Latest / PwC's accounting podcast / Talking ESG: TNFD launches a final nature reporting framework

Transcript

Talking ESG: TNFD launches a final nature reporting framework · PwC's accounting podcast

• 0:00
  SPEAKER_02: Thought leadership from PWC.
• 0:06
  SPEAKER_02: The key thing I would say is you don't want to let perfect be the enemy of the good.
• 0:10
  SPEAKER_02: I think there's a real sense of urgency here.
• 0:13
  SPEAKER_02: I think with nature, it's you know it's happening right now, and we're sort of seeing the effects of that, and it's exacerbated by climate change as well.
• 0:21
  SPEAKER_02: And so, you know, the best thing to do is, you know, to get started right away, to start uh to start the iteration process, to try to start understanding what information is needed.
• 0:32
  SPEAKER_01: Hello.
• 0:33
  SPEAKER_01: Today we're back talking ESG, this time covering the launch of a task force on nature-related financial disclosures, or TNFD framework.
• 0:44
  SPEAKER_01: This is PWC's Accounting Podcast.
• 0:50
  SPEAKER_01: I'm Heather Horn, and thanks so much for joining us today.
• 0:53
  SPEAKER_01: According to a report jointly issued by the World Economic Forum and PWC, up to 58 trillion, or approximately 55%, of global GDP is highly or moderately dependent on nature.
• 1:09
  SPEAKER_01: One organization, TNFD, is coalescing the business community around the need for increased transparency and understanding of how businesses have this dependency.
• 1:21
  SPEAKER_01: Following a similar framework as the TCFD, or Task Force on Climate Related Financial Disclosures, the TNFD is focused on providing organizations with the tools to act on evolving nature-related issues.
• 1:35
  SPEAKER_01: The TNFD recently launched its final framework on September 18th, 2023, at the start of New York Climate Week.
• 1:42
  SPEAKER_01: To unpack what's in the framework and talk about the status of how companies are managing and disclosing nature-related dependencies, we asked Dan O'Brien, who leads PWC's Sustainable Business Advisory Solutions Practice in Western Canada, to join the podcast.
• 1:58
  SPEAKER_01: Dan's also a member of the TNFD, so can give us unique perspective.
• 2:09
  SPEAKER_01: So, Dan, welcome to the podcast.
• 2:11
  SPEAKER_01: I'm so excited to have you on and especially excited for our topic today.
• 2:15
  SPEAKER_01: But before we get into the details, can you just share with the listeners a bit about your background and maybe starting with what you're doing at PWC and then the work you're doing with the task force on nature-related disclosures?
• 2:27
  SPEAKER_02: Yeah, thanks, Heather, and very good to be here as well.
• 2:29
  SPEAKER_02: So I I've been um with PwC for about 15 years now, and um I have kind of a somewhat unique background in that uh I've come more from a science background.
• 2:40
  SPEAKER_02: I've I've studied uh ecology and and done a fair bit of research and work in that space.
• 2:45
  SPEAKER_02: Um, over the years I've I've worked with companies in um environmental risk, uh, understanding how they can under manage that risk and um uh and then you know shifting now into sustainability and and and reporting around sustainability.
• 2:58
  SPEAKER_02: A couple of years ago, I was uh I was asked to represent PwC on the TNFD as a task force member.
• 3:04
  SPEAKER_02: And my role has been to sort of bring insights from you know what we see in industry and and and our clients, but also uh one of the areas that I've I've been focusing on is sort of the interface between sustainability and technology.
• 3:16
  SPEAKER_02: And so that put me in a good position to lead our uh the working group on data and analytics.
• 3:22
  SPEAKER_02: So we we've been um advising on uh some of the challenges and issues around nature-related data, um, you know, what's out there, how these different tools and data sets can be used.
• 3:32
  SPEAKER_02: And uh we also stood up what's called the Data Catalyst Initiative, which uh brought together about, I think there's about 140, 150 data providers that we're bringing together with uh with industry to sort of understand what the use cases are where there's challenges and kind of signal to the market where there's a lot of opportunity in this space.
• 3:50
  SPEAKER_01: All right.
• 3:50
  SPEAKER_01: Well, definitely very interesting.
• 3:52
  SPEAKER_01: And biodiversity is a topic that we've talked about uh previously on the podcast, including a series we did in the spring.
• 3:59
  SPEAKER_01: But I'm sure that notwithstanding those discussions, many of our listeners are wondering if we made a typo and if we're actually uh, you know, not talking about TNFD, but talking about uh financial climate risk.
• 4:15
  SPEAKER_01: And so can you sort of distinguish how TNFD was formed, what really its mission is, and and then obviously some of your involvement as well.
• 4:24
  SPEAKER_02: Yeah, well, I can assure you it's it's not a typo.
• 4:27
  SPEAKER_02: The N is for nature.
• 4:29
  SPEAKER_02: And and maybe just to start off by sort of explaining kind of what the concept is around nature and and how it's being defined.
• 4:36
  SPEAKER_02: Um, biodiversity, which is a you know common term that's that's used almost as a as a proxy for nature, um, is a subset.
• 4:45
  SPEAKER_02: So it represents diversity of life and diversity of ecosystems, which it is really an indicator of the resiliency of ecosystems that we depend on as a society.
• 4:56
  SPEAKER_02: Um but nature is all-encompassing, it encompasses the climate.
• 5:00
  SPEAKER_02: So, in a way, climate and climate change is a is a is an aspect of nature.
• 5:04
  SPEAKER_02: It's also the the the fresh water, the uh the the oceans, the land, um, all of the natural environment that we uh that we depend on.
• 5:13
  SPEAKER_02: And I think the reason why uh TNFD was established was there's a recognition that um we're starting to get to a point where we're seeing uh some of these so-called planetary boundaries that uh represent these natural systems.
• 5:27
  SPEAKER_02: These boundaries are starting to become uh exceeded.
• 5:31
  SPEAKER_02: And we're getting very close to these tipping point scenarios where uh these systems, you know, they could start to break down.
• 5:39
  SPEAKER_02: And we did some work with the the World Economic Forum a few years back and have recently updated that work where we looked at the dependency of our economy, our global economy, on nature, and found that uh more than half or$58 trillion worth of economic activity is materially dependent on nature.
• 5:56
  SPEAKER_02: Meaning if these systems start to break down, it'll result in significant financial impacts.
• 6:01
  SPEAKER_02: And so I think the the capital markets, financial services are starting to wake up to this and understand that there's a significant risk here, but there's a very a lack of information, right?
• 6:11
  SPEAKER_02: So that the TNFD is really about providing a common framework for organizations to better understand their interface with nature and to assess risks and opportunities so that they can effectively communicate in a in a way that uh there's there's consistency and uh and you know meaningful information that uh that investors, that banks, that lenders can can utilize that information to understand how to allocate capital towards nature positive businesses.
• 6:39
  SPEAKER_01: And if we look then at where sort of that your efforts stand, where are we in the cycle in terms of the TNFT and what you're doing?
• 6:49
  SPEAKER_02: Yeah, well, this week we're here in New York at Climate Week and uh very excited to say that they launched the the version one, so the final version of the TNFD uh this week.
• 7:00
  SPEAKER_02: But it's been uh a fairly long journey.
• 7:02
  SPEAKER_02: Um they took a uh kind of a an iterative approach to develop the TNFD.
• 7:07
  SPEAKER_02: And it was initially uh established as a market-led initiative, meaning that the task force members, the ones that are have significant input into the task, uh, into the TNFD, are made up of financial institutions, they're made up of corporates and professional services.
• 7:23
  SPEAKER_02: So the idea is that let's develop a framework that is actually uh can be applied and can be utilized by by businesses.
• 7:31
  SPEAKER_02: And so they they took an iterative approach.
• 7:34
  SPEAKER_02: They released four beta versions beforehand.
• 7:37
  SPEAKER_02: And each time uh the beta versions were released, they welcomed feedback and input from the market in terms of what's working and what's not.
• 7:46
  SPEAKER_02: And uh I think David Craig, the co-chair, had done a back-of-the-envelope calculation and estimated almost 400,000 hours of time that went into the development of this framework in terms of companies that were piloting it and providing feedback and the task force members.
• 8:00
  SPEAKER_02: So, you know, it represents a significant amount of effort from the market to develop a framework for industry to report out on nature.
• 8:09
  SPEAKER_01: So if I think about TCFD, and you know, many of our listeners will be very familiar with that.
• 8:15
  SPEAKER_01: And in fact, actually, I also recorded this morning an audio of our publication that's talking about the California rules requiring TCFD disclosures.
• 8:25
  SPEAKER_01: And in that, there are the 11 recommendations that TCFD has across the different pillars.
• 8:32
  SPEAKER_01: It what is sort of the equivalent that you are seeing in TNFD?
• 8:36
  SPEAKER_01: And obviously, people need to read the framework, but what are some of the highlights people should look for?
• 8:42
  SPEAKER_02: So, one of the key design principles of the TNFD was to bring it into alignment with existing frameworks, including the TCFD.
• 8:50
  SPEAKER_02: And uh you'll you'll see that when you look at it, that uh the the recommendations, all 11 TCFD recommendations are there.
• 8:58
  SPEAKER_02: Uh, you know, change the word climate for nature and you'll see it's there.
• 9:01
  SPEAKER_00: Yeah.
• 9:02
  SPEAKER_02: Um there's also an additional three disclosure requirements, which uh one is around engagement with stakeholders, uh, ensuring that you're taking into consideration indigenous people, local communities, and affected stakeholders when you're looking at nature uh issues and assessing risk.
• 9:20
  SPEAKER_02: There's also uh uh disclosure requirements around location specificity.
• 9:24
  SPEAKER_02: So nature is very you know context specific, very location specific.
• 9:29
  SPEAKER_02: And so that's that's another aspect that's uh that's additional.
• 9:32
  SPEAKER_02: But um you know, the the recommendation is that if you're already reporting on TCFD, it shouldn't be much of a leap to integrate TNFD into your report because you've probably got most of the the you know, most of the structures in place around governance, around risk assessment, is just adapting them to incorporate nature.
• 9:52
  SPEAKER_02: So, you know, that was a that was a key design feature.
• 9:54
  SPEAKER_02: You'll see that it also aligns really well with the ISSB S1 standard, for example, as well.
• 10:00
  SPEAKER_02: So I think there's there's been sort of general acknowledgement that it it it it aligns well with uh with all of the reporting standards, the the emerging regulations, et cetera.
• 10:11
  SPEAKER_01: So yeah, so interoperability has been like a buzzword, obviously in the sustainability ward but some world, but something we spent a lot of time on here on the podcast.
• 10:21
  SPEAKER_01: And so what you're saying there is this is designed to integrate and to be interoperable with the other standards that are out there.
• 10:29
  SPEAKER_01: Is that a fair statement?
• 10:31
  SPEAKER_02: Exactly, yes.
• 10:32
  SPEAKER_01: So if I rewind then and think about, again, helping people sort of leverage their TCFD knowledge, I think there's a shorthand for climate.
• 10:43
  SPEAKER_01: Well, if we reduce greenhouse gas emissions, then everything else will take care of itself.
• 10:49
  SPEAKER_01: And people are able, you're able to quantify that, you look at relative numbers and otherwise.
• 10:55
  SPEAKER_01: And nature feels more nebulous, but do we have any equivalent types of metrics that you would say are sort of core to nature, or does it really come down to more the specifics of an individual company and they're not necessarily comparable across companies?
• 11:13
  SPEAKER_02: Yeah, well, for those that are familiar with climate and climate-related reporting, you know, there are similar concepts around mitigation and abatement and uh adaptation and resiliency, right?
• 11:25
  SPEAKER_02: So, and if you think about it, uh, you know, climate change is an impact driver for nature as well.
• 11:33
  SPEAKER_02: So other types of impact drivers are um degradation and land use change over use of resources, invasive species, and and and pollution.
• 11:44
  SPEAKER_02: So in the same way that you have um abatement for climate in terms of reducing emissions, you're also, you know, it, you know, there's there's there's the reduction of the impact driver.
• 11:55
  SPEAKER_02: So that might be reducing pollution levels, or it might be reducing uh land cover change or or overuse of a particular resource, right?
• 12:04
  SPEAKER_02: And then there's also on the resiliency side, um, similar uh, you know, there's analogy, uh analogous processes there.
• 12:11
  SPEAKER_01: And then if I take a step back and think about the uh COP last year that was in Montreal, and you know, there's the 30 by 30 and initiative, uh, does that well first do you mind explaining to our listeners a big picture what that is?
• 12:26
  SPEAKER_01: And then does that how does that fit in here?
• 12:28
  SPEAKER_02: Definitely.
• 12:29
  SPEAKER_02: Um and again, uh what you're referring to is the global biodiversity framework that was established um at COP 15 in in Montreal, the Kungming Montreal Global Biodiversity Framework.
• 12:39
  SPEAKER_02: Um, so so the same way you have the Paris Climate Accord for climate change, the GBF Global Biodiversity Framework kind of represents that that global initiative where you have um you know several hundred countries that have committed to these specific targets.
• 12:55
  SPEAKER_02: Uh so the 30 by 30, as you referenced, is a is a target around um conservation of land and and oceans, 30% by 2030.
• 13:04
  SPEAKER_02: Um there's also a target around corporate reporting and financial institution reporting.
• 13:09
  SPEAKER_02: And so now you know the signatories of the GBF, they're gonna have to start driving action throughout their economy.
• 13:16
  SPEAKER_02: And the idea with the TNFD is this framework you know also aligns with the GBF.
• 13:21
  SPEAKER_02: So it'll hopefully help countries to uh assess and understand the extent to which the economy is aligning with the GBF and help them to communicate their progress on the goals that they've agreed to.
• 13:32
  SPEAKER_01: All right, very helpful.
• 13:34
  SPEAKER_01: And then again, taking a step back, if I think about, I think you mentioned there are four uh beta versions before you put this out.
• 13:42
  SPEAKER_01: Are there any particular aspects of it that you would highlight as being more contentious, or maybe that may be of more interest to our listeners just because maybe there's the more uh dynamic nature or otherwise?
• 13:54
  SPEAKER_02: Yeah, I would say one of the more contentious areas was the recognition that uh that when it comes to nature, you can't look at nature without considering the indigenous people, the local communities, the stakeholders, the people who live in the area where you know nature is being impacted, and that they're they're a critical component of the assessment.
• 14:15
  SPEAKER_02: And so the TNFD went to great length to engage with these groups to understand how and and what their concerns were, how they wanted to be uh engaged with and taken into consideration in in this kind of an assessment.
• 14:30
  SPEAKER_02: And so that um that particular disclosure requirement was was originally, I think, in the strategy section, but it got moved up into governance to sort of recognize the importance of the governance around that process and how stakeholder engagement is factored into the materiality assessment approach.
• 14:49
  SPEAKER_02: The other area I think that maybe not contentious, but there's a you know a recognition of the significance of it, but also the the complexity and the and the challenge is is the value chain aspect.
• 15:00
  SPEAKER_02: So not just understanding your nature, dependencies and impacts and the risks and opportunities of your direct operations, but that of your value chain as well.
• 15:09
  SPEAKER_02: And I think there's a there's a huge, you know, there's recognition there that that's going to be a challenge because getting the data that you need to assess your value chain is going to be a uh you know quite quite difficult.
• 15:20
  SPEAKER_02: Although I think as more and more companies start to adopt the TNFD and start to ask for this kind of information, it will start to flow and become available.
• 15:28
  SPEAKER_02: So, you know, the recommendation is you know, just get started.
• 15:31
  SPEAKER_02: If not people get started, then you know the the snowball effect will get the right.
• 15:35
  SPEAKER_02: Yeah, critical mass, right?
• 15:37
  SPEAKER_01: Momentum for that.
• 15:38
  SPEAKER_01: But it's very interesting.
• 15:39
  SPEAKER_01: You mentioned the value chain because again, I feel like people, you know, I have there's increasing recognition of the importance of the value chain.
• 15:47
  SPEAKER_01: We talk about human rights, human capital, and otherwise, this is just another aspect of it.
• 15:51
  SPEAKER_01: And as you talk to companies and clients about TNFD, nature disclosures, biodiversity disclosures, is there a sense of sort of and I hate to use this for it, but almost fatigue, like there's too much to do.
• 16:06
  SPEAKER_01: This is just another thing on the list, or where would you say this is in terms of how companies are thinking from a priority perspective?
• 16:14
  SPEAKER_02: Yeah, I I think there is a little bit of trepidation that, oh no, not another framework that we have to, another standard that we have to look at here.
• 16:23
  SPEAKER_02: But I would also say that you know, a lot of companies that operate in in the natural resources sector that uh uh are dependent, you know, directly dependent on on nature, this is actually nothing new to them.
• 16:35
  SPEAKER_02: They they actually have you know a huge amount of information and and they they are already, for the most part, incorporating these kinds of risks into their enterprise risk management, and they have management systems that they've established.
• 16:47
  SPEAKER_02: And so for those companies, it's it's a matter of really looking at what what they're already doing and you know realizing they're probably 70 or 80 percent of the way there, and it's just adapting how they're talking about this, maybe putting in place some additional governance and processes to to address the um the requirements, maybe calculating and and and reporting on some different metrics.
• 17:09
  SPEAKER_02: But I think where where it'll probably be quite a challenge is in in financial services, right?
• 17:15
  SPEAKER_02: You know, there are already you know recognition that certain sectors are higher risk, uh, you know, with certain commodities, you know, there's there's already issues around things like modern slavery and and human rights issues.
• 17:27
  SPEAKER_02: So there's sort of a uh a number of these types of um sustainability issues that are about understanding your value chain and where that risk lies, that uh I think the fact that they're coming sort of together at the same time will hopefully um help to speed up the adoption by financial services because you know if you're if you're trying to understand the the the risk of um you know child labor or forced labor in a supply chain or or within certain clients, the process for understanding kind of nature risk within the value chain is is somewhat similar in terms of the types of of information you need to know, like who are the tier two and tier three suppliers, et cetera.
• 18:08
  SPEAKER_01: So if you think about that nature risk assessment, I think you know you mentioned nature intensive companies.
• 18:16
  SPEAKER_01: So for me, I would think about you know, beverage companies to use a lot of water, agricultural companies to use a lot of land.
• 18:22
  SPEAKER_01: I mean, there's those companies, or maybe if I'm a garment company and so I'm reliant on cotton or otherwise.
• 18:30
  SPEAKER_01: But what if I'm maybe more of a services company, an office, I'll call it an office company.
• 18:37
  SPEAKER_01: How are those companies thinking about this?
• 18:39
  SPEAKER_01: Are, you know, are you getting sort of a reaction of like, well, I this is not an issue for me, or is this something that's impacting all companies?
• 18:49
  SPEAKER_02: Well, I you know, that stat that I quoted at the beginning where we looked at the percentage of the economy that was material.
• 18:55
  SPEAKER_02: Well, it's it's it's actually you know 50% that's materially dependent, but 100% of the economy is dependent on nature, right?
• 19:02
  SPEAKER_02: So all industries, all sectors to some extent have dependencies, not necessarily their you know their direct operations, but within their value chains.
• 19:11
  SPEAKER_02: Um and so going through the process and and kind of understanding what uh is material, uh I think will be you know that there'll have to be some um initiative to do that, to to either say, yes, this is an issue for us or it's not.
• 19:28
  SPEAKER_02: Um and I think that that you know consumer products companies, uh services companies will start to realize that even though there may not be direct impacts to them, there could be dire indirect impacts, right?
• 19:40
  SPEAKER_02: I mean, a good example would be um uh you know you know the tourism industry.
• 19:44
  SPEAKER_02: And if you think about hotel chains, right?
• 19:47
  SPEAKER_02: What happens if the the coral reefs that uh that all of their their customers fly down to to scuba dive and snorkel on start to die out and all of a sudden you know the the asset there, the natural asset that they depend upon is no longer functioning, right?
• 20:03
  SPEAKER_01: Yeah, that's a great example.
• 20:04
  SPEAKER_01: Yeah.
• 20:05
  SPEAKER_01: So if you think then just broadly about the nature risk assessment, any sort of starting point you would give, or what recommendations do you have as you're talking to companies, even how to approach this?
• 20:17
  SPEAKER_01: You mentioned the value chain, but I mean this is a very complex topic because it's very multidimensional.
• 20:23
  SPEAKER_02: Yeah, I think the the the first thing to do is is have a look at the the leap assessment uh approach um and and probably take us take stock of what you're already doing as an organization, you know, figuring out where do you have the information that's required or do we need to find that information.
• 20:42
  SPEAKER_02: And then um you know the probably the area to focus on is is the location information.
• 20:48
  SPEAKER_02: So figuring out where if you don't have that information already for your direct operations and and your assets getting that information and then starting to look at your supply chain and figuring out to what extent is that information, the location information available, right?
• 21:04
  SPEAKER_02: Um I think the the approach is meant to be iterative.
• 21:08
  SPEAKER_02: Um I don't think there's an expectation that everybody's gonna get this right the first time.
• 21:13
  SPEAKER_02: It's also meant to to really narrow down the focus.
• 21:17
  SPEAKER_02: So it might be overwhelming at first to think, oh my gosh, we've got you know 30,000 suppliers or we've got you know thousands of assets.
• 21:25
  SPEAKER_02: How do we get a handle on this?
• 21:27
  SPEAKER_02: There's some course filter assessments that that can be done to figure out you know where are the hotspots that you should be focusing on initially.
• 21:34
  SPEAKER_02: And so that that might parse down the list to significantly so that you can then start to engage with those suppliers or or look more closely at those locations to better understand why it came out as a as a as a red on the on the on the chart, right?
• 21:50
  SPEAKER_01: And Dan, when you refer to leap assessment, I'm presuming that it stands for something.
• 21:54
  SPEAKER_01: So can you share the acronym?
• 21:56
  SPEAKER_02: Yeah, so the TNFD disclosure framework has.
• 22:00
  SPEAKER_02: All the disclosure requirements and the metrics.
• 22:02
  SPEAKER_02: But what they've they've also done is they provided a fairly comprehensive approach for how you can conduct the assessment.
• 22:10
  SPEAKER_02: And in effect, the idea with LEAP is to first of all scope your assessment to figure out what aspects of your business and your value chain you need to look at.
• 22:21
  SPEAKER_02: And then the L stands for locate.
• 22:23
  SPEAKER_02: So figure out where those locations are, right?
• 22:26
  SPEAKER_02: And once you have the locations, and then then the E stands for evaluate.
• 22:30
  SPEAKER_02: And that's about understanding where the dependencies are and where the impacts are associated with those business activities.
• 22:37
  SPEAKER_02: And there's two aspects to the location assessment.
• 22:40
  SPEAKER_02: The first is to figure out where you have locations that are interfacing with sensitive ecosystems.
• 22:47
  SPEAKER_02: And there's a number of criteria that to assess what are the sensitive locations.
• 22:52
  SPEAKER_02: But then the other aspect is the material locations.
• 22:56
  SPEAKER_02: So where you might have business activities or locations that are vulnerable to nature risk, the same way you might for physical climate risk, right?
• 23:05
  SPEAKER_02: And then the idea is to, from that larger set of locations, to narrow it down to what's called priority locations, which are both the combination of the sensitive locations and the material locations.
• 23:18
  SPEAKER_02: And then you get to the assess stage, which is understanding what the impact uh the risks and opportunities associated with those impacts are.
• 23:27
  SPEAKER_02: And then starting to think, you know, how is that material to our business?
• 23:31
  SPEAKER_02: And what how does that affect our business processes?
• 23:33
  SPEAKER_02: You know, what's the financial implications?
• 23:36
  SPEAKER_02: So that it's really a materiality assessment approach, right?
• 23:39
  SPEAKER_02: And then the P is prepare.
• 23:41
  SPEAKER_02: And that's about how are you starting to internally communicate and talk about these issues with management, but then also to prepare uh external disclosures.
• 23:51
  SPEAKER_01: So you mentioned that this is an iterative process.
• 23:53
  SPEAKER_01: And I think most of our audience is coming from a financial reporting background.
• 23:58
  SPEAKER_01: And this idea of that, you know, you might not get it right, quote unquote, the first time, but that's going to take time, I think it kind of gives people shivers because we are used to thinking about financial reporting, filing, you know, your financial statements with a regulator or otherwise.
• 24:16
  SPEAKER_01: And so as you're talking, well, two questions.
• 24:19
  SPEAKER_01: One is as you're talking to companies about the iteration that's necessary, how do they react to the fact, well, maybe the first year you're not going to be able to deal with all 30,000 locations?
• 24:33
  SPEAKER_01: You know, what is what what's the feeling on that?
• 24:36
  SPEAKER_01: But then secondly, to be successful in this, who's typically involved?
• 24:41
  SPEAKER_01: Do you have to have people like you who have that type of expertise?
• 24:44
  SPEAKER_01: Or is this something the controllers department can do, or you know, all different iterations, I'm sure.
• 24:49
  SPEAKER_01: But any thoughts on that?
• 24:51
  SPEAKER_02: On the first question, uh, you know, it's important to recognize that the TNFD is a is a voluntary reporting framework in the same way that the TCFD was when it was first introduced.
• 25:02
  SPEAKER_02: So this isn't a regulation, it's not uh it's not a specific standard.
• 25:06
  SPEAKER_02: Um I think when the TCFD was originally introduced, uh most organizations were maybe reporting out on one or two of the of the indicators, right?
• 25:15
  SPEAKER_02: The idea, I think, with this iterative approach is um most organizations will will sort of see a phased adoption where they will address certain parts of the framework and then outline what their plan is to address other aspects.
• 25:29
  SPEAKER_02: Um if you look at the uh adoption guidance that was released with the TNFD, there's some survey results where they looked, they they surveyed the forum members to get a sense for what the adoption rates might be.
• 25:40
  SPEAKER_02: And I think uh hope I'm correct with these numbers, but I think 70% of forum members said that they would be adopting TNFD uh with FY24, and then by FY25 that that goes up over 80%.
• 25:53
  SPEAKER_02: Wow.
• 25:54
  SPEAKER_02: But um, but not all of the indicators, right?
• 25:57
  SPEAKER_02: And so uh, you know, the expectation is that as the data improves, as companies get more comfortable with their internal assessments, then the disclosures will start to become um, you know, they'll they'll extend their their disclosures.
• 26:10
  SPEAKER_01: Yeah, I mean, and that definitely makes sense.
• 26:12
  SPEAKER_01: So you're saying don't do everything a little bit, pick a few things and address those and then build on that.
• 26:20
  SPEAKER_01: And so if you do take that approach, are there particular places that, at least from your experience, it may make more sense to start?
• 26:27
  SPEAKER_01: I mean, for me, governance seems like a good spot, but just curious, you know, why where you see companies sort of putting their toe in the water.
• 26:36
  SPEAKER_02: Yeah, and maybe to touch on the other point that you'd asked about is the sort of the expertise required.
• 26:41
  SPEAKER_02: You know, I I think it it depends a lot on the the industry that you're working in.
• 26:46
  SPEAKER_02: Um most uh companies working in certain industries will have experts in this area that are already informing them about risk.
• 26:54
  SPEAKER_02: If you're a mining company, you know, you're working, you probably have biologists on staff or you're working with consultants.
• 27:01
  SPEAKER_02: Um I think for other industries like financial services, you know, there are uh people, financial services companies are starting to bring on board people with this type of expertise to better understand these risks.
• 27:14
  SPEAKER_02: But um, you know, the there's there's also this sort of course filter, fine filter approach that I've been you know often talking about, where um there are global data sets, there are tools that you can do to sort of do the hotspot analysis and figure out, you know, at a at a general level what sectors are more or less at at risk or what geographies are more or less at risk.
• 27:39
  SPEAKER_02: That type of analysis I think is um you know it obviously you need to understand what these you know indicators are are telling you, what these tools are telling you, but uh it's it's it's a useful first step to understand you know where the hotspots are.
• 27:53
  SPEAKER_02: But when you start to drill down and try to understand the interaction between what's going on in these locations and is it going to result in the collapse of an ecosystem that we're dependent on, you know, at that level, you you probably do need to bring in ecologists or or or people who understand the uh the underlying relationships.
• 28:11
  SPEAKER_01: All right.
• 28:12
  SPEAKER_01: And then in terms of where to start, any particular recommendations that you see work best or at least that you've seen companies use successfully?
• 28:22
  SPEAKER_02: Yeah, like I said before, if if they're already reporting on TCFD, it's it's having a look at the existing disclosures and thinking about how you can integrate nature there.
• 28:32
  SPEAKER_02: So governance is a is a great example.
• 28:34
  SPEAKER_02: Like, do you have the appropriate uh the appropriate subject matter expertise on the board?
• 28:40
  SPEAKER_02: Uh are there management committees that are uh established to address nature risk?
• 28:46
  SPEAKER_02: The other area that uh that makes a lot of sense is to look at how enterprise risk is assessed and are these topics being considered as part of enterprise risk management?
• 28:57
  SPEAKER_02: The other aspect is looking at existing existing processes in in a business and where are these business processes interfacing with the kind of data that are going to need to be collected?
• 29:10
  SPEAKER_02: Can they be better leveraged to and and changed and modified to collect the kind of information that's required to better understand uh the this this risk?
• 29:20
  SPEAKER_01: So it's an interesting point about data, and you actually started there, so I'm glad we're coming back to it.
• 29:25
  SPEAKER_01: Because would you think of this then as more qualitative or quantitative?
• 29:31
  SPEAKER_01: And when you think about gathering qualitative data and and measuring that, it's in some ways that actually seems harder than quantitative.
• 29:39
  SPEAKER_01: So, how do you think about those issues, particularly with your data um sort of hat on?
• 29:44
  SPEAKER_02: Yeah, it's a it's a really good question.
• 29:46
  SPEAKER_02: I I think one of the the first things you hear from people about, you know, when they're faced with looking at nature and nature risk is oh, that it's just we don't have access to the data, right?
• 29:57
  SPEAKER_02: But I I don't think it's the the the challenge is that the the there is data.
• 30:01
  SPEAKER_02: There there is lots and lots of data out there.
• 30:03
  SPEAKER_02: It's just is the data relevant and and is it the right data for the the context, right?
• 30:09
  SPEAKER_02: So um, you know, the the the data is gonna be required to understand the you know where you have significant impacts and you know whether those will translate through and into risks.
• 30:21
  SPEAKER_02: So the data are useful for kind of raising the flag and saying this is an issue.
• 30:25
  SPEAKER_02: The qualitative disclosures are the company's response.
• 30:29
  SPEAKER_02: So what are you doing about it?
• 30:30
  SPEAKER_02: What's your your strategy?
• 30:32
  SPEAKER_02: Do you have a plan to transition or to increase engagement with suppliers or change procurement policies or you know, uh uh other other aspects?
• 30:41
  SPEAKER_02: And so, you know, I would say the data is is the the ability to sort of identify where you have significant risks or opportunities and the qualitative is the response.
• 30:50
  SPEAKER_02: So what are you doing as an organization around that?
• 30:53
  SPEAKER_02: And and you know, this this will be a bit of a challenge for the you know, for asset managers, for those that are trying to interpret this information, because they're gonna have to read a lot of information.
• 31:02
  SPEAKER_02: Right.
• 31:03
  SPEAKER_02: They're gonna have to crack open those reports and see, you know, what are these companies saying about what they're doing.
• 31:08
  SPEAKER_01: And from your perspective, as you look at companies that are further ahead on this, are there any sort of best practices or even pitfalls that you could share that then someone who's maybe in an earlier stage should be thinking about as they're approaching these standards?
• 31:27
  SPEAKER_02: Yeah, I I I mean the companies that we've been working with, um a lot of them have been tackling this issue for a long time.
• 31:35
  SPEAKER_02: I I think certain industries have uh industry-related standards and frameworks that they're already adopting.
• 31:42
  SPEAKER_02: If you take the mining industry, the forestry industry, you know, there are existing certification schemes.
• 31:47
  SPEAKER_02: And so for them, you know, it's more about how do we leverage that existing management system or certification scheme and you know, use it to demonstrate how we're aligning with the with the TNFD.
• 31:59
  SPEAKER_02: I I think other companies that um you know have large extensive supply chains, you know, to a large extent have been looking at uh risk within their supply chain, but the challenge has been um, you know, we know the risk is there, but it it's like are the suppliers that we're working with, you know, are they the ones contributing?
• 32:19
  SPEAKER_02: And and do we have an effective way that we can actually make a statement that we are you know effectively uh de-risking our supply chain in that certain aspect?
• 32:28
  SPEAKER_02: And so working out approaches for how they can they can make a claim that they have effectively reduced uh nature risk in their supply chain is is is a challenge, right?
• 32:41
  SPEAKER_02: And there's um you know there are some mechanisms to help facilitate that, like certification, product certification, and you know, sustainability certification is a good sort of proxy for that.
• 32:52
  SPEAKER_02: But there's other aspects, other areas where that doesn't exist.
• 32:56
  SPEAKER_02: And so um, you know, that that's that's probably a a key challenge is how are companies going to be able to effectively demonstrate that their approach has effectively mitigated that that risk.
• 33:07
  SPEAKER_01: Well, and I think that goes back to then the point you made about you need some momentum, you need more companies doing this, because then the overall all called world database of information will grow and that should help with this issue.
• 33:21
  SPEAKER_01: Is that a fair comment?
• 33:23
  SPEAKER_02: Exactly.
• 33:23
  SPEAKER_02: Yeah, I mean that's the intent of the disclosure metrics in the TNFD, is is to have some standard metrics, some global metrics, as they're as they're called, that all companies will report out on if they're if they're relevant.
• 33:35
  SPEAKER_02: Um, you know, that way you you can start to make comparisons across companies within a different, you know, within a sector or within a geography.
• 33:43
  SPEAKER_02: They're they're they're they're not going to be perfect.
• 33:46
  SPEAKER_02: Um, but they they are you know the starting point for starting to aggregate information and and um be able to look across a portfolio um and and understand you know where in that portfolio there may be higher or lower areas of impact that that should be a concern.
• 34:01
  SPEAKER_02: But I think that the the important thing about these disclosure metrics is you know, like I said before, you kind of have to crack open the report.
• 34:08
  SPEAKER_02: Like there, you have to look at them in in context of the business.
• 34:11
  SPEAKER_02: And there might be a tendency to just rely on on these disclosure metrics, and that might be leading people down the wrong path, right?
• 34:19
  SPEAKER_02: Uh you don't want to sort of create these sort of perverse uh outcomes as a result of relying on these types of metrics.
• 34:26
  SPEAKER_02: There is a real need to understand the context.
• 34:29
  SPEAKER_01: Well, and again, I think that actually to relate it to something people may already be thinking about, it's kind of the point of you can't just look at a company's GHG emissions because if all of their properties are located in a location that you know has severe fire risk or you know, other unnatural condition type of risks, you're completely missing some of the impact of climate.
• 34:51
  SPEAKER_01: You're only looking at maybe what their impact is, but not the actual risks impacting the company.
• 34:57
  SPEAKER_01: And it sounds like you're saying it's the same type of thing.
• 35:00
  SPEAKER_01: Don't just focus on these numbers, but look at the bigger picture.
• 35:03
  SPEAKER_02: Exactly.
• 35:04
  SPEAKER_02: And it actually touches on another aspect, which is, you know, aligning with the the IFRS S1 standard, which is this kind of concept of aggregation.
• 35:14
  SPEAKER_02: You know, this is a the expectation is that you'll have location-based assess uh disclosures, right?
• 35:20
  SPEAKER_02: But um, you know, how are you aggregating those locations?
• 35:23
  SPEAKER_02: Um, are you aggregating like for like or are you aggregating, you know, sites that are in water-stressed areas with those that aren't in water-stressed areas?
• 35:31
  SPEAKER_02: Because you, you know, you're you may start to sort of dilute the information if you're inappropriately aggregating.
• 35:36
  SPEAKER_01: Yeah, it's definitely an interesting point.
• 35:38
  SPEAKER_01: So the TNFD, as you said, launched the standards this week.
• 35:42
  SPEAKER_01: So is that it?
• 35:43
  SPEAKER_01: Or or what comes next for the TNFD?
• 35:46
  SPEAKER_01: Is it monitoring the reports, or what do you see as the next key step in the mission?
• 35:51
  SPEAKER_02: Yeah, so so from what I understand, they're they're locking down the disclosure requirements, right?
• 35:57
  SPEAKER_02: They don't want to change that because they don't want to.
• 35:59
  SPEAKER_01: Right.
• 36:00
  SPEAKER_01: People need to have a stake in the ground.
• 36:02
  SPEAKER_02: Exactly.
• 36:02
  SPEAKER_02: But the shift now is really on enablement and market adoption.
• 36:07
  SPEAKER_02: And so, you know, uh there's been a lot of organizations, us included, that have been helping to develop sector guidance.
• 36:14
  SPEAKER_02: And so you'll see a broad array of different sectors where there'll be very specific guidance on how you're you should interpret these these requirements and the kinds of ways that you you prepare the disclosures.
• 36:26
  SPEAKER_02: Um, so you'll see the sector guidance coming out.
• 36:28
  SPEAKER_02: There'll be um you know additional uh probably revision of some of the uh the other metrics.
• 36:35
  SPEAKER_02: So there's there's core disclosure metrics and then there's the additional metrics.
• 36:39
  SPEAKER_02: Um I expect that you'll probably see those uh updated um over time.
• 36:44
  SPEAKER_02: Um and then it's it's really gonna be a lot about engagement and um you know working through the uh the industry consultation groups that have been established in different countries around the world to start trying to mobilize and and and get uh market adoption of the framework.
• 37:01
  SPEAKER_02: Um the other area that, like I said before, I think there'll be a lot of focus on is is on data.
• 37:07
  SPEAKER_02: And uh the TNFD is has commissioned a study on what a global data facility might look like, right?
• 37:14
  SPEAKER_02: Um so is there a model where um we can create a common uh set of standards and protocols for how nature-related data can be shared and accessed uh to better enable the assessments that are required.
• 37:28
  SPEAKER_01: All right.
• 37:29
  SPEAKER_01: So any other thoughts for our listeners, other things you we didn't touch on that are important for this discussion?
• 37:37
  SPEAKER_02: Yeah, I think the the the key thing I would say is you don't want to let perfect be the enemy of the good.
• 37:42
  SPEAKER_02: I think there's a real sense of urgency here that uh we don't have the same luxury of time as we might have had with with climate.
• 37:49
  SPEAKER_02: You know, we've had that we squandered in many, in many ways.
• 37:52
  SPEAKER_02: You could argue that we've squandered.
• 37:53
  SPEAKER_02: Yeah.
• 37:54
  SPEAKER_02: I I think with with nature, it's you know, it's happening right now, and we're sort of seeing the effects of that, and and it's exacerbated by climate change as well, right?
• 38:03
  SPEAKER_02: And so, you know, the the best thing to do is, you know, to get started right away, to start uh to start the iteration process, to trying to start understanding what information is needed, and not to be afraid to to put information out there.
• 38:16
  SPEAKER_02: I think that there's a general recognition that uh this is a this is a difficult and challenging area.
• 38:22
  SPEAKER_02: Nature is complex and that not everybody's gonna get it right the first time.
• 38:26
  SPEAKER_02: So I think not being afraid to you know to say what you're doing and to and and to show that you are progressing on this on this topic, I think that will go a long way.
• 38:35
  SPEAKER_01: Yeah, I completely agree.
• 38:37
  SPEAKER_01: And I know I asked you for final thoughts, but I I do want to reiterate a point and ask a question because you mentioned aggregation briefly, and uh you also just mentioned the inner relationship with climate and nature.
• 38:51
  SPEAKER_01: And I do think this is an important point for companies.
• 38:53
  SPEAKER_01: You can't look at either one of these in the vacuum.
• 38:56
  SPEAKER_01: And so, as again, you kind of think about that and the relationship between the two of them.
• 39:02
  SPEAKER_01: Any thoughts or words of wisdom on how to think about that?
• 39:06
  SPEAKER_02: Yeah, I mean, if you're looking at climate risk right now, uh physical climate risk is all about location, right?
• 39:13
  SPEAKER_02: And and how these climate hazards are going to impact business, that's a great place to start and to start thinking about integrating nature-related hazards or or how these impacts and dependencies could translate into risks into that type of assessment.
• 39:27
  SPEAKER_02: So that's that's a good starting point.
• 39:29
  SPEAKER_02: You know, one of the areas that uh that may be a challenge is is wrapping your head around scenario analysis.
• 39:35
  SPEAKER_02: Like how are we gonna do scenario analysis?
• 39:37
  SPEAKER_01: Because now you have a lot more variables if you're doing climate and nature together.
• 39:41
  SPEAKER_02: And it's not like you can define, you know, a standardized scenario, or at least that that's what they're hoping to be able to do is is to kind of put together a standardized scenario framework that everybody can align around.
• 39:53
  SPEAKER_02: But but but right now, the the guidance on scenario analysis is to is to sort of take more of a qualitative approach and sort of think about what could potential futures look like if you know variable A or variable B happens, right?
• 40:07
  SPEAKER_02: And then start thinking about well, how do these actually affect my business?
• 40:11
  SPEAKER_02: And then building that into the impact pathway analysis, right?
• 40:15
  SPEAKER_02: So that'll help guide you know your assessment of what the how the impacts will actually affect the business and the the outputs of the business, you know, revenue, sales, production, and and allow you to start thinking about the you know the financial impacts and the risk assessments.
• 40:32
  SPEAKER_02: So it doesn't have to be quantitative initially.
• 40:35
  SPEAKER_02: I think the important thing is to really understand what those impact pathways look like and what the potential impacts or financial impacts on the business might be.
• 40:44
  SPEAKER_01: All right.
• 40:44
  SPEAKER_01: Well, Dan, you've definitely given us a lot to think about.
• 40:47
  SPEAKER_01: And congratulations to you and your fellow task force members on hitting this important milestone and definitely look forward to seeing the evolution and continuing the conversation.
• 40:56
  SPEAKER_01: So thanks for joining me today.
• 40:58
  SPEAKER_02: Well, thanks for having me, Heather.
• 40:59
  SPEAKER_02: It's been a pleasure.
• 41:00
  SPEAKER_01: That's our show for today.
• 41:03
  SPEAKER_01: Tune in next week for more fresh episodes so that you never miss any of our audio content.
• 41:08
  SPEAKER_01: Follow the PWC Accounting Podcast wherever you listen to your podcasts.
• 41:13
  SPEAKER_01: And to stay up to date on all our latest accounting and reporting news, sign up for our newsletter at viewpoint.pwc.com.
• 41:23
  SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
• 41:27
  SPEAKER_01: Thanks for tuning in.
• 41:34
  SPEAKER_00: This podcast is brought to you by PwC, all rights reserved.
• 41:38
  SPEAKER_00: PwC refers to the U.S.
• 41:40
  SPEAKER_00: member firm or one of its subsidiaries or affiliates, and they sometimes refer to the PWC network.
• 41:45
  SPEAKER_00: Each member firm is a separate legal entity.
• 41:48
  SPEAKER_00: Please see www.pwc.comstructure for further details.
• 41:54
  SPEAKER_00: This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors.