Nature-related risk is now a business issue: getting started with TNFD

For the past decade, the corporate sustainability conversation has been dominated by a single letter: 'C' for climate and carbon. Now, another letter is rapidly gaining prominence: 'N' for nature.

Leading organisations are waking up to the fact that the degradation of natural ecosystems—from forests and oceans to soil and freshwater—poses a profound risk to their business. Just as the Taskforce on Climate-related Financial Disclosures (TCFD) created a common language for climate risk, the Taskforce on Nature-related Financial Disclosures (TNFD) has now provided a global framework for business to get to grips with nature.

What is the TNFD?

Launched in 2021, the TNFD is a market-led, science-based initiative. Its mission was to develop a risk management and disclosure framework for organisations to report and act on evolving nature-related issues. After a two-year development process involving hundreds of institutions, the final recommendations were released in September 2023.

The framework is purposefully designed to mirror the TCFD, built around the same four pillars:

Governance: The board's oversight of nature-related dependencies, impacts, risks, and opportunities.
Strategy: The actual and potential effects of nature-related issues on the business model and strategy.
Risk & Impact Management: The processes used to identify, assess, and manage nature-related issues.
Metrics & Targets: The metrics and targets used to manage performance.

This deliberate alignment makes it easier for companies already reporting on climate to extend their thinking to nature.

Nature risk 101: dependencies and impacts

To understand nature risk, you need to think in two directions:

Dependencies (Outside-In): How does my business depend on nature to function? Nature provides 'ecosystem services' that are often invisible and unpriced inputs to our economy. Examples include:
- An agricultural company depending on healthy soil, predictable rainfall, and insect pollination.
- A beverage company depending on a reliable supply of clean freshwater.
- A coastal tourism operator depending on healthy coral reefs and stable coastlines.
Impacts (Inside-Out): How do my business activities impact nature, both positively and negatively? Examples include:
- A property developer clearing land (driving habitat loss).
- A manufacturing plant discharging polluted water (water pollution).
- A forestry company engaging in reforestation (positive impact).

Nature-related risks (and opportunities) arise from these dependencies and impacts. A 'physical risk' could be water scarcity halting production. A 'transition risk' could be a government banning land clearing, making a business model unviable.

Why it matters for Australian companies

As a 'megadiverse' country with an economy deeply intertwined with the natural world, Australia is particularly exposed to nature-related risk. Our largest industries—agriculture, resources, and tourism—are all fundamentally dependent on the health of our ecosystems.

Australian businesses need to get on the front foot for several reasons:

Financial Risk: Loss of nature can lead to direct financial consequences, from reduced agricultural yields to stranded assets in resources and infrastructure.
Investor Pressure: Global investors are increasingly asking sophisticated questions about how companies are managing biodiversity loss and nature degradation.
Regulatory Horizon: Nature is widely seen as the 'next TCFD'. While climate reporting is being mandated now via ASRS, it's highly likely that a similar standard for nature, based on the TNFD, will follow in the coming years.

The LEAP approach: a practical starting point

The TNFD framework can seem daunting. To make it accessible, the Taskforce developed a practical, step-by-step process called LEAP:

Locate your interface with nature: Map your business footprint and identify which of your operations are in or near ecologically sensitive areas.
Evaluate your dependencies and impacts: For those high-priority locations, analyse which ecosystem services you depend on and what impacts your business has.
Assess your material risks and opportunities: Based on your evaluation, determine which nature-related issues are 'material'—posing a significant risk or opportunity to your business.
Prepare to respond and report: Set targets, develop your strategy to manage the risks, and prepare your disclosures based on the TNFD recommendations.

The bottom line

What was once seen as the domain of environmentalists is now a mainstream business and finance issue. Your company's relationship with the natural world is a source of both profound risk and significant opportunity. By starting to explore the TNFD framework and applying the LEAP process now, Australian businesses can build resilience, meet stakeholder expectations, and prepare for the next wave of mandatory sustainability reporting.