Defined Benefit (DB) schemes in the UK will lack the information they’ll need to understand how nature and climate-related risks affect them without an integrated approach to sustainability reporting, Hymans Robertson warned.
After two years of development and consultation, the Taskforce on Nature-related Financial Disclosure (TNFD) formally launched its framework and final recommendations on 18 September.
These are expected to help reverse nature and biodiversity loss by encouraging companies and financial institutions to report – and act – on nature-related issues.
Hymans Robertson urged that delivering real-world change will rely on pension schemes and other institutional investors taking a holistic approach to sustainability disclosures given that the climate and biodiversity crises are interrelated.
The briefing note from the pensions and financial services consultancy aims to help DB schemes understand how the TNFD framework works and the key actions asset owners should take now to ensure successful TNFD reporting.
The TNFD framework aligns with existing sustainability disclosure frameworks and the Global Biodiversity targets agreed at COP15 conference last year.
Hymans Robertson also pointed out that there are four key elements at the heart of the TNFD framework: dependencies, impacts, risks and opportunities. These are collectively referred to as nature-related issues by TNFD.
The consultancy proposed three initial actions for successful TNFD reporting.
As part of the first action, it suggested that pension schemes and other institutional investors read TNFD’s ‘Getting Started’ guide and take training on TNFD, natural capital and diversity. It also suggested they take time to engage with investment managers and portfolio companies on nature-related issues.
The second action centres around data, metrics and monitoring. Hymans Robertson suggested that institutional investors take time to understand the TNFD’s core metrics and agree on which one to focus on first. Investors should also carry out data gap analysis to understand baseline position and make an initial assessment of portfolio exposure to sectors and locations with significant impacts or dependencies and set targets relating to key nature metrics.
The third action is around disclosure and strategy. The consultancy said that institutional investors should develop disclosures that incorporate TNFD guidance, alongside climate disclosures and TCFD.
Investors should also consider how biodiversity and nature fit into wider sustainability reporting for example, with the International Sustainability Standards Board (ISSB) and Global Reporting Initiative (GRI), and monitor impact related to specific themes such as, deforestation and marine life and set policies and/or targets where needed.
Lastly, it said that investors should also take measures to reduce exposure to nature loss and invest in companies and sectors that support nature preservation.
André Ranchin, investment consultant and biodiversity lead at Hymans Robertson, said: “The launch of the TNFD framework is great news, as it’s designed to align with the TCFD climate framework.”
He noted that the TNFD framework will play a key role in future regulatory frameworks and is a “positive step” towards addressing the biodiversity crisis, adding that nature and climate issues are “two sides of the same coin” and, as such, DB schemes will need to ensure they develop an integrated approach to their sustainability reporting.
“This will help them produce consistent disclosures and understand the actions needed to achieve the long-term goal of helping to reverse nature and biodiversity loss,” Ranchim stated.
He pointed out that the core elements of the TNFD framework recognise that dependencies and impacts on nature are location-specific, and that risks or opportunities will also vary according to organisation type and economic sector.
He continued: “It is vital, therefore that investors assess their own needs and set out a roadmap that covers education and engagement, data and monitoring, and disclosure and strategy. These are the three areas where they can take-action now to ensure they deliver robust reports when the time comes.”