On June 28, 2022, the Taskforce on Nature-related Financial Disclosures (the “TNFD”) released the second version of its nature-related risk-management and disclosure framework (the “TNFD Framework”). The second version of the TNFD Framework builds on the initial draft version, which was released on March 15, 2022. Our summary of the initial draft of the TNFD Framework, including the rationale behind the framework and its place within the broader landscape of environmental, social, and governance (ESG) related disclosures, can be found here.
The Notable Changes to the TNFD Framework
The initial draft of the TNFD Framework remains largely unchanged in its second version due to positive feedback from market participants. In particular, the key recommendations, core concepts and Locate Evaluate Access Prepare (“LEAP”) assessment remain in this second version.
Key features of the second iteration of the TNFD Framework include:
- a preliminary framework featuring metrics and targets, as well as additional guidance on assessment metrics to support pilot testers of the TNFD Framework over the next 12 months;
- further guidance for market participants on undertaking dependency and impact evaluation, as well as the identification of priority locations;
- instructions on the development of future guidance for market participants, including sector classification to bring the TNFD Framework into alignment with disclosure regimes from other institutions such as the International Sustainability Standards Board (“ISSB”), the Sustainability Accounting Standards Board (“SASB”), and the Task Force on Climate-related Financial Disclosures (“TCFD”);
- improvements to the guidance related to the LEAP approach for financial institutions (“LEAP-FI”), as expressed in the first iteration; and
- practical guidance for market participants inclined to pilot test the TNFD Framework from July 1, 2022 through to June 1, 2023.
I. Modifications to the TNFD Framework’s Nature-Related Metrics and Targets
To strike an appropriate balance between scientific complexity and the needs of market participants for access to clear, simple, and comprehensive information, the second iteration of the TNFD Framework distinguishes between assessment metrics and disclosure metrics. This modification recognizes that disclosures made in reports may represent only a subset of what is analyzed internally to inform corporate risk management and decision-making.
The second version of the TNFD Framework also includes a set of illustrative assessment metrics for dependencies and environmental impacts drawn from existing, scientifically-recognized market metrics. However, the TNFD Framework initially only focused on cross-sector approaches. The TNFD plans to provide more industry-specific metrics in the future iterations of the TNFD Framework.
II. Additional Guidance Provided in the TNFD Framework
Following publication of the first iteration of the TNFD Framework, the TNFD received feedback to provide more detailed information on nature and nature-related assessments. Accordingly, the TNFD Framework now includes additional guidance for companies and financial institutions interested in pilot testing the TNFD Framework. Further guidance is expected in the third and fourth iterations of the TNFD Framework to come later this year as well as early next year.
III. Revisions to the LEAP Approach for Financial Institutions
Although it remained largely unchanged for most industries, the second version of the TNFD Framework integrates more significant changes to the LEAP-FI. The second version clarifies and refines difficult entry points for financial institutions that are related to the nature of their business and investment or credit portfolios. Further, the TNFD will use the feedback received from its pilot test of the TNFD Framework to enhance the LEAP approach.
What comes next?
The TNFD is currently seeking feedback on the TNFD Framework from market participants and other key stakeholders. Over the next year, the TNFD intends to gather and use the information gleaned from pilot testing and market feedback to arrive at a manageable set of disclosure metrics for nature-related dependencies, impacts, risks, and opportunities.
Interested parties may provide feedback on the TNFD Framework to the TNFD through its online platform. Interested parties are also encouraged to pilot the TNFD Framework independently or through the TNFD’s industry-specific collaborative efforts, which may be found on the platform.
With the benefit of feedback, the TNFD plans to release subsequent versions of the TNFD Framework in November 2022 and February 2023. These dates reflect a modest adjustment to the timeline that was initially proposed in the first version of the TNFD Framework. Despite this adjustment, the TNFD still anticipates the release of its final recommendations in September 2023.
The Bottom Line
The second version of the TNFD Framework marks another notable development in the area of ESG-related disclosures, which continues to attract significant attention in Canada and internationally. The second version of the TNFD Framework further expands on the metrics and targets for assessment and disclosure, and also provides greater guidance on the use of nature-related risk assessment tools in practice as well as the application of the TNFD Framework to financial institutions ahead of the 12-month pilot testing project.
Although the TNFD Framework is voluntary in nature, the institutional and political support behind the TNFD and its efforts may bolster uptake amongst market participants, as has generally been the case with the adoption of other ESG-related frameworks, such as the TCFD.