Piloting Nature-Related Financial Disclosures in Australia

Challenge

Businesses overlook their impacts on nature, creating physical, transition, and systemic risks that hinder climate-adaptive investment decisions.

Solution

Develop and pilot a framework to manage nature-related financial risks and direct capital toward nature-positive, climate-adaptive outcomes.

Overview

The global economy depends on nature for ecosystem services ranging from food production to clean water. However, businesses often fail to account for their dependencies and impacts on nature. This creates physical risks such as resource scarcity and extreme weather events, transition risks such as policy changes and shifting consumer preferences, and systemic risks such as biodiversity loss and ecosystem collapse.

The lack of standardized, comparable nature-related disclosures makes it difficult for investors and stakeholders to assess these risks, hindering informed decision-making and impeding capital flows toward nature-positive and climate-adaptive activities.

The Taskforce on Nature-related Financial Disclosures (TNFD) was established in 2021 to address this gap with a framework for nature-related financial disclosures. The TNFD framework provides a structured approach for organizations to assess and disclose their nature-related dependencies, impacts, risks, and opportunities, built on four pillars:

1. Governance and management
2. Strategy
3. Risk and impact management
4. Metrics and targets

Pilot projects are being conducted globally to test and refine the framework, with the Department of Climate Change, Energy, the Environment and Water (DCCEEW) leading a pilot in Australia.

The five sector use cases

The Australian pilot project focuses on five national value chain use cases:

• Agriculture: Addressing risks such as water scarcity, soil erosion, and biodiversity loss, which directly impact food security and climate resilience.
• Mining: Examining impacts related to water pollution, land degradation, and biodiversity loss, with a focus on long-term environmental restoration and adaptation.
• Forestry: Addressing challenges such as deforestation, forest fires, and biodiversity impacts, and emphasizing sustainable forestry management as an adaptation measure.
• Energy: Assessing risks and opportunities related to climate change, water pollution, and biodiversity, in line with the transition to resilient energy infrastructure.
• Infrastructure: Considering impacts related to flooding, landslides, and habitat disruption, and integrating nature-based solutions to build climate resilience.

How the framework pilots work

The pilots involve working with businesses across these sectors to apply the TNFD framework, identify relevant metrics, and develop robust disclosure practices. The process includes workshops, data collection, scenario analysis, and stakeholder engagement.

This collaborative approach aims to build capacity within organizations and contribute to practical guidance for implementing TNFD recommendations while embedding climate adaptation strategies into corporate decision-making.

Anticipated outcomes

Participating organizations will gain a clearer understanding of their nature-related and climate adaptation risks, enabling more effective mitigation and adaptation strategies. The process should also encourage businesses to integrate nature and climate considerations into strategic decision-making, leading to more sustainable and adaptive business models.

Companies that demonstrate a commitment to nature-related transparency may attract investment from environmental, social, and governance (ESG)-conscious investors, potentially lowering their cost of capital and facilitating financing for adaptation measures.

Improved disclosures will also give stakeholders better information on companies’ environmental performance, building greater accountability and trust. The learnings from the Australian pilot will inform the ongoing development of the TNFD framework and contribute to global best practices for nature-related financial reporting and adaptation planning.

Outlook for the TNFD framework

The way forward involves sharing results and lessons from the pilot with businesses, investors, and policymakers, and creating practical guidance to support TNFD implementation. Training and education programs will build understanding of nature-related and climate adaptation risks. Meanwhile, policy alignment will examine how government policies can support and incentivize TNFD adoption, potentially through regulatory requirements or other mechanisms that promote climate adaptation investments.

Acknowledgements

This report is based on publicly available information from the Australian Government Department of Climate Change, Energy, the Environment and Water (DCCEEW). Acknowledgement is given to the organizations and researchers that made this knowledge accessible.  Reported by IGES, edited and updated by AP-PLAT.

Related Links / References

• Australian Government, Department of Climate Change, Energy, the Environment and Water (2023):
  Taskforce on Nature-related Financial Disclosures – Pilots – Australian Case Study