Nature disclosures and transition planning – the current state of play

Last month the Government published its consultation on voluntary carbon and nature markets (available here) (the “VCNM Consultation”). We provided a summary and commentary in our article here.  

It is a good time to provide a reminder of the current status of nature related financial disclosures and nature transition planning, as well as how they link to environmental markets. This is particularly the case in light of the VCNM Consultation, the recommendation in the 'Corry Review' for a ‘Nature Market Accelerator’, and ongoing attempts by groups, such as the UK Nature Markets Dialogue (and for which Penny Simpson, who leads the Environmental Law team at Freeths, is a recent addition to the Steering Group), to ensure nature markets are effectively governed. 

This article is relevant to all businesses on a sustainability journey. It is also relevant to those interested in environmental markets as companies’ nature disclosures and transition planning have the potential to drive demand for voluntary nature credits and shape nature markets. 

Background 

Initiatives on nature disclosures relate back to Target 15 of the Kunming-Montreal Global Biodiversity Framework, agreed at COP15 in Montreal, Canada (the “GBF”), which requires legal, administrative or policy measures to encourage and enable business to monitor, assess and transparently disclose their risks, dependencies and impacts on biodiversity.  For detail on the GBF, including Target 15, see here. 

In September 2023, the Taskforce for Natural-related Financial Disclosures (the “TNFD”) (an international taskforce) published its recommendations on nature-related financial disclosures (the “TNFD Recommendations”),  to help organisations assess, report and act on nature-related dependencies, impacts, risks and opportunities.  

Markets themselves are heading in a similar direction, with investment manager, BlackRock, recently issuing a report on its approach to engagement on natural capital, highlighting the importance of  an understanding of nature-related risks and opportunities to the investment sector. The report: 

• Expressly identifies the “management of nature-related risks [as] a component of the ability to generate long-term financial returns for companies whose supply chains are materially reliant on natural capital”; and
• Notes that, for such companies, BlackRock “rel[ies] on disclosures to assess the board's risk oversight and to understand how nature-related impacts and dependencies are considered within their strategies”.

The TNFD Recommendations followed recommendations by the Taskforce for Climate-related Financial Disclosures (the “TCFD Recommendations”), which now forms the basis for a number of mandated climate disclosure regimes around the world, including the ISSB’s IFRS Sustainability Standards (see further below)

The TNFD Recommendations 

The TNFD Recommendations are structured around the same four pillars as the TCFD Recommendations: 

1. Governance – the organisation’s governance of nature-related dependencies, impacts, risk and opportunities; 
2. Strategy - the effects of nature-related dependencies, impacts, risks and opportunities on the organisation’s business model, strategy and financial planning where such information is material; 
3. Risk & Impact management – the process used by the organisation to identify, assess, prioritise and monitor nature-related dependencies, impacts, risks and opportunities; and  
4. Metrics & Targets – the metrics and targets used to assess and manage material nature-related dependencies, impacts, risks and opportunities. 

Each ‘pillar’ has recommended disclosures. The TCFD Recommendations had 11 recommended disclosures, all of which are incorporated in some form in the TNFD Recommendations. However, the TNFD Recommendations include three additional disclosures which take into account the nuance of nature impacts and risks. These are focussed on (1) stakeholder rights and engagement (in particular consideration of indigenous rights and local communities), (2) priority locations to accommodate specific considerations arising from regional differences, and (3) upstream and downstream value-chain risks and impact management. 

Another key difference is that the TCFD Recommendations only incorporate financial materiality (i.e. material financial risks and opportunities climate change presented to the business). The TNFD incorporates impact materiality alongside financial materiality, i.e. double materiality – it recommends disclosures are made not only on the risks and opportunities nature presents to the business (financial materiality), but also of the dependencies and impacts of the business on nature (impact materiality). 

The TNFD has published various resources to guide companies through their journey to producing nature based disclosures, including its ‘LEAP Approach’ as a method to evaluate an organisation’s dependencies and impacts on nature, and to assess the risks and opportunities: 

• Locate the interface with nature
• Evaluate dependences and impacts
• Assess risks and opportunities 
• Prepare to respond & report

A summary of the TNFD’s recommended disclosures (available in the Executive Summary of the TNFD Recommendations or the full TNFD Recommendations Report) is copied below. 

Transition plans

The TNFD’s recommended disclosure ‘B’ under the ‘Strategy’ pillar is to describe the effect of nature-related dependencies, impacts, risks and opportunities have had on the organisation’s business model, value chain, strategy and financial planning, as well as any transition plans or analysis in place.

In light of this, the TNFD published, in November 2024, draft guidance on nature transition planning for corporates and financial institutions developing and disclosing transition plans. The guidance covers:  

1. What a nature transition plan should include; and
2. How a plan should be presented and disclosed. 

The draft guidance proposes the following definition of a ‘nature transition plan’:

“A nature transition plan is an aspect of an organisation’s overall business strategy that lays out the organisation’s goals, targets, actions, accountability mechanisms and intended resources to respond and contribute to the transition implied by the Global Biodiversity Framework where biodiversity loss is halted and reversed by 2030 to put nature on a path to recovery by 2050. Actions in such plans should prioritise real economy changes and may include: avoiding and reducing negative impacts; protecting, conserving, regenerating and restoring nature; transforming underlying systems to address the drivers of nature loss; and collaborating and engaging with Indigenous Peoples, Local Communities and stakeholders.”

The draft guidance covers all aspects of nature apart from climate change and greenhouse gas emissions, given that these topics have been covered separately in guidance focussed on climate change transition plans.  It does, however, stress the importance of considering the synergies and trade-offs with climate and other sustainability objectives, especially social objectives, and encourages organisations to move to an integrated approach over time.

The guidance proposes nature transition plans (and the disclosure of those plans) are structured around four key ‘themes’. These are the same themes as recommended by the Transition Plan Taskforce (the “TPT”) (now owned by the IFRS) on disclosures for climate transition planning.

1. Foundations – The organisation’s overall approach to the nature transition, including scope, changes to business model and value chains, and financing strategies; 
2. Implementation strategy – The actions the organisation plans to take to align its business activities, products and services and policies in line with the transition plan priorities (it is a process of prioritisation and the guidance acknowledges not all risks or impacts can be dealt with immediately);
3. Engagement strategy – How the organisation will work with others to support the delivery of the transition plan and accelerate transition of the whole economy; 
4. Metrics and targets – The metrics and targets the organisation will use to monitor progress against the transition plan priorities, both targets for impact drivers, and metrics monitoring the delivery of the plan; and 
5. Governance – The structure and process at board level to oversee incentives and support the implementation of the transition plan. 

The TNFD has said it will publish its final guidance on transition plans later in 2025.

Link to environmental markets

While a corporate or financial institution’s nature transition plan should prioritise real economy changes to avoid and reduce negative impacts on nature, the TNFD’s draft transition plan guidance recognises that organisations “may choose or be required to consider the potential role of biodiversity credits”. It welcomed views on the role of biodiversity credits in transition planning and has said it may include comment on the use of credits in its final guidance on transition plans.  

The VCNM Consultation also considered and invited views on the role of voluntary nature credits to support the climate and nature transition (see Principle 4 of the VCNM Consultation: Planning Ahead). Responsible use of high integrity credits (alongside ambitious action within value chains in line with best practice guidance), is an avenue for demand for biodiversity credits.  This has the potential to grow as companies better understand their nature related risks, impacts, dependencies and opportunities, which is exactly what the TNFD Recommendations aims to enable.

Why should businesses be thinking about nature disclosures and transition planning?

While many businesses are still grappling with climate related disclosures and transition plans, there is increasing recognition that the dependencies and risks businesses face from nature loss are very real.  While arguably more complex than understanding a business’ climate related risks, there are good reasons to begin considering the TNFD’s guidance now, including:

1. Risk management – with 55% of global GDP being moderately or highly dependent on nature, understanding and addressing nature-related risks makes good business sense;
2. Access to capital – as reflected in BackRock’s report, nature disclosures are already influencing investment decisions. Companies that don’t take this seriously may struggle to attract capital; and
3. Innovation – nature disclosures are not just about avoiding and managing losses/costs; they are also very likely to support opportunities for new products, markets and business models.

The development of nature related disclosure and transition plans lags behind the development of climate disclosures, but we do expect them to follow a similar trajectory to climate disclosures, and in time, to become part of mandatory requirements for many companies.  

The EU’s Corporate Sustainability Reporting Directive already includes disclosures on biodiversity (although is not binding on, or implemented in, the UK, although will in time apply to non-EU companies with significant presence in the EU), and the IFRS’ International Sustainability Standards Board (whose standards the UK is in the process of adopting) has confirmed that it will look to TNFD recommendations in its future work - see our ESG reporting guide here for more details.