Boards Must Address Natural Risks in Governance: Guidelines Provided
The Taskforce on Nature-related Financial Disclosures (TNFD) has released a new guide titled "Asking Better Questions on Nature," aimed at helping board directors and executives better understand and manage nature-related risks and opportunities within a financial and business context.
The guide's purpose is to make nature-related factors visible and integral to decision-making, shifting the mindset from seeing nature as a constraint to recognizing it as a critical element of long-term business sustainability and value creation.
The main points of the guide include encouraging nature visibility in decision-making, promoting a systematic assessment and disclosure of nature-related risks and opportunities, advocating for a long-term, multi-capital perspective, suggesting practical governance questions, and emphasizing the need to change the corporate mindset towards nature.
Directors are encouraged to ask informed questions that reveal how their organizationโs operations, supply chains, and broader business model depend on and impact nature, moving beyond short-term financial returns to consider long-term sustainability on a functioning planet. The guide aligns with the TNFD framework, urging companies to conduct nature-related risk and opportunity assessments with rigor comparable to climate-related disclosures.
The guide also promotes frameworks like TNFDโs LEAP approach and others for integrated decision-making that accounts for multiple forms of capital (natural, social, financial) and intergenerational impacts, rather than focusing solely on short-term financial metrics. It suggests a set of targeted questions boards should ask to understand how nature risks could affect financial value and how their organization manages impacts, dependencies, and opportunities related to biodiversity and ecosystem services.
The importance of this guide lies in its ability to empower directors to integrate nature considerations into governance, building awareness of nature-related financial exposures and guiding more sustainable decision-making aligned with the growing importance of biodiversity and ecosystem health in global economic systems.
Failure to address foreseeable and financially material nature risks could expose directors to breach of fiduciary duty, especially in jurisdictions where double materiality is becoming codified. Ian Hudson, a TNFD Taskforce Member, emphasized that nature-related considerations are not symbolic and should be taken seriously, with companies changing their operations as a result.
As of now, close to 20 trillion dollars in assets under management (AUM) are already aligned with the TNFD, underscoring the growing recognition and importance of addressing nature-related risks and opportunities in corporate governance. The TNFD's guide is a significant step towards ensuring that nature is no longer overlooked in financial decision-making, paving the way for a more sustainable and resilient future.
- The Supervising committee members might find it beneficial to examine the extent to which their organization's activities and supply chains affect and are affected by nature, transcending short-term financial gains to focus on long-term sustainability on Earth.
- Science, particularly environmental science, can provide valuable insights to help board directors and executives better understand and manage nature-related risks and opportunities within a financial context.
- The TNFD's new guide, "Asking Better Questions on Nature," excels in promoting the incorporation of various forms of capital (like natural, social, financial) and intergenerational impacts in decision-making, shifting the focus away from just short-term financial metrics.
- The casino and gambling industry, as well as businesses in other sectors, should take note of the growing importance of nature-related risks and opportunities in global economic systems and consider adopting the TNFD's guidelines for more sustainable decision-making.
- boards should be asking questions about how nature risks could impact financial value and how their organization manages dependencies, impacts, and opportunities relating to biodiversity and ecosystem services, as recommended by the TNFD guide.
- Education and self-development on the topic of nature-related financial risks can help directors fulfill their fiduciary duty by ensuring they are aware of material nature-related financial exposures and making decisions that promote environmental stewardship and financial stability.
