in March and features TNFD’s approach to metrics and additional guidance for market participants to start pilot testing. Ongoing market feedback will support the further design and development of the TNFD recommendations due in September 2023.
The first version of the beta framework released in March has generated an overwhelmingly positive response from market participants with over 500 feedback contributions received from more than 130 market participants and stakeholders across 37 countries and all five continents.
While the TNFD draft disclosure recommendations, core concepts and the LEAP (Locate Evaluate Assess Prepare) assessment approach released in March have not been significantly changed, this second iteration includes several enhancements and additional elements carefully developed by TNFD’s Taskforce (the 34 individual Members that are designing the framework):
- A draft architecture for metrics and targets and an illustrative set of assessment metrics to support pilot testers;
- Further guidance on how to undertake dependency and impact evaluation as well as the identification of priority locations as part of the LEAP approach;
- An overview of the Taskforce’s approach to the future development of additional guidance for market participants, including sector classification aligned with the approach taken by the International Sustainability Standards Board (ISSB), the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD);
- Enhancements to the LEAP approach for financial institutions (LEAP-FI) first released in March; and
- Additional practical guidance for market participants interested in starting to pilot test the beta framework from 1 July 2022 to 1 June 2023.
Metrics and targets
The Taskforce’s approach to measurement of nature-related dependencies, impacts, risks and opportunities seeks to strike a balance between the complexity of the science; and the needs of market participants for clear, simple and comparable information to inform strategy, governance, risk management and capital allocation decisions.
The proposed approach in v0.2 update release distinguishes between assessment metrics and disclosure metrics, recognising that, as with mainstream financial management and reporting, what gets disclosed to report users is only a sub-set of what gets analysed internally to inform risk management and decision making.
Like the TCFD, the TNFD has also focused its attention initially on a cross-sector approach to metrics. The Taskforce will develop additional sector-specific metrics as part of specific guidance in future releases, as set out in the v0.2 release.
This v0.2 release also includes a set of illustrative assessment metrics for dependencies and impacts on nature. These are drawn from existing metrics in use in the market today as recommended by standards and scientific bodies including TNFD’s 16 knowledge partners. These have been set out by the Taskforce to support pilot testers with dependency and impact analysis aligned with the LEAP approach. The set of illustrative metrics will be expanded to include risk, opportunity, and response assessment metrics as well as disclosure metrics in future updates to the beta framework scheduled for November 2022 and February 2023.
It is the intention of the Taskforce to learn from pilot testing and feedback over the next 12 months to arrive at a manageable set of disclosure metrics for nature-related dependencies, impacts, risks, and opportunities by the time the Taskforce publishes its final recommendations in September 2023.
Recognising that the landscape for metrics and target setting involves many other actors whose work is also still under development, the TNFD has also recommended a review process as part of its overall approach to ensure that changes in data and measurement technology, investor expectations and regulatory requirements can be accommodated over time.
Additional guidance materials
One area of feedback since the March release is that nature and nature-related risk assessment is new to most market participants and that additional detailed guidance from the TNFD would be helpful. This update of the TNFD beta framework therefore includes additional guidance, including on the LEAP approach and additional guidance on pilot testing for those companies and financial institutions interested in testing the potential application of the framework in more detail.
Further sector guidance and guidance on the use of scenarios is under development and will be provided in draft form for consultation in subsequent updates to the framework in November 2022 and February 2023.
Nature-related risk and opportunity assessment for Financial Institutions
TNFD’s LEAP approach, released as part of the first release in March, has generated a lot of interest, support and feedback from a wide range of market participants. While the core LEAP approach has not been updated in this release, the LEAP approach for financial institutions (LEAP-FI) has been further refined, clarifying different entry points for financial institutions based on the nature of their business and their investment or credit portfolios. Pilot testing of the framework by financial institutions is already under way and will help to inform further iterative development and improvement of the LEAP approach.
TNFD Co-Chairs, Elizabeth Mrema and David Craig, said:
“The Taskforce has continued to work at great pace, listening to feedback and building upon the first iteration of the beta framework released in March. We are delighted with the level of market interest and feedback in the process and will continue to develop a science-based, practical approach aligned as much as possible with other standards-setting, regulatory and policy developments globally as they evolve.”