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

By Paul A. Davies, Michael D. Green, James Bee, and Austin Pierce

As environmental ambitions continue to grow, much attention has focused on climate. A key focal lens for that 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 considerations of environmental sustainability.

The Taskforce on Nature-Related Financial Disclosures (TNFD) has released several beta version of its framework on nature-related risk and impact management and disclosure (the TNFD framework) this year. The most recent of these updates (version 0.3) was published in early November, days ahead of the COP27 on climate and approximately a month ahead of the 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 Climate-related Financial Disclosures (TCFD) has played for climate.

Highlights From Beta Version 0.3

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

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

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

Next Steps in Framework Development

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

• determination of “core” disclosure recommendations that will represent the baseline for TNFD adoption;
• draft guidance on scenarios for certain of the Framework’s recommended strategy disclosures;
• draft guidance for additional industry sectors, as well as natural realms/biomes; and
• illustrative use cases, case studies, and examples of the TNFD Framework across sectors, including illustrative disclosures.

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

Elizabeth Mrema, one of the TNFD co-chairs, serves as Executive Secretary of the UN Convention on Biological Diversity, allowing a natural vantage point to consider the alignment of the two initiatives. However, the final form of the Global Biodiversity Framework may still influence additional revisions to TNFD Framework guidance through September 2023.

As both frameworks move towards finalization, biodiversity and natural capital will become higher priorities in stakeholders’ considerations. Latham & Watkins will continue to monitor developments on this topic and is well suited to advise clients understand how natural capital will need to fit into their strategy and disclosures.