Mandatory Biodiversity Disclosures Are Coming, But Don’t Panic: Steps You Can Take to Prepare

The Taskforce on Nature-related Financial Disclosures (TNFD) released the fourth beta version of its risk management and disclosure framework today. This is the final beta framework before the full release for market adoption slated for September 2023.

“The TNFD is a market-led, science-based, government-backed initiative which aims to create a robust and global framework for organizations to assess, manage, and ultimately disclose their impacts, dependencies, risks, and opportunities related to nature,” said Carolin Leeshaa, TNFD taskforce member and national lead of natural capital and biodiversity at KPMG Australia.

The calls for biodiversity disclosures have grown substantially in the last year from consumers, investors and multilateral organizations as more research comes to light. For example, World Economic Forum data suggests that half of the world’s GDP is moderately or highly dependent on nature, and further biodiversity loss will pose serious risk to our means of production. 

How does biodiversity loss impact businesses?

Nature provides critical services for business. Natural services like pollination, water purification, soil health regeneration and regulating climate are essential to all of the world’s economic activity. 

For example, “Australia is looking to get to AUS$100 billion (US$66.5 billion) of farm gate output by 2030, and about two-thirds of this target is highly dependent on honeybee pollination,” Leeshaa explained. “The bees are working for free; we’re not going to send them an invoice.”

As such, declining global bee populations, largely tied to intensive farming practices and global temperature rise, pose financial and systemic risks to the global economy. “This is why it is important to recognize and account for the full value of the services nature provides, so we can make better, nature-smart decisions,” Leeshaa said.

What are the drivers of biodiversity loss?

Biodiversity loss is linked to five key drivers, which are largely caused by human influence and impact. The most significant driver is land use change: Taking natural lands like forests and converting them to use in agriculture or urban development is pushing the lion’s share of biodiversity loss. The other drivers include climate change, pollution, overexploitation of resources and invasive species.

What’s the state of global regulations?

Announcements and agreements made at the COP15 U.N. Biodiversity Conference in Montreal in December 2022 have accelerated the global regulatory outlook on biodiversity. A global biodiversity framework (GBF) was adopted by 196 member states, which includes four goals and 23 targets. The TNFD is working to be closely aligned with the global framework.

One of the main highlights of the global biodiversity framework is the ‘30x30’ target, whereby 30 percent of the world’s land needs to be protected by 2030. Also of importance is Target 15, which requires that signatory governments move to mandate large companies and financial institutions to regularly disclose their biodiversity impacts, dependencies and risks. 

The wheels are in motion, and although reporting at this point is still voluntary, businesses should prepare now for the eventuality of mandatory biodiversity disclosures. “The scale and momentum around nature and biodiversity has been quite remarkable," Leeshaa said. "What took climate maybe 10 to 15 years to achieve, nature has done in 10 to 15 months." 

What can businesses do to prepare for mandatory biodiversity disclosures?

“Educate and build awareness with your boards and your executive management around integrating nature into governance, strategy, risk management and asset allocation decisions," Leeshaa suggested. "You need to assess how nature actually impacts your business, and how your business impacts nature."

The TNFD has created a handy approach for businesses to begin their biodiversity journey and pilot the disclosure framework. It’s called LEAP (locate, evaluate, assess, prepare) and acts as a four-step process. The first step is to locate your assets and activities that are near high-risk ecosystems. Evaluate means conducting a biodiversity impact and dependencies assessment in these areas. Then, assess the material risks to your organization, and finally prepare to disclose and report your findings.

Climate reporting typically uses a carbon dioxide equivalent as a key metric. In biodiversity, there are many different metrics to use, complicating the process. Biodiversity disclosures also require supply chain investigation, much like Scope 3 carbon emissions, and businesses should begin having conversations with their suppliers to find out what nature-related data they can access.

The complexity of biodiversity reporting may scare some organizations away, but for this exact reason businesses need to come to grips with the topic. “Biodiversity reporting is coming, it’s more complex than climate, and it represents a material risk," Leeshaa said. "That’s why it’s important to get started earlier rather than later."

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