Navigating legal landscapes with the TNFD framework has the potential to turn your company's environmental challenges into strategic opportunities.

The relationship between business and the environment is becoming increasingly central to corporate strategy and reporting. This connection is underpinned by the global economy's dependence on natural systems, a fact that is often overlooked in boardrooms. Yet, the necessity for companies to integrate environmental considerations into their decision-making is not only a strategic imperative but increasingly a legal one.

Legal advice provided by Noel Hutley SC and Sebastian Hartford-Davis in 2016, and updated in November 2023, underscores a director's duty under section 180(1) of the Corporations Act 2001 (Cth) to account for climate change risks in their governance. This duty has been interpreted to extend to the broader impacts that companies have on nature, with significant implications for directors who fail to consider environmental risks and opportunities in their operations.

The Taskforce on Nature-related Financial Disclosures (TNFD) plays a pivotal role in this landscape. Established as a market-led, science-based, and government-supported initiative, the TNFD provides a framework for companies to manage nature-related financial risks.

The TNFD's comprehensive approach helps businesses assess and disclose their environmental dependencies and impacts, encouraging a shift towards nature-positive strategies. As noted in the TNFD's September 2023 Recommendations, the Taskforce is composed of “40 senior executives from companies and financial institutions globally representing over $20 trillion in assets under management with operations and value chains in over 180 countries” emphasising the framework's extensive reach and influence.

Nature related depletion is no longer just a risk to the environment and our planet but also an economic risk. The World Economic Forum’s Global Risks Report 2023, which we wrote about earlier in the year, considers nature related issues high risk to the global economy. A significant portion of the global economy and actors within it are moderately or heavily dependent on nature for economic gain.

The TNFD Beta Framework outlines ways that you and your organisation can prepare:

• Become familiar with the key concepts of natural capital and nature-related dependencies, risks and opportunities.
• Assess the impact your organisation has on nature.
• Take actions to mitigate negative natural capital impacts and risks.
• Evaluate how your business strategy and value chains are exposed to nature-related dependencies and risks.
• Recognise the wider risks and opportunities presented by the shift to a nature-positive economy.
• Initiate internal discussions about natural capital.
• Pilot the TNFD beta framework to gain early insights and establish a market-leading position.
• Choose piloting options appropriate for your organisation's current stage, ranging from desktop testing to full implementation.
• Work with knowledge partners.
• Join the TNFD forum for additional support and peer-to-peer exchange.
• Provide feedback on the beta framework to refine future versions.

Engagement with the TNFD is not only beneficial for the environment but also for business resilience and success. As PWC reports, “Businesses that take effective action to prevent detrimental impacts on nature, and that leave net benefits for biodiversity and natural capital, will also increasingly protect and enhance their social licence and reputation, availability of financing, regulatory arrangements, supply chains, and business performance. By understanding nature-related dependencies, and taking action towards a more sustainable and resilient business model, companies can maximise their success on a deteriorating and ever-changing planet.”

In Part 2 of this blog series, we will explore the practical steps businesses can take to implement this framework and the advantages of doing so.

Resources

• Global Risks Report 2023, Blog Series (Part One)
• MinterEllison webinar information
• Recommendations of the Taskforce on Nature-related Financial Disclosures September 2023
• World Economic Forum’s The Global Risks Report 2023

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A participant in the UN Global Compact, CourtHeath seeks to raise awareness about the Sustainable Development Goals and the principles of the Global Compact with business and government organisations in Victoria.

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IMAGE: Used under licence from shutterstock.com

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