If there is anything that makes the just-concluded G7 Summit held in Cornwall relevant to Asia in terms of sustainability, it’s the agreement by the heads of state of the most developed countries to support mandatory risk disclosure requirements for institutional investors and corporates in adherence with the Taskforce on Nature-related Financial Disclosures (TNFD).

Similar to the Task Force on Climate-related Financial Disclosures (TCFD), the goal of the TNFD is “to provide a framework for organizations to report and act on evolving nature-related risks, to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes”, according to the Proposed Technical Scope report published on June 4 by the Informal Technical Expert Group in support of the Informal Working Group (IWG) for TNFD.

The report was developed over nine months through a process of deep-dive discussions and consultations with IWG members and other stakeholders, and it sets out the recommendations for what should be included in the technical scope of the TNFD.

On June 7, G7 support for the the TNFD was formalized in a communique issued by the G7 finance ministers and central bank governors in meetings held in London before the summit of the heads of states from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

While disclosure of financial risks related to climate change are easier to understand and appreciate in the context of financial reporting, the TNFD goes one step further by making corporates and institutions recognize how their businesses and the companies they invest in impact “nature” and what they need to do to minimize the negative impact. The ultimate objective is to drive investments towards businesses and companies that have a more positive impact on the environment.

Disclosure of nature-related risk has become more relevant as the understanding of environmental risks in general move beyond those just related to climate change.

The TNFD aims to deliver a framework for by 2023 for organizations to report and act on nature-related risks. The framework will address both how nature may impact an organization and how it impacts nature.

Similar to the TCFD, the TNFD framework will adopt a four-pillar approach structured around how organizations operate, focusing on governance, strategy, risk management, and metrics and targets.

The TNFD, however, acknowledges that the use of the term “nature-related risks and opportunities” should broadly refer to the risks and opportunities relevant to an organization posed by the linkages between its activities and nature.

In addition to shorter-term financial risks, this includes longer-term risks represented by its impact and dependencies on nature. This means organizations should disclose not just how nature may (positively or negatively) impact the organization’s immediate financial performance (“outside in”), but also how the organization (positively or negatively) impacts nature (“inside out”).

“While progress has been made in many sectors to account for and report on risks associated with nature, this has not resulted in changes that address the currently large scale of nature loss,” the report states. “Many non-financial companies and financial institutions have begun to consider the role of nature in their operations and financing, but there is not yet consensus around a consistent and comprehensive framework to evaluate and manage exposure to the financial risks and opportunities resulting from nature.”

The TNFD has 30 members coming from financial institutions, corporates, with equal representation from developed and emerging markets.

Attendees of the G7 summit are UK Prime Minister Boris Johnson, the current chairman;  US President Joe Biden; Canadian Prime Minister Justin Trudeau; Japanese Prime Minister Yoshihide Suga; French President Emmanuel Macron; German Chancellor Angela Merkel; Italian Prime Minister Mario Draghi; and European Union (EU) commission President Ursula von der Leyen and EU council President Charles Michel.