spi logo redux_colour

SPI Journal, Autumn 2022
It’s time to stop bankrolling deforestation

Integrating nature into decision-making

Financial institutions need standardised risk management and disclosures to respond robustly to the risks arising from nature loss, writes Emily McKenzie, technical director, Taskforce on Nature-related Financial Disclosures.

Risks caused by rapid degradation and loss of nature and its diversity have long been a blind spot for the finance sector. But nature is now gaining attention among financial institutions, and it is increasingly recognised as an asset on which we all rely and whose loss presents significant financial risks.

As an industry built on data, financial institutions recognise that integrating nature into decision-making requires more and better-quality information. This demand led to the formation of the Taskforce on Nature-related Financial Disclosures. Established in 2021, the TNFD is a global, market-led initiative that is developing a risk management and disclosure framework for organisations to report and act on evolving nature-related risks. The core designers of the framework are 34 taskforce members from financial institutions, companies and market service providers. They are supported by input from leading scientists and standard setters.

Biodiversity is declining faster than at any time in human history and we recognise the urgency to act. Financial institutions and companies rapidly need a framework that can help them manage risks, as well as seize opportunities to reduce demands on nature and restore its supply. So we must move quickly, while recognising that the framework will only deliver on its intended purpose if it is both practical and based on the latest science.

Mindful of this urgency, the TNFD released an initial prototype of the framework in March 2022, less than six months after beginning their work together. That first version of the ‘beta’ framework was designed to start gathering feedback and input from a broad cross-section of market participants.

The first version included three core components: definitions of fundamental concepts for understanding nature, draft disclosure recommendations and an approach for nature-related risk and opportunity assessment – locate, evaluate, assess and prepare.

For financial institutions, the TNFD further developed the LEAP approach in recognition of their specific needs and role. LEAP-FI sets out various possible entry points into the risk and opportunity assessment process for different types of financial institutions, including banks, insurers, asset managers, asset owners and development finance institutions.

After the release of the initial framework prototype, the TNFD received feedback from close to 150 organisations and individuals across 37 countries and all five continents. That valuable feedback informed a second version of the beta framework published in June 2022, which retained the core components of the first version. It had several enhancements and three significant additions: a draft architecture for metrics and targets, a proposed approach to specific guidance for sectors, nature-related issues and biomes, and more details on LEAP-FI.

Financial institutions play a critical role in shifting global financial flows away from nature-negative outcomes and towards nature-positive outcomes. Large asset owners, asset managers and lenders can influence the organisations they finance to provide nature-related financial disclosures and better manage nature-related risks and opportunities. Corporates have been found to be 2.3 times more likely to disclose information on climate, forests and water when it is requested by financial institutions.

Over the coming year, the TNFD will continue its urgent and important work. In November this year, the TNFD will release v0.3 of the beta framework, with v0.4 following in February 2023, before launching its final recommendations in September 2023. On behalf of the TNFD, I invite all market participants, and in particular financial institutions, to provide feedback to help create a practical and robust framework that helps minimise and manage risks from nature loss, and seize opportunities to reverse it, putting us on a sustainable path.

Join Today

Connect with our membership team

Scroll to Top