TCFD and TNFD: The New Standards for the Business World

Financial Disclosures for Managing Climate and Nature-Related Risks

In the global business landscape, the integration of nature and climate risks into financial decision-making processes has undergone a significant transformation. The Task Force on Climate-related Financial Disclosures (TCFD) and the Task Force on Nature-related Financial Disclosures (TNFD) have been developed as guiding frameworks to help companies manage these risks and opportunities more effectively.These frameworks support investors, lenders, and insurers in making more informed decisions, while also strengthening companies sustainability strategies.

TCFD: Climate-Focused Financial Disclosures

Established in 2015 by the Financial Stability Board (FSB), the Task Force on Climate-related Financial Disclosures (TCFD) aimed to enhance transparency regarding how companies manage financial risks related to climate change. In July 2023, the FSB announced that, responsibility for monitoring climate-related disclosures would be transferred to the International Financial Reporting Standards (IFRS) Foundation as of January 2024.The introduction of the IFRS S1 and IFRS S2 standards during the same period, this transition enabled the IFRS Foundation to take on the TCFD’s role in climate reporting, continutiy in this area  of regulatory developments.

TNFD: Nature and Biodiversity-Focused Financial Disclosures

The Task Force on Nature-related Financial Disclosures (TNFD) provides a framework for assessing dependencies on, and impacts of, nature, along with associated financial risks and opportunities. Launched in 2021, TNFD is aligned with the Kunming-Montreal Global Biodiversity Framework (GBF). Target 15 of the GBF emphasizes the importance of businesses assessing and transparently disclosing their dependencies on, and impacts on, biodiversity. The TNFD disclosure framework is expected to support the integration of these global commitments into business practices, especially as such disclosures are likely to become mandatory in the near future.

One of TNFD’s core components is stakeholder engagement and value chain analysis. This involves engaging with local communities, suppliers, and investors, and encouraging companies to consider not only their direct operations but also their broader impacts on ecosystems.

Central to both the TCFD and TNFD frameworks is scenario analysis, which, enables companies to assess risks related to climate change, ecosystem service disruption, water scarcity, and biodiversity loss. TNFD supports this process with its LEAP approach (Locate, Evaluate, Assess, Prepare), which is a methodology designed to identify nature-related risks and facilitate scenario planning.

While the TCFD consists of 11 core recommendations structured under four thematic pillars, TNFD has developed 14 recommendations for nature-related financial disclosures, also organized under four foundational pillars in alignment with the TCFD framework.