Half of global GDP is dependent on nature. That means $44 trillion is at risk if what the World Economic Forum (WEF) calls “destructive, extractive and unsustainable practices” continue to deplete the world’s natural resources and eradicate essential ecosystems.
Biodiversity loss and ecosystem collapse are cited by the WEF Global Risks Report 2024 as one of the top three risks over the next decade and could result in a decline in global GDP of $2.7 trillion annually by 2030.
“Such an economic downturn would have a devastating effect on poverty, security, social well-being and equality,” WEF states.
Given such high stakes, policymakers want to see companies and their investors take greater consideration of their impact on nature.
In June 2021, the Taskforce on Nature-related Financial Disclosures (TNFD) formally launched to “help organisations to report and act on evolving nature-related issues with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes”.
Reporting under TNFD is voluntary and so far, major asset owners, managers and consultancies are among the 180 financial institutions listed as adopters.
These include a number of UK pension firms, such as Legal & General, Fidelity International and Mercer, as well as the Brunel Pension Partnership and London LGPS CIV.
Emily McKenzie, TNFD’s technical director, says: “As nature-related issues have risen up the agenda and are increasingly recognised as risks that cannot be ignored within wider organisational risk management and strategy, investors have been engaging and collaborating with asset managers using the TNFD framework.”
Harriet Wildgoose, associate director, sustainable investing at Fidelity International, says nature loss presents a systemic risk, and the TNFD provides companies and investors a coherent risk management and disclosure framework that supports clearer, more consistent and decision-useful reporting on nature. “As an active asset manager, we believe the preservation and restoration of nature is critical to ensuring the long-term prosperity of the world’s global economy,” Wildgoose says.
Competitive advantage
Rob Gardner, CEO and founder of natural capital asset manager Rebalance Earth, says TNFD gives investors something they “never had before”: a clear, decision-useful picture of their nature-related financial risks.
He goes on to argue that early adopters are therefore afforded a clear competitive advantage. “Markets reward those who understand risk before it is priced in. Early adopters can see where their assets are exposed to nature- and climate-driven vulnerabilities long before they show up in valuations,” he says.
He notes that early adopters can access new markets ahead of the competition, saying that TNFD is a gateway to rapidly emerging markets, including biodiversity uplift, nature credits, climate resilience contracts, water-quality outcomes and payments for ecosystem services.
“These mechanisms are now scaling across the UK from oyster reef restoration and native woodland projects to catchment-scale natural flood management. For universal owners, early TNFD adoption is good portfolio governance. If you own the whole economy, you own the whole risk.”
Gardner points to S&P Global modelling that shows the world is on track for 2.3°C of warming by 2040, driving a significant escalation of physical hazards. He says that under these conditions, physical climate and nature risks could reduce US equity portfolio values by 19–27 per cent in high-risk scenarios.
Further, LSEG data shows the UK has the highest GDP exposure to flooding in Europe, reaffirmed by the UK National Emergency Briefing’s warning that the country must prepare for water insecurity on a wartime footing.
“Early TNFD adoption turns these blind spots into a map of exposure that investors can act on,” he says.
Translating into returns
Whether taking account of biodiversity risk in investment strategies translates to portfolio returns depends on the sectors and regions to which investors are exposed, according to Vanessa Hodge, Mercer’s UK sustainability integration lead.
She says portfolios prioritising nature resilience and nature positive transitions, as well as those engaging with or reducing exposure to companies with greater environmental impact, “could achieve more sustainable, potentially better long-term returns by enhancing production resilience and mitigating risks from biodiversity loss and ecosystem degradation”.
She adds: “Investors are increasingly targeting private markets for natural capital investments, such as sustainable forestry, regenerative agriculture and nature-based solutions focused on conservation, preservation and restoration.”
Data inconsistencies
While TNFD adoption is viewed as broadly beneficial, signing up is not without challenges. The most significant is the variation and inconsistency of nature-related data.
Wildgoose says: “Unlike carbon, nature metrics are highly location specific, multi-dimensional and unevenly disclosed across sectors. Supply-chain data can also be particularly difficult to access. TNFD provides a strong framework, but meaningful implementation depends on adoption. As an asset manager, our exposure to nature-related risks and opportunities sits primarily within the companies we invest in, so our ability to assess these risks depends on the quality of corporate disclosures.”
Wildgoose says for TNFD to be effective, widespread adoption in sectors where nature risks are material is essential, since investors rely on robust company-level reporting to understand dependencies, impacts and transition readiness.
Alex Quant, head of responsible investment at XPS Group, agrees. “Reporting on impact on biodiversity by companies is still an evolving area and investors rely on companies to provide the information that the investors can then make decisions with and use for their reporting.”
Potential mandation
Given the challenges with TNFD, there is reluctance to see the reporting recommendations become mandatory, as has been the case with the Taskforce for Climate-related Financial Disclosures.
Hodge says: “Given current data limitations and variability in coverage, any mandatory reporting should focus on the most material and practical metrics that corporates can reliably provide and asset owners can effectively monitor. This pragmatic approach will help ensure meaningful disclosures without imposing undue burdens.”
The UK government explicitly referenced TNFD in its 2023 UK Green Finance Strategy, stating it intends to consider how the final TNFD framework “could be incorporated into UK policy and legislation.”
So far, the TNFD has already been taken up by voluntary standards, including the Global Reporting Standards, ISO, and ISSB Standards, as well as jurisdictional mandatory standards such as the European Sustainability Reporting Standards (ESRS).
In the UK, incoming UK Sustainability Reporting Standards will be based on the ISSB standards, which will leverage the TNFD framework for reporting on nature-related risks, effectively making the framework mandatory for large companies.
Quant says: “For any aspect of TNFD to become mandatory
For investors, it needs to first become more embedded by large companies, then small companies, then investors, as investors require the reporting and activity from companies in order to have decision-useful information to act on.”
He adds that climate change and nature reporting requirements should become more “risk-based,” rather than based purely on the scheme’s assets.
“[A risk-based approach] would capture those schemes most exposed to the risks and opportunities relating to addressing climate change and biodiversity loss, which may not always just be the largest schemes,” he says.
Early adopters of the TNFD framework recognise that nature loss represents a material financial risk that is already reshaping markets, regulation, and long-term investment strategy.
Taking stock of biodiversity risk and being proactive offers investors and asset managers a strategic advantage by improving visibility of portfolio exposure, accessing new nature-based markets, and preparing for an economy where resilience and sustainability increasingly define value.
Yet, for broader TNFD adoption to be practical, inherently complex nature-related metrics and data inconsistencies must be tackled.
WHAT IS TNFD?
The Taskforce on Nature-related Financial Disclosures (TNFD) offers recommendations and guidance that encourage and enable business and finance to assess, report and act on their nature-related dependencies, impacts, risks and opportunities. TNFD enables businesses and finance to integrate nature into decision-making and aims to “support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes, aligned with the Global Biodiversity Framework”.