TNFD Pushed on Materiality Guidance  

Market participants welcome the TNFD’s fourth framework but recommend several changes to disclosure requirements and considerations of the role of government.  

The Taskforce on Nature-related Financial Disclosures (TNFD) has been urged to provide more clarity on its approach to materiality with regards to disclosures in responses to its consultation on its fourth and final beta framework (V0.4) published in March.  

V0.4 provides market participants with a full representation of the TNFD framework, including the Taskforce’s proposed approach to disclosure metrics. It includes details on how TNFD will align with the Taskforce on Climate-related Financial Disclosures (TCFD), additional sector guidance and an updated proposed risk and opportunity assessment (LEAP) approach for management of nature-related risks and opportunities.  

Materiality assessment  

The UN-supported Principles for Responsible Investment (PRI) has said that the TNFD should ensure that its flexible approach to materiality is consistently applied throughout the framework to accommodate different definitions of materiality.  

It recommends changes to the framework to achieve this such as companies reporting on the impacts and dependencies that lead to its risks and opportunities and materiality assessments including the short-, medium- and long-term risks and opportunities, as well as upstream, downstream and financed activities.  

The FAIRR Initiative, a global investor network focused on animal agriculture, also said in its response that mandating separate disclosures across the value chain, similar to Scope 1, 2 and 3 for climate-related disclosures, would allow stakeholders reviewing the guidance to understand materiality within the value chain and can be used to compare and contrast nature impact risks alongside greenhouse gas (GHG) emission estimates. 

The Institute of International Finance (IIF) also focused on materiality in its consultation response, calling for greater clarity to distinguish between the different approaches to materiality and the disclosure elements that may be relevant, to avoid “information overload”. 

It noted some of the recommendations under the “approach to materiality” section in the framework were too prescriptive and specific, and recommends that the TNFD takes a more principles-based approach.  

The World Federation of Exchanges (WFE) called for more clarity on materiality in the guidance, noting that it would be helpful if more detailed guidance and examples of materiality determination related to TNFD disclosures could be provided.  

Richard Metcalfe, Head of Regulatory Affairs at WFE, said: “Nature is an important part of the discussion. And for stock exchanges transparent markets, where companies are subject to disclosure standards, are important to public confidence.”

He added that it was important that the TNFD had due regard to proportionality, and that it sought to have its framework apply to not just public, but private markets.

Stand-alone guidance for finance welcomed  

The PRI in its consultation response also said that the TNFD should standardise the requirements on disclosures under ‘location’ to clarify priority locations and data sources to be used as there is currently no single, easily accessible database of data sources to support this exercise.  

There are six general disclosure requirements under the TNFD, which alongside location, includes approach to materiality; scope of disclosures; consideration of nature-related dependencies, impacts, risks and opportunities; integration with other sustainability-related disclosures and stakeholder engagement.  

The PRI also welcomed stand-alone guidance for financial institutions in the framework and recommended the TNFD allow organisations to use aggregated disclosure metrics for their impacts and dependencies in the short term, instead of, or in addition to, the disaggregated core global disclosure metrics.  

It said: “The PRI supports a phased approach over time, where financial institutions report disaggregated disclosure metrics as further information becomes available on individual drivers of nature change from corporate reporting.” 

The IIF recommended a phased implementation approach for financial institutions, noting that they will face significant challenges in developing nature-related disclosures due to the breadth of their business activities. It recommends that the TNFD specify that a phased implementation approach is permitted and provide a reasonable time period before the expectation of public disclosures.  

The IIF also said the TNFD framework should recognise the foundational and concrete role that governments play in averting nature loss and providing clarity on policy priorities to help corporates and financial institutions understand how to better direct and disclose efforts that are consistent with the Global Biodiversity Framework’s targets.  

FAIRR in its response focused on strengthening metrics on deforestation and land conversion, inclusion of metrics and disclosure on protein diversification and guidance on more metrics associated with food and agriculture.  

The TNFD is under wider NGO pressure with 62 civil society organisations sending an open letter contending that its draft framework risks facilitating greenwashing.  

The final version of the TNFD framework is due to be released in September 2023.  

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