How the nature-related regulatory disclosure landscape is evolving

The TNFD is developing a framework for nature-related risk management and disclosure

The TNFD was created to “develop and deliver a risk management and disclosure framework for organizations to report and act on evolving nature-related risks and opportunities, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”²³ The voluntary, integrated framework has been leveraged in recent biodiversity-related corporate disclosure standards, including the ISSB, ESRS and GRI.²⁴

The TNFD framework serves to help financial institutions and companies understand how nature impacts an organization’s financial performance and to incorporate nature-related risks and opportunities into their strategic planning, risk management and asset allocation decisions. The TNFD framework takes inspiration from the TCFD framework and other pre-existing guidance, such as the Natural Capital Protocol, a decision-making framework focused on natural capital accounting.²⁵ The framework was developed collaboratively across 40 organizations, with stakeholder representation from businesses, governments and NGOs as well as Indigenous Peoples and Local Communities, who are essential to and impacted by nature and biodiversity.²⁶ It is anticipated that the framework will be finalized by September 2023.

The TNFD framework does the following:

• Builds on the original 11 disclosure recommendations from the TCFD with an additional three recommendations.
• Includes new guidance on nature-related scenario analysis and outlines specific indicators and metrics for disclosure.²⁷
• Identifies four social dimensions relevant to nature-related risks and disclosures (e.g., human rights, indigenous peoples, access/benefits sharing and social justice & equity/just transition). Provides guided metrics for disclosure for priority sectors and biomes (e.g., land and water use change, assets and revenue with dependence on ecosystem services)²⁸
• Provides voluntary guidance on how to Locate, Evaluate, Assess and Prepare nature-related risks and opportunities, otherwise known as the “LEAP” approach.²⁹ In summary, these steps include:
  1. Locating interface with nature
  2. Evaluating dependencies and impacts
  3. Assessing risks and opportunities
  4. Preparing to respond to nature-related risks and opportunities and report³⁰

The SBTN is developing guidance on setting science-based targets (SBTs) for nature

The TNFD framework and the Science Based Targets Network (SBTN)³¹, a component of the Global Commons Alliance, which is a coalition working to protect Earth’s shared natural resources, published joint guidance on setting science-based targets for nature in November 2022. In May 2023, the SBTN released its technical guidance for SBTs for nature. In this release, it included technical guidance for setting freshwater and land targets. The SBTN defines SBTs as “measurable, actionable and time-bound objectives, based on the best available science, that allow actors to align with Earth’s limits and societal sustainability goals.” The objective of SBTs for nature is to help companies act on a subset of these goals focused on nature across three physical realms: land, freshwater and ocean.

• As part of its target-setting guidance, the SBTN created an Action Framework (AR3T) that companies can use to take action immediately. The framework consists of the following steps:
  • Avoid and reduce pressures on nature loss
  • Restore and regenerate so the state of nature can recover
  • Transform underlying systems to address the drivers of nature loss³²

The TNFD and SBTN are collaborating to further align their respective frameworks and methods to ease the corporate disclosure burden and accelerate standardization of nature-related performance measurement and reporting.³³

Voluntary sustainability standards provide additional guidance and structure for how organizations can report on nature and biodiversity

Leading voluntary sustainability standard-setting bodies, such as the ISSB³⁴ and the GRI, as well as initiatives such as CDP, are in the process of refreshing or developing new biodiversity and nature-related disclosure standards and metrics.

Following the announcement of the ISSB in 2021, the IFRS Foundation converged with the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF) in early and mid-2022, respectively.³⁵ The CDSB Framework outlines an approach that companies can take to report on environmental and social information. It also includes technical guidance on biodiversity.³⁶ The VRF encompassed resources, such as the SASB standards, that aim to identify the ESG issues most relevant to the financial performance of target industries, such as Marine Transportation, Forestry Management, Processed Foods, Agricultural Products and Meat, Poultry & Dairy.³⁷

Since the SASB standards’ integration into the IFRS Foundation, the ISSB has encouraged companies’ and investors’ continued support of the SASB standards and is committed to building on the SASB standards’ industry-based approach.³⁸ The standards identify specific metrics related to protecting forestlands with endangered species and indigenous lands.³⁹

At COP15, the ISSB indicated plans to define sustainability as inextricably linked to natural ecosystems and human capital in its disclosure standard, “General Sustainability-related Disclosures Standard” (S1). Additionally, it announced plans for further enhancements, including those related to nature that complement its “Climate-related Disclosures Standards” (S2). To do so, it plans to leverage the TNFD framework and other sustainability initiatives.⁴⁰ S1 and S2 are currently voluntary and would become mandatory for any jurisdictions that adopt the standards.⁴¹

GRI, another voluntary sustainability standard-setter, is currently revising its 2016 Biodiversity Standard to better align with recent developments. GRI’s biodiversity exposure draft has broadened its scope of reporting to include nature and biodiversity impacts across the entire value chain of the company. The revised standard is planned to be formalized in the final quarter of 2023.⁴² Similar to the EU’s CSRD standard on biodiversity, GRI is proposing that companies assess the materiality of biodiversity impacts based on scope and scale and asks companies to disclose the locations where the highest impacts on nature occur. Noteworthy disclosure metrics added to GRI’s exposure draft include:

• An organization’s drivers of biodiversity loss (e.g., climate change, land use, pollution)
• Changes to the state of biodiversity that the organization and its value chain impact (e.g., changes to size and changes to species impacted)
• Biodiversity-related human rights impacts, in accompaniment with GRI standards GRI 411: Rights of Indigenous Peoples and GRI 413: Local Communities (e.g., impacts on land significant to indigenous peoples and local communities as well as ecosystem services and beneficiaries that are or could be affected)
• Biodiversity-specific management disclosures, focused on mitigation of biodiversity-related impacts and how policies and commitments align to CBD’s post-2020 Global Biodiversity Framework⁴³

CDP, a not-for profit that runs a sustainability global disclosure system, has also increased its focus on biodiversity, and in 2023, added new questions on biodiversity to its climate change questionnaire, including asking organizations if they “have activities located in or near to biodiversity-sensitive areas in the reporting year.”⁴⁴ CDP is currently expanding its strategy to include coverage for the following environmental issues: oceans, land use, food production and waste; it will use the new GRI biodiversity standard to inform updates to CDP questionnaires.⁴⁵ It also announced plans to incorporate the ISSB climate disclosure standard from 2024, an indication of what’s to come for nature- and biodiversity-related disclosure requirements by the initiative.⁴⁶ That announcement is especially important since a recent finding from CDP found that 70% of companies said they don’t assess the impact their value chain has on biodiversity.⁴⁷

Next steps for companies

As the number of emerging nature-related regulations grows and nature and biodiversity become increasingly important areas of focus, companies should start preparing for and considering their response to these nature-related disclosure requirements. Summarized below are five key actions that companies can do now to help prepare for future disclosure and contribute to global action on biodiversity.

1. Understand the applicability and scope of nature-related reporting, reviewing existing and upcoming nature-related disclosure requirements, both mandatory and voluntary and assessing applicability for your organization.
2. Identify location-specific nature interfaces and priority risks and opportunities across your organization’s value chain, leveraging the first three stages of the LEAP process — Locate, Evaluate and Assess — as described by the TNFD framework.
3. Assess data and measurement needs to monitor performance, considering how your organization will measure and monitor impacts and dependencies on nature.
4. Identify reporting gaps in preparation for evaluating and disclosing performance, assessing potential overlap across relevant standards and requirements and potential metrics against which to report performance.
5. Draft disclosures in alignment with the TNFD framework, leveraging the final stage of the LEAP process — Prepare — and the TNFD’s 15 disclosure recommendations.

Lucy Godshall, Principal, Climate Change and Sustainability Services, Ernst & Young LLP co-authored this article.

The views of the third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please refer to your advisors for specific advice.