TNFD release recommendations for nature-related risk management and disclosures

In our monthly Sustainable Markets Policy and Regulation round-up we explore the latest in developments to help you get ahead of the key changes shaping the market.

Table of Contents

Recent UK, EU and globally significant policy and regulatory developments and implications for investors, lenders, issuers, and borrowers

  • Taskforce on Nature-related Financial Disclosures (TNFD) release recommendations for nature-related risk management and disclosures

Other announcements and publications


  • The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) published a conceptual framework on nature-related financial risks
  • The Glasgow Financial Alliance for Net Zero (GFANZ) launched a consultation on transition finance strategies and measuring the impact on emissions


  • The UK Transition Plan Taskforce (TPT) has published the final TPT disclosure framework
  • The UK FCA published a ‘Dear Chief Executive letter’ to wholesale banks
  • UK FCA and Prudential Regulation Authority (PRA) published guidelines to support diversity and inclusion in the financial sector
  • UK Green Technical Advisory Group (GTAG) published its final paper with recommendations to the UK government on the UK green taxonomy
  • The UK Prime Minister announced a revised approach to net zero


  • The European Commission launched two consultations to revise Sustainable Finance Disclosure Regulation (SFDR)
  • European Parliament approved EU Green Bond Standard
  • European Union to ban unsubstantiated climate-neutral claims by 2026
  • European Central Bank (ECB) published a paper on climate stress testing of financial institutions
  • European Supervisory Authorities (ESA) analysed voluntary disclosures of principal adverse impacts under the SFDR
  • European Securities and Markets Authority (ESMA) published its work programme 2024, with focus on the green transition

North America

  • New climate disclosure rules passed in California
  • SEC adopted amendments to the funds “Names Rule” (asset management)
  • U.S. Treasury published the principles for net-zero financing & investment 

Recent policy developments and implications for investors, lenders, issuers, and borrowers

The TNFD released recommendations for nature-related risk management and disclosures

Key considerations for sustainable finance market participants

The Taskforce on Nature-related Financial Disclosures published [1] its final recommendations for nature-related disclosures. TNFD is a market-based, science-based and government-supported initiative providing organisations a framework to identify, assess, manage and disclose nature-related issues. The recommendations aim to inform better decision making by companies and capital providers, and ultimately contribute to a shift in global financial flows towards nature-positive outcomes.

The TNFD Taskforce established seven principles for the design and development of its recommendations:

  1. Ensure market usability
  2. Take a science-based approach
  3. Focus on impacts and dependencies on nature as well as risks and opportunities to organisations across business and finance
  4. Be purpose-driven with bias towards enabling action sooner rather than later
  5. Provide an integrative and adaptive design to work with existing risk management processes
  6. Reflect the inherent connectedness of climate and nature challenges and the importance of nature-based solutions
  7. Ensure the framework and approach is relevant, just, valuable, accessible, and affordable worldwide

The framework consists of 14 recommended nature disclosures and is consistent with the International Sustainability Standards Board’s (ISSB) standards as well as with the materiality approach used by the Global Reporting Initiative (GRI) and the new European Sustainability Reporting Standards (ESRS). The recommendations provide guidance that can enable reporting across different jurisdictions.

Issuers / Borrowers

Currently, businesses will be “strongly” encouraged to report, where relevant, on a ‘comply or explain’ basis and therefore may face questions from investors where reporting is lacking. Companies who report against this framework will also need to report the revenues that are exposed to physical risks and transition risks associated with nature loss and degradation, as well as revenue and assets that are dependent on ecosystem services or with a high impact on nature which may be of importance to investors and lenders.

Whilst the TNFD framework is voluntary, it may become mandatory in many jurisdictions over time and is likely to become part of the information utilised by ESG ratings agencies. It is likely that topics around ecological impact will be raised by stakeholders when companies undertake their materiality assessments.

At this stage companies should consider the practicalities of adopting the recommendations, noting that those who report in line with the TNFD disclosures could have an advantage in establishing nature and biodiversity-related key performance indicators (KPIs) and targets that could be considered as part of structuring of sustainability-linked loans or bonds.

Investors / Lenders

Investors who focus on the creditworthiness of companies issuing bonds or other debt instruments could have better access to information on nature-related risks, helping credit investors assess the credit risk associated with an issuer more comprehensively.

TNFD could also support investors in identifying nature-related opportunities, such as investments in evolving sustainable practices, technologies, or products. Investors could benefit from the increased transparency, accountability and comparability of the information generated by portfolio companies on nature-related risks and factors by identifying companies that are well-positioned to capitalise on emerging sustainability trends beyond climate, and potentially leading to better investment returns.

Finally, investors are increasingly likely to be subject to reporting obligations on nature and biodiversity themselves, thus having a clear framework and guidance that can be applied for the reporting across diversified investment portfolios is helpful. This may also include their engagement and stewardship activities related to nature, as collaborative engagement platforms such as ‘Climate Action 100’ emerge.

Other announcements and publications


The Network of Central Banks and Supervisors for Greening the Financial System published a conceptual framework on nature-related financial risks  

NGFS has published the conceptual framework [2] for Nature-related Financial Risk. The framework seeks to create a common language for nature-related financial risks to help central banks and financial supervisors navigate these risks.

The publication aims to define nature-related financial risks and related concepts, assist banks and supervisors to identify and assess nature-related financial risks and outline the next steps to be taken by the NGFS Taskforce; including bridging the modelling and data gaps (notably on the development of nature-related scenarios). The framework is likely to help shape further expectations by central banks from the financial institutions under their supervision.

GFANZ launched consultation on transition finance strategies and measuring the impact on emissions

GFANZ has launched [3] a consultation to refine the definitions of its transition finance strategies and support financial institutions to forecast the impact of these strategies on reducing emissions.

GFANZ have previously defined strategies necessary for financing a whole economy transition to net zero, which collectively comprise ‘Transition Finance’ and are defined as financing or enabling: i) the development and scaling of climate solutions; ii) assets or companies already aligned to or committed to transitioning to a 1.5°C pathway; and iii) accelerated managed phase out of high-emitting physical assets.

The consultation paper seeks market feedback on a principles-based approach to segment portfolios by the key strategies and highlights potential approaches to estimate associated decarbonisation contribution impact. The consultation also proposes emerging technical approaches for measuring the decarbonisation contribution of transition finance activities, by introducing the concept of Expected Emissions Reductions (EER) which would allow financial institutions to quantify the ‘emissions return’ of their transition finance activities more effectively.

The public consultation will run for 6 weeks until 2 November 2023. The final report will be published before the COP28 summit takes place, from 30 November to 12 December 2023.


The UK Transition Plan Taskforce has published the final TPT Disclosure Framework

The UK TPT has published the final TPT Disclosure Framework [4] (1-page summary [5]). In addition to the Framework, the TPT has also published:

  • A draft “TPT Sector Summary” for consultation – open until 24 November 2023. The Sector Summary outlines decarbonisation levers and metrics and targets for 40 sectors, but not including financial services. This will be followed by sectoral guidance including for financial services, which will be published for consultation in November.
  • Comparisons / mapping against TCFD, International Financial Reporting Standards Foundation (IFRS) S2 and European Sustainability Reporting Standards (ESRS) [6].
  • A paper “Legal considerations for transition plan preparers using the TPT Disclosure Framework” [7].
  • Some further implementation guidance [8].

The UK FCA welcomed [9] the TPT’s recommendations and will consult in 2024 on rules and guidance for listed companies to disclose in line with the UK-endorsed ISSB standards and the TPT Framework.

The UK FCA published ‘Dear Chief Executive” letter to wholesale banks

The FCA has issued a portfolio letter [10] to all wholesale banks active in the UK, setting out its key priorities. The letter identifies several key areas of focus, including ESG, consumer duty, artificial intelligence, and diversity, equity and inclusion.

It was highlighted within the ESG section of the letter; the important role wholesale banks have for the transition to a more sustainable future. It was also stated that banks should demonstrate that their financing activities are aligned to their own transition plan and encouraged early engagement with the Transition Plan Taskforce’ framework.

UK FCA and PRA published guidelines to support diversity and inclusion in the financial sector

The FCA and the Prudential Regulation Authority have proposed guidelines to help address conduct-related issues, including sexual harassment and bullying within the financial industry, intended to be finalised in 2024 [11]. Simultaneously, they introduced new requirements targeting large banks and insurers, mandating the establishment of objectives to support diversity and inclusion.

Financial institutions would have to formulate a diversity and inclusion strategy and disclose data related to staff characteristics, covering disability and ethnicity. Notably, firms will be given autonomy to establish “appropriate diversity targets,” particularly concerning gender and ethnicity, in instances where under-representation is evident.

UK GTAG published its final paper with recommendations to the UK government on the UK Green Taxonomy

The Green Technical Advisory Group published [12] its final piece of advice to the UK government on the design and implementation of a UK Green Taxonomy.

The advice focuses on the long-term “institutional home” for a UK Green Taxonomy, with GTAG suggesting the creation of a new advisory body in the short term. This would be to support both voluntary and mandatory disclosure practices, ultimately facilitating the successful implementation of the Taxonomy.

UK Prime Minister announced revised approach to net zero

UK Prime Minister, Rishi Sunak, announced [13] that the UK will revise its path to reach net zero by 2050.

Under revised plans, the Government will:

  • Move back the ban on the sale of new petrol and diesel cars by five years, so all sales of new cars from 2035 should be zero emission.
  • Delay the ban on installing oil and LPG (liquified petroleum gas) boilers, and new coal heating, for off-gas-grid homes to 2035, instead of phasing them out from 2026.
  • Set an exemption to the phase out of fossil fuel boilers, including gas, in 2035, so that households who will most struggle to make the switch to heat pumps or other low-carbon alternatives won’t have to do so
  • Scrap policies to force landlords to upgrade the energy efficiency of their properties, but instead continue to encourage households to do so where they can.
  • Raise the Boiler Upgrade Grant by 50% to £7,500 to help households who want to replace their gas boilers with a low-carbon alternative like a heat pump.

The Prime Minister said he was “absolutely unequivocal” about sticking to the commitment to reach net zero carbon emissions by 2050.


European Commission launched two consultations to revise SFDR

The European Commission launched a targeted consultation [14] (seeking feedback from technical specialists) and a public consultation [15] (seeking knowledge from the general public) on the implementation of the EU Sustainable Finance Disclosure Regulation. The aim of the consultations is to assess potential deficiencies within the SFDR. More specifically, these consultations seek feedback on the following key areas:

Board disclosure requirements for financial market participant

  • Assessing the possibility of removing entity-level disclosures.
  • Exploring the interaction of product categories with the current disclosure regime.
  • Considering sustainability disclosure requirements for all funds, regardless of their sustainability claims.
  • Examining additional disclosures and the potential for lighter disclosures for certain investments.
  • Evaluating amendments to the current location of SFDR information (i.e. pre-contractual disclosures, periodic disclosures and website disclosures).

Product-level vs. entity-level disclosures

  • Discussing whether product-level disclosures should be independent of entity-level disclosures.
  • Exploring the idea of expressing product-level disclosures on a sustainability scale (e.g. how “green” the products are)

Establishment of a categorisation / labelling system for financial products

This follows the recognition that the SFDR has been employed as a labelling tool, contrary to its original design as a disclosure framework.

The Commission outlines two broad strategies here:

  1. Expanding on the existing distinction between Articles 8 and 9 and the related concepts such as E/S characteristics, sustainable investment, or 'Do No Significant Harm' (DNSH).
  2. Establishing a product classification system based on an alternative approach. In this scenario, concepts like E/S characteristics or sustainable investment, as well as the distinction between current Articles 8 and 9 of the SFDR, might potentially be excluded from the framework altogether. This approach would be more akin to the approach proposed by the UK FCA’s SDR.

Product Names and Marketing Communications

The questions in this section of the consultation focus on naming and marketing rules and explore rules to prevent misleading fund names and marketing communications.

The consultations are open until 15 December 2023, after which the Commission will analyse the feedback received and will communicate on the next steps.

European Parliament approved EU Green Bond Standard

European Parliament approved [16] political agreement on the EU Green Bond Standard. The Regulation is now subject to the final endorsement by the Council, which is expected to take place in the coming weeks, before it can be published in the EU’s Official Journal and enter into force 20 days following the publication. The Standard will apply 12 months following the entry into force i.e. during Q4 2024/Q1 2025.

European Union to ban unsubstantiated climate-neutral claims by 2026

The EU is set to prohibit sweeping environmental claims, such as “climate neutral” or “eco”, by 2026 unless companies can substantiate the accuracy of such assertions [17]. This move is part of the EU’s efforts to combat the deceptive practice of greenwashing in consumer product marketing.

The newly established regulations, which were agreed upon in September, will also prescribe claims founded on emissions offsetting – a common basis for asserting that products are carbon neutral or have a reduced environmental footprint. Additionally, green labels not originating from approved sustainability schemes will be banned.

ECB published paper on climate stress testing of financial institutions

The ECB has published an occasional paper [18] setting out the results of its second economy-wide climate stress test, following its first economy-wide stress test exercise in September 2021.

The paper introduces three short-term transition scenarios (i.e. an accelerated transition, a late push transition and a delayed transition) and sets out the impact of these scenarios on euro area financial institutions over the next eight years. The paper concluded several results, including that:

  • Both the accelerated and the delayed transition scenarios would increase banks’ expected losses and provisioning needs in the short to medium term, but would not seem to generate financial stability concerns for the euro area.
  • The transition impact would be highly heterogeneous across economic sectors, with the largest tail risk for expected losses being experienced if the transition were to happen late and abruptly.
  • The findings of other jurisdictions’ climate stress tests align with the results of this current exercise.

ESAs analysed voluntary disclosures of principal adverse impacts under the SFDR

The Joint Committee of the three European Supervisory Authorities (European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and ESMA – the ESAs) have published [19] its second annual report on the extent of voluntary disclosure of principal adverse impacts under Article 18 of the SFDR.

The results show an overall improvement compared to the previous year, although there is still significant variation in the extent of compliance with the requirements and in the quality of the disclosures.

In particular, the ESA note that when financial market participants do not consider principal adverse impacts, there should be a better explanation for not doing so.

ESMA published its Work Programme 2024 with focus on the green transition

The European Securities and Markets Authority (ESMA) has published [20] its work programme for 2024. ESMA states that, in 2024, it will develop rules for sustainable finance as part of the new European Green Bond Regulation and will deliver its final report on greenwashing.

North America

New climate disclosure rules passed in California

California passed two landmark bills that will impose mandatory climate-related reporting requirements for US companies operating in the state:

  1. The Climate Corporate Data Accountability Act; requiring companies with $1bn+ revenue to report Scope 1 and 2 greenhouse gas (GHG) from 2026 and Scope 3 from 2027 [21].
  2. The Climate-Related Financial Risk Act, requiring companies with $500m+ revenue to report climate-related financial risks pursuant to TCFD recommendations, beginning 2026 [22].

California Governor Gavin Newsom has since signed the measures into law (enacted on 7 October) [23]. The bills will have a profound impact on companies doing business in California, with disclosure requirements going beyond the requirements of the SEC’s proposed climate-related disclosure rule.

SEC adopted amendments to the funds “Names Rule” (asset management)

The US Securities and Exchange Commission (SEC) adopted amendments to the rule regarding registered fund names (“Names Rule”) [24]. The approved changes will expand the number of funds required to invest 80% of their assets in alignment with the fund’s focus as conveyed by its label.

This will include “terms indicating that the fund’s investment decisions incorporate one or more ESG factors”. The funds will need to disclose each quarter how they define terms and select investments in line with their name.

US Treasury published the principles for net-zero financing & investment 

The US Department of the Treasury published the principles for net-zero financing & investment (the Principles) [25]. The Principles establish that financial institution net-zero commitments should be in line with limiting the increase in the global average temperature to 1.5°C. They affirm that financial institutions that have made these commitments should develop transition plans with clear practices, targets, and metrics. And, that they should support their clients and portfolio companies in adopting their own transition plans. 

Simultaneously, a number of announcements from civil society were made including a $340 million commitment by leading philanthropic organisations to support the development capacity and capabilities intended to help financial institutions develop and execute robust, voluntary net-zero commitments. GFANZ announced that more than 50 US financial institutions will publish net-zero transition plans over the next year using the voluntary common frameworks developed by GFANZ. The Partnership for Carbon Accounting Financials (PCAF) plans to publish the first-ever standard for facilitated emissions later this year.

For those looking to discuss any of the above further, please reach out to our authors:


[1] Taskforce on Nature-related Financial Disclosures (TNFD) Recommendations

[2] NGFS publishes Conceptual Framework for Nature-related Financial Risks at launch event in Paris

[3] GFANZ Launches Consultation on Transition Finance Strategies and Measuring the Impact on Emissions

[4] Transition Plan Taskforce Disclosure Framework 2023

[5] Transition Plan Taskforce Summary Recommendations

[6] The TPT Disclosure Framework in the Global Landscape

[7] Legal considerations for transition plan preparers using the TPT Disclosure Framework

[8] Build Your Transition Plan

[9] FCA welcomes the launch of the Transition Plan Taskforce Disclosure Framework

[10] Portfolio letter: Wholesale banks portfolio analysis and strategy forum

[11] FCA Diversity and inclusion in the financial sector – working together to drive change

[12] Green Technical Advisory Group publishes final advice paper as HMG prepares to consult market

[13] PM recommits UK to Net Zero by 2050 and pledges a “fairer” path to achieving target to ease the financial burden on British families

[14] Targeted consultation on the implementation of the Sustainable Finance Disclosures Regulation (SFDR)

[15] Sustainable Finance Disclosure Regulation - assessment

[16] Greening the bond markets: MEPs approve new standard to fight greenwashing

[17] EU to ban greenwashing and improve consumer information on product durability

[18] The Road to Paris: stress testing the transition towards a net-zero economy

[19] On the extent of voluntary disclosure of principal adverse impacts under SFDR

[20] 2024 Annual Work Programme

[21] Greenhouse gases: climate-related financial risk

[22] Office of the Governor letter

[23] Climate Corporate Data Accountability Act

[24] Securities and Exchange Commission Final Rule 

[25] Principles for Net-Zero Financing & Investment

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