Nature-related disclosures are coming – are you preparing?

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At this point, you have already seen all kinds of figures valuing the stock of UK natural capital, the rapid pace of decline of biodiversity, the proportion of global services dependent on nature, or the economic value of the ecosystem services we receive for free. This article takes a more pragmatic approach – and tells you exactly why nature-related risks and natural capital should be on your radar. 

The UK Environmental Improvement Plan – legally binding targets on biodiversity 

According to the Zoological Society of London (ZSL), biodiversity includes the diversity of ecosystems and species, as well as the diversity within species. The loss of nature and biodiversity is a systemic risk affecting everything and everyone – and it compounds the effects of climate change significantly. 

Biodiversity and nature loss were at the heart of COP15, which took place in December 2022 and saw 196 countries agree a Global Biodiversity Framework. As a result, governments have committed to mobilising billions of capital in each country every year. 

The UK government outlined an environmental and economic vision for the UK in March 2023. The Environmental Improvement Plan sets out a ‘world-leading, legally binding target in England to halt species decline by 2030; then to reverse the decline by 2042.’ There are also ‘legally binding targets to reduce the risk of species extinction […] and restore or create more than 500,000 hectares of wildlife-rich habitat’, through 70 new projects. The plan also includes a roadmap for improving water efficiency, reducing pollution and waste, as well as financing better farming and forestry practices. 

TCFD disclosures augmented with TNFD additions 

The Pensions Regulator made it mandatory for schemes over £1bn to provide climate metrics aligned with the recommendations of the Taskforce for Climate-Related Financial Disclosures (TCFD) in October 2022. There is an ongoing consultation about local government pension schemes (LGPS) also providing mandatory reporting. Toby Okoli, a summer intern at mallowstreet, points out that the largest 23 pension schemes in the UK already produce TCFD reports. 

The Taskforce for Nature-related Financial Disclosures (TNFD) may sound like a ‘new kid on the block’ (and yet another acronym), but in fact has been operational since 2021. The TNFD framework takes its inspiration and approach from TCFD recommendations. The idea is that biodiversity and nature-loss data should, and eventually will complement companies’ existing climate disclosures. In other words, those who report against TCFD requirements will be able to use their existing TCFD governance framework and augment it by adding nature-related risks and opportunities. 

The full and final TNFD framework should be published in September 2023 and will be voluntary to adopt. However, the Financial Conduct Authority (FCA) plans to consult on making TNFD mandatory shortly thereafter, and this is far from the only supervisory initiative focusing on corporate biodiversity disclosures. 

Nature-related disclosures – and the new metrics to consider 

Corporate issuers, asset managers and asset owners will likely be expected to follow a LEAP approach to get started with nature-related risks and opportunities: 

Like TCFD, the TNFD framework has several key components: 

Metrics and targets will be key for the UK institutional investor community – as we have seen with TCFD, making disclosure and reporting mandatory has helped redirect capital to solutions, so it is likely that TNFD adoption will follow a similar pathway. TNFD metrics are aligned with the five key drivers of biodiversity loss, which different sectors will either exert a high impact or be highly dependent on: 

The core impact disclosure metrics proposed by TNFD, on which targets will be based, include: 

Translating TNFD into familiar practices 

Expecting this on the regulatory track, we asked UK pension trustees about their progress on nature-related risks – but as the Trustee Report 2022 has revealed, they are not on the radar yet. 


As with climate change and the resulting risks and opportunities, investors will likely need to repeat the usual steps but with natural capital in mind: 

Themes to consider, be in in risk management, target setting, engagement or investments, include: 

Encouragingly, our intern Toby Okoli also highlights that the DB Climate Risk Report, which mallowstreet produced in partnership with AXA Investment Managers in 2020, shows that 75% of schemes with an endgame longer than 10 years are interested in investing in biodiversity protection. There is also strong interest in sustainable agriculture and water management. Most importantly, green bonds are a way for schemes with significantly shorter time horizons to still play a role. 


What’s next for asset managers? 

According to a survey by ShareAction, 73% of asset managers conduct research on biodiversity risk, but few of them use the data to inform their policies, targets or asset allocation. This will undoubtedly start changing as the TNFD framework is adopted first voluntarily, but likely also as a mandatory requirement for many institutional investors. To prepare for this, mallowstreet is planning an in-depth research project to assess current practices, sentiment and challenges around nature-related investing. Contact us if you would like to become a research partner and play a central role in the evolving industry discussion.

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