Why are banks considering TNFD-aligned reporting?

• The key driver for banks to consider TNFD-aligned reporting and potentially adopt TNFD is to prepare for potential future regulatory requirements in the UK. Banks are building capacity, data and understanding in preparation so they are comfortable with what they would disclose if nature-related reporting became mandatory.
• Banks are also piloting and considering TNFD-aligned reporting to (i) ensure they keep pace with action on nature from peers in the market, (ii) manage their exposure to nature-related financial risk, and (iii) inform new product development.
• Many banks are also building the case for adoption with Board members by highlighting the importance of nature in meeting broader transition targets.

What are most banks’ first steps?

Governance

• Accountability for TNFD piloting typically sits with teams that have conducted climate work, often group sustainability. These teams often work closely with nominated nature leads within relevant functions, for example, risk, finance, and business units.
• Some banks have established dedicated project management units for the development and implementation of an organisational nature strategy. In these cases, this acts as the coordinating hub across the bank.

Strategy

• Many bank’s initial focus is the integration of nature into existing climate plans, demonstrating both how action on nature helps meet existing climate goals, as well as how work on nature builds off of that from climate. Most banks are incorporating learnings from TCFD implementation into work plans for nature in the short term (2 years).
• Most banks have identified a priority use case for piloting TNFD and outcomes of the LEAP assessment. For most, the primary use case is using the LEAP assessment as a screening tool for targeted client engagement. Some banks also intend to use LEAP outputs to inform credit decision-making and new product development once nature risk data is more mature.
• Many banks subject to EU Corporate Sustainability Reporting Directive (CSRD) requirements are using the TNFD LEAP approach to help meet CSRD reporting requirements.

Risk & Impact Management

• Banks have typically used tools such as ENCORE and the WWF biodiversity risk filter to create a sectoral heatmap / materiality assessment to prioritise sectors with:

1. High impacts on nature,
2. High dependency on nature and,
3. High credit exposure within the lending portfolio.

• Banks are using this heatmap as a method to prioritise sectors for further assessment, with some further disaggregating to account for which subsectors the banks’ clients were concentrated in.
• Many banks are leveraging previously performed climate physical risk assessments to help inform their LEAP assessment, in particular, any use of asset location data for clients.
• Several banks have overlaid asset location data with state of nature data to identify clients operating in high-risk locations.

Metrics & Targets

• Most banks recognise the need for better client data and are beginning to explore ways in which to collect this data from clients directly. Larger clients have started disclosing impact data which some banks are systematically collecting.
• Most banks are exploring ways in which they can quantify the impacts and dependencies of their clients in high priority sectors.
• Few banks are quantifying the financial risks associated with their clients’ impacts and dependencies.

What would unlock further action?

• Practical guidance and supporting data for how to quantify financial risks and opportunities.
• Build industry consensus on:
• How to undertake LEAP assessments;
• How to interpret TNFD guidance and metrics and
• Which datasets and underlying assumptions to use.

What are most construction businesses’ first steps?

Governance

• Businesses are integrating nature into pre-existing governance structures and processes. For example, some businesses have a structured, annual review process with procurement teams to qualitatively assess the sustainability credentials of their suppliers and contractors. This already covers some nature credentials and is a natural entry point for any additional TNFD considerations.
• Businesses are using the same reporting boundary for nature as they have done for climate. Businesses define this in line with their sphere of influence which is typically based on commercial factors including site ownership, contractor and subcontractor agreements, which entity is applying for planning permission, and architecture and design responsibility. For example, if a contractor does not have architecture or design responsibility, it often does not have the ability to influence the site location, design or materials being used. As a result, many contactors would consider these aspects outside of their reporting boundary.

Strategy

• Businesses are linking emerging climate transition plans with the TNFD recommendations and guidance. They are looking for clear entry points for nature where action already being taken on climate can easily be expanded to include nature. For example, when they talk to their suppliers about climate, can they also bring nature into the conversation.

Risk & Impact Management

• Businesses have typically started with a high-level materiality assessment to identify priority impacts, dependencies, risks and opportunities following the TNFD LEAP framework covering both direct operations and supply chains.
• Businesses are using publicly available tools to underpin these initial LEAP assessments. In particular, the ENCORE database to identify production processes with the highest impacts and dependencies, the WWF biodiversity and water risk filter to identify areas with potentially high physical risk exposure and the SBTN high impact commodity list to identify materials in their supply chain that may generate significant impacts on nature.
• Many businesses have performed a more detailed assessment of direct impacts on construction sites through existing work on BNG compliance. The scope of initial LEAP assessments for onsite impacts range in size with some businesses choosing a subset of their operations as a pilot and others covering all fixed locations.
• Much of the mapping that underpins these assessments has already been completed under physical climate risk exercises.
• Additional work for TNFD-aligned reporting typically focusses on evaluating dependencies onsite and impacts and dependencies within value chains, which are not looked at under BNG or climate risk assessments.
• Initial supply chain assessments suggest that the most material risks are from the sourcing and use of timber, copper, concrete, Hydrotreated Vegetable Oil (HVO) fuel and Personal Protective Equipment (PPE). These outputs often inform supplier engagement.
• Businesses mentioned that a lot could be leveraged from the prioritisation exercises that had been undertaken for climate which have looked into which product categories, as opposed to suppliers, are expected to be the most emission intensive and at highest risk. Approaching nature in this same way allows assessments to leverage existing work done for climate and general assurance. This includes identification of specific production processes and commodities, carbon data often linked to usage/activity data, and location specificity.
• Similarly as for operational sites, businesses are leveraging previous work for climate to help undertake supply chain assessments. These are typically organised by product category rather than supplier. In particular, they are building out from climate assessments and general assurance exercises using the same location data, identification of production processes and commodity types, as well as usage and activity data.
• Some businesses are holding exploratory workshops with prioritised suppliers within their value chain to share early thinking around nature, understand whether this is on suppliers’ radars, and assess what data might be available. Construction businesses are keen to work together as an industry to identify which specific nature-related information or data is required from suppliers to support TNFD-aligned reporting before issuing any data requests to their supply chain.

Metrics & Targets

• Most businesses are initially focusing on a subset of metrics for which there is already good understanding and data such as water and those already considered under BNG. They are leaving work on additional metrics – e.g. soil – for later. Many businesses already collect data on water consumption and local water stress levels for construction sites.
• Some businesses are developing integrated nature and climate transition plans and looking into which targets they think would be appropriate to include. Some businesses have made high-level commitments around nature such as the Nature Positive Business Pledge and are now working through what this means operationally.

What would unlock further action?

• Industry-wide agreement on top 5 high risk materials and top 5 metrics.
• Coordinate supplier engagement and support on nature.
• Develop a view of the impact and risk profile for the top imports of the UK construction sector.
• Align on consistent definition of reporting boundary.
• Explore how Environmental Product Disclosures could be used to inform TNFD assessments.

Why are insurers considering TNFD-aligned reporting?

• Insurers are typically piloting TNFD in expectation of future mandatory regulation. Some businesses are using the EU Corporate Sustainability Reporting Directive (CSRD) as an opportunity to bring together different reporting frameworks including TCFD and TNFD.
• Action on TNFD is also driven by requests from investors and shareholders as well as proactive enquiries from customers and clients on how the business is dealing with nature. For example, one integrated insurer-asset manager-savings business has engaged with its pension and savings customers to understand their demand for the business to develop a strategy on nature. This created a pull through from the savings customer base that enabled the asset management function to invest in upskilling on nature.
• Businesses have typically used the TNFD recommendations and guidance as a strategic tool by first identifying which actions across the business that they would like to inform and then selecting the components of the framework that will help then do so. Businesses have made an effort to avoid viewing the TNFD recommendations as a checklist and keeping ultimate actions and decisions the focus of any work.

What are most insurers’ first steps?

Governance

• Businesses have begun establishing governance processes by identifying committees and individuals with accountability for nature. For example, some businesses have explicitly recognised that their CEO’s responsibility to integrate sustainability into their strategy  includes nature. This has helped drive risk management and action on nature from the boardroom.

Strategy

• Insurers have identified a range of portfolio risk hotspots through initial materiality assessments. Common priorities include water withdrawal and deforestation.
• Most businesses are prioritising integrating nature into their engagement frameworks, especially where this intersects with climate. For example, one insurer has published a water policy and plans to follow with both a circular economy and deforestation engagement strategy.
• Insurers are exploring how to integrate Nature Based Solutions (NbS) and activities that support nature-positive outcomes into their investment arm activities and several have already launched investment funds with nature themes.
• Underwriters are also scoping the potential for new insurance products linked to nature-related risks and opportunities. For example, some underwriters are considering how nature-related risks may interact with director and officer liability insurance products.
• Some businesses are integrating nature into their climate strategy or transition plans and identifying priority actions for each of their direct operations, investment portfolio and engagement activities.

Risk & Impact Management

• Most insurers first step is to undertake a high-level materiality assessment aligned with the LEAP framework. This often takes a sector-based approach and focuses on impacts and dependencies (as opposed to financial risks and opportunities).
• Most assessments use publicly available datasets and tools. The most common are the ENCORE database, the SBTN high impact commodity list and the SASB sector materiality map.
• Some insurers are using the LEAP framework to understand the impact of nature-related policies and progress against nature-related targets that have been previously set, for example, concerning deforestation.
• Businesses are building an understanding of what data is available today and what data might be needed in the future to extend the scope or granularity of the assessment. Assessments range in scope with some insurers focussing on their investment activities, while others are also looking at underwriting activities and direct operations.
• Some insurers are working with NGOs, research institutes and other non-profits (such as the Wildlife Trusts and WWF), over consultancies. One insurer has partnered with Zoological Society London (ZSL) to build a baseline understanding of TNFD requirements and perform a gap analysis based on their current capacity and skills.
• Insurers have found the EU Business and Biodiversity platform and UNEP FI Principles for Sustainable Insurance (PSI) to be useful platforms for resources and collaboration.

Metrics & Targets

• There is apprehension among insurers to invest time in some of the more complex metrics in the TNFD guidance. This is due to previous difficulty in the assurance of associated insurance carbon emission calculations and pressure from the FCA and PCAF.
• Some businesses have integrated TNFD-aligned metrics into existing due diligence and engagement processes which does not require the development of new processes or frameworks which had made it easier to generate stakeholder buy in.

What would unlock further action?

• Establish partnerships to make public state of nature data decision-useful for financial sector.
• Develop industry approach for quantifying nature-related financial risk for underwriting and investment activity.
• Identify promising entry points for new insurance products.

Why are retail, food and hospitality businesses considering TNFD-aligned reporting?

• Regulation is a key driver for retail, food and hospitality businesses considering TNFD-aligned reporting, both in terms of potential mandatory disclosure requirements in the UK as well as related regulation from the EU, particularly the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Deforestation Regulation (EUDR).
• Investor pressure is also a common driver for action. For example, one large consumer goods business has had several discussions with major shareholders dedicated to nature within the last 6 months.
• Some businesses are exploring TNFD as they already report against CDP and aware that CDP has recently aligned their questionnaires to the TNFD recommendations.

What are most retail, food and hospitality businesses’ first steps?

Governance

• Several businesses have found, when tabling discussions on TNFD at the ExCo and Board-level, it has been useful to use climate as a starting point, as Boards already understand climate and see it as a priority. This makes it easier to understand and prioritise action on nature. Boards have been particularly interested in the interdependencies between climate and nature.

Strategy

• Businesses with more familiarity with the TNFD guidance recommend being strategic in how it is used and ensuring that businesses first think through what strategic decisions they would like to inform and then structure any assessments around this. This is critical to ensure outputs are decision useful and to avoid producing reports purely for disclosure’s sake. Sustainability teams are finding this makes it easier to make the business case for action internally, build buy-in across senior leadership and minimise the resource cost of assessment.
• Businesses are applying previous learnings from TCFD disclosure, for example, structuring TNFD assessments and reports around their business structure and using commercial language, to ensure that outcomes are action-oriented and easily digestible by different internal teams.
• Most teams with responsibility for leading on nature and TNFD (typically group sustainability) are focussing on upskilling key stakeholders across the business on nature and TNFD. Some businesses are using consultancies to provide training across the broader business.
• Businesses are cognisant that, especially for the agri-food system, many of the actions taken to address nature will be similar to the actions taken to address climate . As a result, businesses are taking efforts to ensure that work on nature builds out of existing work on climate (either under TCFD, ISSB or CSRD) and is additional. This has relevance to a wide range of actions across the business including performing risk and opportunity assessments, collecting data from suppliers, and identifying actions across the business to manage impacts and risks.

Risk & Impact Management

• Many businesses have started work on TNFD with a high-level materiality assessment, leveraging the ENCORE database, the WWF risk filter and the SBTN high impact commodities list to underpin their materiality assessments.
• These assessments are being used to identify the most material risks and opportunities which require further assessment and action. Some businesses are engaging technical risk managers in each business unit to feed into materiality assessments and prioritisation, ensuring specific expertise is accounted for in the process.
• Initial materiality assessments performed by businesses have identified soil quality, water quality (including salinity) and water availability as the most material sources of nature risk to agricultural supply chains within the UK.
• Several businesses have also used materiality assessments to identify the highest risk commodities and inputs within their global supply chains. More detailed assessments and scoping of risk mitigation actions then often focus on a subset of these commodities. For example, one business has launched an assessment exercise for its three highest risk commodities partnering with university researchers to evaluate biodiversity impacts in key value chain locations, which will support them in identifying actions to mitigate risks.
• Several businesses are in the process of or intend to perform location-specific risk assessments on product lines for which this data is available.
• Some businesses are using cost-benefit analysis to evaluate potential insetting actions (i.e. opportunities to work with and/or invest in suppliers to adopt more sustainable practices) to ensure best return on investment. Example actions considered include regenerative agriculture practices and wetland and mangrove restoration. Businesses have found it easier to make an investment case for actions that both capture carbon and address nature risks.
• Some businesses are developing strategies cognisant of the need to address nature risks at the systemic or ecosystem level. They are considering collaboration with nearby businesses that are mutually dependent on the same ecosystem services. For example, one business mentioned an international project that installed water harvesting for factories to increase water use efficiency. In addition, they are working with the local government and other businesses within that water basin to influence the sustainability of collective water use. This improves resilience for both local businesses and surrounding communities.
• Many businesses use the Consumer Goods Forum for guidelines on managing risks such as those associated with the production of palm oil and human rights. This both directly covers approaches to managing nature risks and provides learnings from the approaches taken to manage other risks.
• Some businesses use the LEAF Marque certification as an environmental assurance system for produce, which includes some nature components such as animal welfare and nature conservation.

Metrics & Targets

• Some businesses are using external data providers to assess and provide metrics for the health of local ecosystems for farms across the UK.
• Those businesses that are evaluating impacts and risks across their supply chain are largely using qualitative metrics linked to different risk factors specific to individual commodities e.g. “high risk of deforestation”.

What would unlock further action?

• Sector alignment on core metrics, enabling consistent asks from suppliers and farmers.
• Collaboration across businesses to define industry norm for risk and impact assessment across global supply chains.