As More Companies Disclose Their Impact on Nature, Transparency Can Drive Progress

Eletrobras, the largest company in Latin America’s electrical sector, is an early adopter of a new framework designed to get companies to disclose their impacts on things like biodiversity, deforestation and natural resource use. As part of its commitment to have a nature-positive impact, Eletrobras prepared a Biodiversity Action Plan that includes zero loss of vegetated and forested areas by its companies and conservation of threatened species.
 
As an early adopter of the framework, called the Taskforce on Nature-related Financial Disclosures (TNFD), Eletrobras demonstrates what is possible. Yet according to the second annual EY Nature Risk Barometer, it is an outlier. Businesses are making progress on nature-related disclosures. But there is room — and need — for companies to better assess, disclose, and act on their impact and reliance on nature, according to the report.

The EY report assessed 369 companies spanning 10 sectors in the United States, Canada and Latin America. It benchmarked business reporting against the 14 TNFD recommendations finalized in September 2023. These recommendations are intended to guide organizations in reporting and acting on nature-related risks around governance, strategy, risk and impact management, and metrics and targets. 

Over 500 organizations with a total of $17.7 trillion in assets under management have so far committed to reporting with the TNFD framework, a 57 percent increase since the first formal announcement of early adopters in January 2024.

“We are seeing corporate action catching up with the science on biodiversity loss and nature-related impacts, but there is a lot more work ahead,” Lucy Godshall, a principal in climate change and sustainability services with EY, told TriplePundit. “When it comes to corporate action, particularly in sustainability, what you measure gets managed. I fully expect more companies to start disclosing these impacts.”

And there’s good reason for companies to act. Nature loss is a crisis for business as well as for society at large. Over half of the world’s gross domestic product, $44 trillion, is moderately or highly dependent on nature and ecosystem system services, according to the World Economic Forum. Biodiversity loss and ecosystem collapse will be the third-greatest global risk over the next decade, behind extreme weather events and critical changes to earth systems, according to the organization’s 2024 Global Risks Report. Natural resource shortages follow closely as the fourth-greatest risk.

Companies acknowledge impacts, but current nature-related disclosures skim the surface

While 94 percent of the companies assessed in the EY report have disclosed information for at least one TNFD pillar. How well those disclosures align with the TNFD recommendations is limited. 

By far, the region that covered the most ground in its nature-related disclosures is Latin America. That’s due to the region’s significant economic dependence on natural resource extraction and agriculture. Those sectors are intrinsically linked to environmental degradation and put nature impacts in the crosshairs of investors, banks and insurance companies. On top of that, fires and droughts in Brazil are disrupting entire value chains, according to the report.

“Companies in Latin America are facing pressure to provide more data, to disclose more on risks and opportunities, and to understand better their mitigation and adaptation actions in light of the physical climate risks and nature impacts we’re seeing,” Godshall said. 

In every sector and region, companies face a challenge in fully integrating the TNFD recommendations, Godshall said. While three-quarters of the companies disclosed some degree of nature-related information, the amount of information that aligned with the recommendations was just 19 percent. 
 
“The TNFD is still a new framework and voluntary, so these results are fairly expected in terms of performance right now,” Godshall said. “But we're seeing a lot of acceleration and movement in the market.”

Transparency drives behavior change

“Enhanced transparency and reporting often drives the behavior change,” Godshall said. “By committing to TNFD disclosures, companies are holding themselves accountable to their stakeholders, including investors, customers, employees and regulators.”

For example, companies are prioritizing sourcing key commodities like timber, palm oil, soy and cattle products in ways that prevent deforestation and promote sustainability, according to the EY report. And across nearly every industry, companies are increasingly paying attention to how the loss of forests and natural habitats affects their supply chains.  

Companies are also setting targets and announcing ambitions to reduce water use, halt deforestation by a given date, avoid sourcing beef products from geographic areas with high risks of deforestation, and take steps to prevent natural ecosystems from being adversely affected by company activities, according to the report. When businesses adopt regenerative or circular economy practices, the positive impacts for nature are even greater.

“When a company looks under the hood and understands their impacts, and commits to transparency, that's where the action comes in. Once you identify a potential risk, you need to do something about that,” Godshall said. “The early adopters of TNFD have recognized the longer-term benefits of addressing nature-related issues now. It builds that resilience into their business model, especially when they go beyond the baseline compliance expectations.” 

While the TNFD is voluntary, corporate disclosure around nature impacts is increasingly becoming a mandatory part of the regulatory regime in some countries and regions. Regulations such as the European Corporate Sustainability Reporting Directive (CSRD) include a disclosure requirement centered on biodiversity and ecosystem impacts. The directive is expected to affect 3,000 or more U.S. companies, along with up to 50,000 companies in the European Union.

“There's been a lot of focus on getting ready for CSRD compliance, and we're starting to see companies double down on understanding their nature-related risks and opportunities to prepare for disclosure,” Godshall said.

Overcoming the barriers to in-depth disclosure

In addition to the TNFD framework being new and voluntary, the lack of more in-depth disclosure is also due to a lack of awareness by many companies about their dependencies on nature.

“Data availability is a big challenge, especially as companies try to understand their nature-related impacts and dependencies across an entire value chain,” Godshall said.  

Beyond that is a secondary challenge of understanding how to interpret the data and use it for decision-making, she said.

“I see the best action in the market when companies get the basics right,” Godshall said. “For example, when they monitor and stay ahead of the regulatory landscape around nature and prepare to double down on their efforts in response. There's a big education piece as well, as companies try to understand their nature impacts not just from a scientific perspective, but also perhaps even more critically, from their unique business perspective. And that's really the first critical step — understanding nature impacts across the business value chain and where key dependencies are.”