TNFD – making it real in financial services

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Wolfram Hedrich
11 Apr 2023 PDF
Subject Financial Services Technical Resources
Categories Sustainability reporting Financial instruments
Jurisdictions Asia-Pacific

Results of Asia-Pacific pilot of the TNFD LEAP framework and how organizations can get started on the TNFD.

When the Taskforce on Nature-related Financial Disclosures (TNFD) framework is ready in September 2023, investors and other stakeholders will expect financial services organizations and corporates to be identifying, managing, and reporting on nature-related risks and opportunities.

Following the release of version 0.2 and subsequently version 0.31 of the TNFD beta framework in 2022, EY financial services teams in Asia-Pacific began a six-month market engagement and pilot testing process. Heads of ESG and sustainability from 70 financial institutions representing five countries and regions participated in initial awareness sessions, and 12 financial institutions and three corporates joined workshops to provide feedback on the elements of the TNFD LEAP (Locate, Evaluate, Assess, Prepare) framework.

This report is the detailed output from that pilot testing initiative.

The pilot has made it clear that many Asia-Pacific institutions need to rapidly accelerate their biodiversity risk assessment capabilities. While challenging, our pilot shows it is possible to get started now.

Specifically, the project developed 11 clearly defined and tangible use cases relevant to the financial and corporate sectors and the natural world in Asia-Pacific. These use cases provide tangible direction to lenders, insurers, investors, and corporates to help them advance their nature-positive agenda.

Who is this report for?

Financial institutions and corporates
  • Learn how peers experienced the LEAP framework and their detailed suggestions for implementation.
  • Leverage the use cases from the pilot in your own organization, supported by step-by-step EY guidance on how to get started.
Regulators, authorities, standard-setters and guidance bodies
  • Access 13 detailed accelerators nominated by participants in the pilot to support uptake in the financial and corporate sectors, to improve the outcomes for all participants in TNFD adoption.
TNFD
  • Consider feedback from participating financial institutions on the LEAP framework and TNFD guidance.
  • Benefit from the unique use case approach developed by EY to increase the usability of the TNFD LEAP process in real-world situations.

Summary of report topics and findings

  • Background

    • Halting and reversing nature loss is essential to prevent human and economic catastrophe.
    • To prevent ecosystem collapse and support the world’s 1.5C target, we need US$11 trillion nature- positive investment from 2022 to 2050.
    • Financial institutions and investors must understand the biodiversity footprint of companies, to align and direct resources toward financing the Global Biodiversity Framework announced at COP15.
    • The opportunity for financial services is to work through nature risk simultaneously with climate risk.
    • Institutions should begin a staged approach with six key actions.

  • Pilot testing the TNFD beta framework in Asia-Pacific

    • The TNFD’s risk management and disclosures framework will support a shift in global financial flows toward nature-positive outcomes.
    • The framework is being developed using an open innovation approach, involving pilot testing a series of prototypes.
    • In 2022, EY teams began a widespread pilot testing initiative in Asia-Pacific, covering financial and corporate sector participants from Singapore, Hong Kong, Taiwan, Australia and New Zealand.
    • A total of 70 organizations joined roundtable series and 15 organizations committed to providing feedback to the TNFD framework and sharing challenges and opportunities to perform the TNFD LEAP.

  • Feedback on the TNFD framework

    • Pilot testing participants provided feedback on each scoping question and LEAP component, their experience of applying the framework, key challenges of applying the LEAP and what would be needed to perform and accelerate their LEAP assessment.
    • General feedback on questions and components included: ensuring questions reflect the financial sector’s direct and indirect exposure, clarifying in which case the “Locate” stage can be avoided while still maintaining the integrity of the LEAP approach and matching LEAP questions to the chosen scope and level of the analysis.
    • Stumbling blocks included: conducting LEAP at scale, the lack of spatial data for assets and ecosystem interaction data, challenges in defining boundaries and aggregating results of the assessment.
    • Suggested accelerators included: reliable and independent nature data sources and an official priority location list, tools and registers to ensure completeness of dependencies and impacts assessments, standardized metrics and clear targets for the region, and training and skills uplift.

  • Use cases and their application for pilot testing

    • The project developed 11 “use cases”, creating practical examples for assessment in each LEAP component.
    • Use cases were chosen for their relevance for a wide range of financial institutions based on industry exposure and nature-related relevance based on locations and sectors.
    • The use cases are useful to support the actual application of the LEAP process.
    • Feedback from participants was highly positive. However, the use cases should be further enhanced to help develop dependencies and impacts, with risk registers that ensure more comprehensive assessments at the sector level.

  • Call to action for the financial sector

    • Asia-Pacific organizations should start preparing now for TNFD adoption, including by assessing exposure, building skills and engaging with data providers.
    • One company’s approach is provided as a case study by abrdn.
    • A staged approach is ideal to help get started with the TNFD LEAP assessment, beginning with an initial hotspot analysis by sector and geography before extending to portfolio-level analysis, company-level analysis and gradually enhancing granularity and integrating with risk management.
    • Given the region’s high concentration of biodiversity and economic reliance on nature, Asia-Pacific’s pilot testing should be expanded to include more sectors and countries.
    • Additional use cases should be developed to support this process.
Those wishing to get ahead of the curve have important opportunities to act now to start preparing for TNFD adoption.
Wolfram Hedrich
Partner, Financial Services Consulting, Ernst & Young Advisory Pte. Ltd.

  • Show article references#Hide article references

    1. In March 2023, the TNFD released version 0.4 of the framework. ,The over-riding findings and points of view in the pilot report are not impacted by the v0.4 updates. The suggested steps to get started on the TNFD as well as the use case examples continue to be relevant.

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