“Nature positive” the new net zero

Nature has taken centre stage in the sustainability reporting space with the release of a new set of guidelines to assess the impact of companies on the environment, ensuring that it joins the financial, operational and climate risks to be measured and reported by business.

A final framework for the Taskforce on Nature-related Financial Disclosures (TNFD) was revealed in New York in September, in the same week as the CSIRO launched its Natural Capital Handbook.

The handbook provides practical guidelines on how to measure and incorporate natural assets such as clean air, water, soil and living things into operations and report them in a format that aligns with corporate accounting principles.

Lead author and CSIRO scientist Dr Greg Smith said including nature in financial reporting has been recognised as a critical component in helping to reverse environment decline and is expected to become a mandatory requirement for businesses globally.

Nature assessment follows in footsteps of climate

The ABSF’s materiality consultant, Dr Robyn Leeson of STR Consulting, has been monitoring the development of the TNFD and suggests it may follow a similar path to the Taskforce on Climate-related Financial Disclosures (TCFD).

The TCFD developed a framework designed to solicit decision-useful, forward-looking information that reports the financial impacts of climate change on a business.

“Investors are rapidly lifting their expectations of top ASX companies across the board on sustainability, and nature appears to be the next big issue on the agenda for better disclosures by banks, insurers and other large ASX-listed companies,” Dr Leeson said.

“Banks are expected to look at their various portfolios, including agriculture, in terms of nature-based impacts and dependencies as well as risks and opportunities, who they’re lending to and for what purpose.

“Significantly, most of the impacts and dependencies, risks and opportunities for banks and large corporate customers are in their value chain and on the land. So, this is likely to be felt in the food

and agriculture sector before the TNFD matures and the regulators get around to issuing a domestic nature-related financial disclosure standard for business.”

Tools less developed for measuring natural capital

While the TCFD took six years to mature from a framework to an enforceable standard, Dr Leeson says the tools to support measurement and accounting for natural capital are much less developed.

TCFD had the benefit of the broadly accepted Greenhouse Gas Protocol, which was already referenced in multiple regulatory instruments when TCFD released recommendations.

TNFD has proposed a LEAP methodology:

• Locate your interface with nature
• Evaluate your dependencies and impacts on nature
• Assess your nature-related risks and opportunities
• Prepare to respond to these and to report.

Dr Leeson said for beef industry interests, knowing the specific locations of your value chain would be critical.

“The food businesses at the end of the value chain will want to know the location of their impact on nature at source,” she said.

“So that will mean using tools such as geospatial analysis to find out where their beef is coming from and what impacts and dependencies that location reflects when it comes to nature, as well as the risks and opportunities.

“It’s quite regional and location-specific and highly dependent on understanding your value chain and what’s happening on the ground. A lot of organisations are already doing that kind of work in the beef industry.

“The TNFD has released a discussion paper on a proposed approach to value chains which is an important read. But the very clear message is you don’t have to be perfect, you just have to get started in looking at these things in a systematic way.”

Woolworths, Coles already committing to TNFD framework

Dr Leeson said agriculture can expect banks, financiers and large customers to start asking questions, based on their voluntary commitment to the TNFD.

Supermarket giants Woolworths and Coles have made public commitments in their most recent sustainability reports to work towards aligning their reporting with the framework.

The TNFD has drawn on indicators and metrics from existing standards, rather than creating an entirely new set. Companies experienced in sustainability reporting using multistakeholder standards like the Global Reporting Initiative will recognise many of the proposed disclosure metrics released for public consultation.

“The second thing to watch is how this might play into sustainability-related financial reporting standards where companies are required to put this information into their annual report, which is what happened with the TCFD and climate change,” Dr Leeson said.

But nature reporting faces a few more challenges, so it may not take an identical path.

“TNFD seeks to provide information to investors so they can make comparisons,” she said.

“For example, if 80% of a company’s producers are based in areas of high water stress and they use a great deal of water compared to only 20% in another company, how does this impact on their business prospects? How does each company manage water risk?”

Can the finance sector protect nature?

Not everyone is happy with the TNFD framework. Earlier this year a group of more than 60 environmental organisations and networks penned an open letter to the TNFD questioning a range of design features.

These included a lack of disclosure requirements regarding grievance mechanisms and a lack of multistakeholder representation in the governance of the TNFD itself, which is largely populated by corporations and banks.

“A number of environmental and human rights organisations see the TNFD’s focus on risks and opportunities to companies as protecting business from nature, rather than the other way around,” Dr Leeson said.

“The Wilderness Society Australia views the TNFD as an excuse for business as usual.

“TNFD should be seen as only one instrument in tackling biodiversity loss and nature decline. It is not a substitute for regulation and we should expect to see more of that too, as the real world outcomes of TNFD are put into genuine context.”

Along with its final recommendations, the TNFD released guidance for companies to get started on their corporate reporting journey and has called for voluntary market adoption, which it will track through an annual status update report beginning in 2024.