On December 21, 2023. The European Group for the Promotion of the European Union. The Financial Reporting Advisory Group (EFRAG) and the Financial Reporting Task Force (FATF) are also involved. The Nature-related Financial Disclosure Directorate (TNFD) has initiated a joint effort to develop and improve reporting on environmental issues. What should the proposed biodiversity cooperation look like?
Biodiversity cooperation – key considerations
The joint activities are to build on existing foundations, such as the European Sustainability Reporting Standards(ESRS), which were adopted by the European Commission in July 2023. and are in line with TNFD recommendations. The goal is to ensure consistency and comparability in the reporting of nature-related risks and impacts by companies around the world. The result is expected to be strengthening corporate sustainability by increasing transparency about impacts on biodiversity and ecosystems.
A key element of this collaboration is the integration of the four pillars of TCFD recommendations (governance, strategy, risk and impact management, and indicators and targets) into both the TNFD assumptions and ESRS reporting areas. Both organizations place special emphasis on revealing the impacts, risks and opportunities associated with nature, as well as dependence on it. All 14 TNFD recommendations are included in the ESRS, highlighting their compatibility.
Use of LEAP methodology
In addition, TNFD has developed the LEAP approach to help companies identify and assess environmental issues. The ESRS, on the other hand, requires that disclosures be based on double materiality, which is in line with the TNFD framework.
Explaining, the LEAP methodology, developed as an integrated process, is designed to assess and manage environmental issues. It consists of four main stages:
- Locate – involves identifying how an organization’s activities affect the environment;
- Evaluate – refers to the analysis of the organization’s dependencies and interactions with the environment;
- Analysis (Assess) – focuses on identifying potential risks and opportunities from environmental impacts;
- Prepare – involves developing a strategy for responding to and reporting on significant environmental issues.
Each of these stages includes a set of questions supported by interpretive guidance and expected results. For example, as part of the “localization” step, an organization may be asked about its operations in different sectors and value chains, and the geographic locations of its operations. The expected result could be a detailed list or map of environmentally sensitive sites.
The LEAP methodology is designed as an iterative process to be integrated into an organization’s existing risk management practices and reporting cycles. It is tailored to a variety of business models, sectors and locations, which means there is no one-size-fits-all solution for all organizations.
Biodiversity cooperation – plans for the future
A detailed interoperability mapping is scheduled to be published in 2024 to show the high level of similarity between the two systems. This mapping will be the next step in the effort to better understand and implement the standards. Importantly, biodiversity cooperation between EFRAG and TNFD is key to promoting transparency about companies’ impacts on nature. This is a step toward ensuring that companies around the world can better assess, disclose and manage risks and impacts related to nature, which is essential for sustainable development.
Emily McKenzie, chief technical specialist at TNFD, expressing her delight at the signing of the cooperation agreement with EFRAG, stressed that the agreement is the result of the two organizations’ joint commitment to developing, preparing the market for and implementing extensive nature-related financial activities. McKenzie also noted that there is compatibility between the European Sustainability Directives, Reporting Standards (ESRS) and TNFD’s recommendations and indicators.
In turn, Patrick de Cambourg, chairman of EFRAG’s SRB, stressed that the Biodiversity Cooperation Agreement reflects EFRAG’s and TNFD’s joint commitment to improving the disclosure of nature-related information in the context of sustainability reporting. He noted that aligning ESRS disclosures with TNFD’s recommendations paves the way for more transparent and effective reporting that takes into account key linkages between business operations and biodiversity conservation.