Learning Outcomes
By the end of this lesson, learners should be able to:
- Explain the purpose of nature and biodiversity disclosures.
- Describe the Task Force on Nature-related Financial Disclosures (TNFD).
- Explain organizational dependencies and impacts on nature.
- Conduct a basic biodiversity risk assessment.
- Describe natural capital accounting.
- Explain deforestation and land-use disclosures.
- Discuss water stewardship reporting.
Introduction
While climate change has dominated sustainability discussions for many years, there is growing recognition that nature loss and biodiversity decline pose equally significant risks to businesses and society. Organizations depend on healthy ecosystems for raw materials, clean water, fertile soils, pollination, climate regulation, and many other ecosystem services that support economic activity.
At the same time, business operations can negatively affect nature through deforestation, pollution, habitat destruction, overexploitation of natural resources, and land-use changes. As a result, investors, regulators, and other stakeholders increasingly expect organizations to disclose both their dependence on nature and their impacts on biodiversity.
Nature-related disclosures help organizations understand environmental risks, improve resource management, strengthen resilience, and support global biodiversity conservation efforts.
1. Task Force on Nature-related Financial Disclosures (TNFD)
The Task Force on Nature-related Financial Disclosures (TNFD) is an international initiative that provides organizations with a framework for identifying, assessing, managing, and disclosing nature-related risks and opportunities.
The TNFD was established to address the growing need for businesses and financial institutions to report how nature affects their operations and how their activities affect ecosystems. It builds upon the success of the Task Force on Climate-related Financial Disclosures (TCFD) by extending the focus beyond climate to include biodiversity, ecosystems, water resources, and natural capital.
The TNFD framework is structured around four core pillars that closely resemble those of the TCFD:
| TNFD Pillar | Purpose |
|---|---|
| Governance | Oversight of nature-related issues by the board and management |
| Strategy | Nature-related risks, opportunities, and business impacts |
| Risk & Impact Management | Identifying, assessing, and managing nature-related risks and impacts |
| Metrics & Targets | Measuring and monitoring nature-related performance |
One of TNFD’s distinguishing features is the LEAP approach, which guides organizations through a structured assessment process.
The LEAP Approach
| Stage | Purpose |
|---|---|
| Locate | Identify where the organization’s activities interact with nature. |
| Evaluate | Assess dependencies and impacts on ecosystems. |
| Assess | Determine nature-related risks and opportunities. |
| Prepare | Develop responses, disclosures, and management actions. |
Benefits of TNFD
Organizations that adopt TNFD can:
- Improve understanding of nature-related risks.
- Strengthen long-term business resilience.
- Enhance investor confidence.
- Support biodiversity conservation.
- Improve the quality and consistency of ESG disclosures.
2. Dependencies and Impacts on Nature
Organizations both depend on nature and affect nature through their operations. Understanding this relationship is a key component of nature-related reporting.
Dependencies on Nature
Dependencies refer to the ecosystem services that organizations rely upon to operate successfully.
Common dependencies include:
- Clean freshwater for manufacturing and agriculture.
- Fertile soil for food production.
- Pollination for crop cultivation.
- Forest resources for timber and paper production.
- Stable climatic conditions for agricultural productivity.
For example, a beverage manufacturer depends heavily on reliable freshwater supplies, while a furniture company depends on sustainably managed forests.
Impacts on Nature
Impacts refer to the effects an organization’s activities have on ecosystems and biodiversity.
Examples include:
- Habitat destruction.
- Water pollution.
- Air pollution.
- Soil degradation.
- Deforestation.
- Overfishing.
- Introduction of invasive species.
Some impacts may be direct, such as clearing forests for infrastructure development, while others may occur indirectly through supply chain activities.
Understanding the Relationship
| Dependencies | Impacts |
|---|---|
| What the organization needs from nature | How the organization affects nature |
| Often linked to operational continuity | Often linked to environmental responsibility |
| Creates business risks if ecosystems decline | Creates ecological and reputational risks |
Organizations should assess both aspects because reducing impacts often helps preserve the natural systems upon which the business depends.
3. Biodiversity Risk Assessment
A biodiversity risk assessment identifies how biodiversity loss may affect an organization’s operations and how the organization contributes to biodiversity decline.
These assessments help organizations prioritize risks and develop strategies to minimize environmental harm.
The assessment generally follows several stages:
- Identify business activities that interact with ecosystems.
- Determine sensitive habitats and protected areas.
- Evaluate potential impacts on biodiversity.
- Assess the likelihood and severity of risks.
- Develop mitigation and monitoring measures.
Types of Biodiversity Risks
Physical Risks
These arise when ecosystem degradation disrupts business operations.
Examples include:
- Declining fish stocks affecting fisheries.
- Soil degradation reducing agricultural yields.
- Water shortages affecting manufacturing.
- Loss of pollinators reducing crop production.
Transition Risks
These result from changes in regulations, markets, or stakeholder expectations.
Examples include:
- New biodiversity protection laws.
- Restrictions on land use.
- Consumer demand for sustainable products.
- Increased compliance costs.
Reputational Risks
Organizations may experience reputational damage if they are associated with biodiversity loss or unsustainable resource use.
Benefits of Biodiversity Risk Assessments
- Supports informed decision-making.
- Identifies operational risks early.
- Improves environmental performance.
- Strengthens stakeholder trust.
- Supports compliance with emerging regulations.
4. Natural Capital Accounting
Natural capital refers to the world’s stock of natural resources and ecosystems that provide valuable goods and services to society and businesses.
Examples of natural capital include forests, rivers, oceans, wetlands, minerals, soil, wildlife, and biodiversity.
Natural capital accounting is the process of measuring and, where possible, assigning value to these natural resources and the ecosystem services they provide.
Unlike traditional accounting, which focuses on financial assets, natural capital accounting recognizes that environmental resources also create economic value and should be considered in organizational decision-making.
Examples of Ecosystem Services
| Natural Asset | Ecosystem Service Provided |
|---|---|
| Forests | Carbon storage, timber, habitat protection |
| Wetlands | Flood control, water purification |
| Rivers | Freshwater supply |
| Oceans | Fisheries, climate regulation |
| Pollinators | Crop production |
Organizations use natural capital accounting to:
- Understand environmental dependencies.
- Evaluate environmental costs and benefits.
- Improve resource management.
- Support sustainable investment decisions.
- Inform long-term planning.
Although assigning monetary values to ecosystem services can be challenging, natural capital accounting encourages organizations to recognize that environmental degradation has real economic consequences.
5. Deforestation and Land-Use Disclosures
Many industries rely on land and natural resources for their operations. Activities such as agriculture, mining, infrastructure development, and forestry can significantly alter landscapes and contribute to deforestation.
Organizations are therefore expected to disclose how their activities affect land use and forest ecosystems.
Common Land-Use Disclosures
Organizations may report:
- Land occupied by operations.
- Changes in land use.
- Forest conservation initiatives.
- Deforestation risks.
- Reforestation programmes.
- Sustainable sourcing of forest products.
Increasingly, investors expect organizations to demonstrate that commodities such as timber, palm oil, soy, cocoa, and cattle products are sourced without contributing to illegal or unsustainable deforestation.
Importance of Deforestation Reporting
Deforestation disclosures help organizations:
- Protect biodiversity.
- Reduce climate-related risks.
- Meet regulatory requirements.
- Improve supply chain transparency.
- Demonstrate responsible land management.
6. Water Stewardship Reporting
Water stewardship goes beyond measuring water consumption. It involves managing water resources responsibly while considering the needs of businesses, communities, and ecosystems.
Organizations should recognize that water availability and quality are shared resources that require collaborative management.
Water stewardship reporting typically includes information on:
- Water withdrawal.
- Water consumption.
- Water recycling and reuse.
- Wastewater treatment.
- Water quality.
- Water-related risks.
- Conservation initiatives.
Organizations operating in water-stressed regions may also report how they engage local communities, regulators, and other stakeholders to improve water management.
Water Stewardship vs Water Management
| Water Management | Water Stewardship |
|---|---|
| Focuses mainly on organizational water use | Considers shared water resources and stakeholders |
| Internal operational perspective | Broader environmental and social perspective |
| Efficiency-focused | Sustainability and collaboration-focused |
Benefits of Water Stewardship
Effective water stewardship:
- Reduces operational risks.
- Improves resource efficiency.
- Protects aquatic ecosystems.
- Strengthens community relationships.
- Enhances long-term sustainability.
Summary of Nature and Biodiversity Disclosure Topics
| Topic | Key Focus |
|---|---|
| TNFD | Framework for nature-related financial disclosures |
| Dependencies & Impacts | Relationship between business and nature |
| Biodiversity Risk Assessment | Identifying and managing biodiversity risks |
| Natural Capital Accounting | Valuing ecosystem services and natural resources |
| Deforestation & Land Use | Forest conservation and sustainable land management |
| Water Stewardship | Responsible management of shared water resources |
Key Takeaways
Nature and biodiversity disclosures help organizations understand how they depend on natural ecosystems and how their activities affect biodiversity. The Task Force on Nature-related Financial Disclosures (TNFD) provides a structured framework for identifying, assessing, managing, and reporting nature-related risks and opportunities.
Organizations should evaluate both their dependencies on ecosystem services and their impacts on the environment through biodiversity risk assessments. Natural capital accounting extends traditional decision-making by recognizing the value of ecosystems and the services they provide.
Deforestation and land-use disclosures promote transparency in how organizations manage forests and natural landscapes, while water stewardship reporting emphasizes responsible management of shared water resources for the benefit of businesses, communities, and ecosystems. Together, these disclosures support better environmental governance, improved resilience, and more sustainable business practices.