Swedish Watchdog Endorses TNFD

    Our reliance on nature and the services it provides is undeniable. Yet the degradation of clean water, healthy air, food, and materials essential to our economies and our existence as humans keeps accelerating. “It’s an illusion to think we can preserve financial stability if this degradation continues,” remarked Klaas Knot, President of the Dutch Central Bank (DNB) recently. “As central banks and supervisors, we have every reason to be concerned.”

    Convinced of this imperative and the role it has to play, the Swedish Financial Supervisory Authority (Finansinspektionen) is showing determination to guide and supervise financial actors in their efforts to tackle nature-related challenges. To this end, on 16 November, the regulators invited Swedish stakeholders to their offices in Stockholm for a highly informative and interactive session on the topic. The seminar, organised in collaboration with WWF Sweden and AP7 (Sweden’s Seventh AP Fund), provided a valuable introduction to the newly released guidance by the Taskforce on Nature-related Financial Disclosures (TNFD) and its application in Sweden.

    Having attended the seminar, NordSIP summarised some key insights for those unable to participate in the session or intimidated by the three-hour-long recording now available online.

    TNFD basics

    To set the scene and introduce the logic and guiding principles of TNFD, the framework quickly establishing itself as the world’s leading standard in the field, the organisers have invited one of its architects, Tony Goldner, Executive Director of TNFD. The framework builds on existing market practice and is designed to help companies and financial actors measure and report risks, opportunities, impacts and dependencies on nature. It relies on the support of twenty knowledge partners, from leading science organisations to international standards bodies.

    Goldner explains the pragmatic and collaborative approach that the experts behind the TNFD initiative have settled upon, such as building on existing frameworks, tools, and metrics rather than starting from scratch. TNFD shares, for instance, the same structure, language, and approach as the more widely established Task Force on Climate-Related Financial Disclosures (TCFD). Hopefully, this should also encourage integrated climate-and-nature reporting.

    ​Addressing concerns that the new disclosure requirements might lead to exponentially increased burden, Goldner reassures the participants that the ambition has been to align TNFD to the global policy goals and emerging regulation as much as possible.

    As to the somewhat controversial question of applying single or double materiality, TNFD has been designed to meet the individual preferences of different actors. It allows reporting entities to use it no matter whether they focus on financial materiality only or choose a broader materiality approach.

    Time to get started

    Goldner concludes his presentation by urging early TNFD adopters​ to join an upcoming campaign to be officially announced in January at the World Economic Forum in Davos. However, two Nordic organisations, AP7 and Storebrand, have already committed to the initiative, providing inspiration to those still uncertain about how to proceed.

    As a universal owner, AP7 is highly aware of the fact that it cannot diversify away nature risks, asserts Johan Florén, the pension fund’s Head of ESG and Communication. According to him, the risk is systemic, and not doing anything about it is a form of escapism. Florén points out that TNFD is changing the landscape for investors, providing a solution to the main problem that has been holding them back, namely the lack of standard methodology for assessing and reporting biodiversity.

    His colleague, ESG analyst Flora Gaber, presents a concrete example of the way AP7 has put TFND to use, conducting an analysis of the fund’s nature-related exposure from a double materiality perspective. It is just a start, admits Gaber. There is still a lot to be done, especially when it comes to analysing the entire value chains. Scope 3 for nature-related disclosures is still a distant goal, even for an early adopter like AP7.

    For Storebrand, setting up clear and concrete nature-related targets has been key, according to Emine Isciel, Head of Climate and Environment at Storebrand Asset Management. For example, she points out the company’s commitment to eliminating commodity-driven deforestation by 2025. An early adopter of TNFD, the asset manager is also leading a pilot project on nature-risk reporting in aquaculture, together with Grieg Seafood, WWF and NINA.

    The watchdog is watching

    One thing that the practitioners seem to agree upon is that integrating nature considerations into their investment process and adopting TNFD is not just a question of compliance. It is a matter of adequately assessing risks and capturing opportunities.

    Yet for the regulators, compliance is an equally important aspect, argues James Mc Connell, Finansinspektionen’s expert on sustainability reporting. According to him, the environmental reporting requirements are evolving rapidly, and it is only a matter of time before biodiversity and ecosystem-related disclosures are to be included. It is possible that nature-related disclosures would be the focus of the Swedish FSA’s supervision efforts in the coming years, he speculates.

    For the panel discussion, another three practitioners join the speakers on scene: Catharina Belfrage-Sahlstrand, Head of Sustainability at Handelsbanken, Peter Lööw, VP Sustainable Finance at Stora Enso, and Jenny Lönn, Sustainability Strategist at ICA. Delving deeper into the intricacies of TNFD, it quickly becomes obvious that despite the good intentions that all the participants share, they do have different starting points and face various challenges.

    Apart from all the insights and practical advice during the discussion, this diverse choir of voices also helps appreciate the enormous work that has gone into creating a framework acceptable for the majority of stakeholders.

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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