Guest post: Torolf Hamm from WTW looks at how risk and sustainability teams can unlock budget, boost ROI and drive long-term value by collaborating on Taskforce on Nature-related Financial Disclosures.
If you’re working in risk or sustainability, meeting the voluntary Taskforce on Nature-related Financial Disclosures (TNFD) may be seen by others in the business as low priority. Another acronym, another voluntary disclosure, another box to tick.
While sustainability is at risk of being pushed down the agenda by geopolitics and economic uncertainty, statutory frameworks like the EU’s Corporate Sustainability Reporting Directive (CSRD) already share TNFD’s principles of considering biodiversity, nature-related risk and more.
By being proactive about TNFD, you can get ahead of any moves to make it mandatory. Crucially, you can also use TNFD factors to deliver better ROI (Return on Investment) on adaptations to assets and operations in response to climate risks. You’ll also be showing your investors and the communities in which your business operates you’re going beyond mandatory minimums to consider nature-related risks and biodiversity.
TNFD core principles
TNFD is a global, market-led initiative to provide a risk management and disclosure framework for organisations to understand, manage and disclose their nature-related dependencies, impacts, risks and opportunities.
The main goal is to promote finance moving toward nature-positive outcomes by integrating nature into decision making and reporting. TNFD recommends the ‘LEAP’ framework for reporting and disclosure: Locate your interface with nature; Evaluate your dependencies and impacts on nature; Assess your risks and opportunities; and Prepare to respond to nature-related risks and opportunities and report.
Making the case for TNFD
How do you get the board to care enough to set aside budget for acting on TNFD? This is about moving conversations on nature and biodiversity away from values (“Acting now is the right thing to do”) and into value (“Acting now will deliver better ROI”). If you connect your sustainability goals with efficient risk reduction and management strategies, you’re better placed to unlock funds for nature-based adaptation.
This is about finding ways to show your board that TNFD is as much about protecting the business and finding new sources of value, as it is about doing the right thing. This is how you can introduce environmentally sustainable adaptations into risk management and wider adaptation thought processes. Data and analytics will help you do this cost-effectively.
Connecting nature-based adaptations with better ROI
Let’s say you’re responsible for assessing and mitigating flood risk facing a manufacturing site near a river. The traditional answer might be to build a concrete flood wall. Now, let’s imagine you model the costs and show the return on investment of both this solution and alternative proposals, where plausible, that consider nature-based risks and biodiversity.
What do costs and ROI look like if you were to adapt to flood risk by planting vegetation or improving soil permeability to support your adaptation measures? The data could evidence better value and resilience by financing nature-based adaptation, while also showing a positive impact on environmental data indicators that speak to biodiversity, pollution and ecosystem health.
Risk financing optimisation analytics can show how a nature-based solution might cost more at first, but deliver better financial returns over time, as well as shorter and longer-term benefits. This can also include reputational gains and your ability to demonstrate nature-considerate adaptations to both win competitive bids and maintain the support of the communities in which you operate.
Collaboration needed between risk and sustainability
Acting effectively on TNFD is likely to mean collaboration between risk and sustainability. Sustainability colleagues may not have the capabilities to model the financial impacts of nature-based adaptations to demonstrate long-term savings, reputational gains and improved ROI.
Risk functions, meanwhile, may not always have access to the nature and biodiversity data and insight they need. Joint efforts are more likely to be robust on each side of the ‘nature and biodiversity benefits/ROI on risk finance’ equation, and therefore more likely to persuade senior decision-makers to act now and not wait for voluntary nature-related disclosures to become mandatory.
About the Author:
Torolf Hamm, Senior Director, Physical Climate Risk, Climate Practice at WTW.
