The final recommendations of the TNFD were published on 18 September 2023.
We have recently provided an overview of the TNFD on this website.

　[The [ibid.Explanation] What is the TNFD? A new bridge between finance and the natural environment
　　https://aiesg.co.jp/report/230913_tnfdreport/

In this issue, the TNFD reports of Japanese companies that have been published ahead of the final proposals will be introduced and more specific information will be given on the preparations and challenges for disclosure.

TNFD disclosing companies (as of September 2023)

By disclosing information in accordance with the Taskforce on Nature-related Financial Disclosures (TNFD), companies and financial institutions can assess the relationship between their business activities and natural capital and biodiversity, and identify risks, impacts and sustainability. Clarify the risks, impacts and sustainability. It is in the company's best interests to identify business activities and areas of high risk to nature or to its own operations.

Even before the publication of the final recommendations, several companies in the country have already disclosed information based on the TNFD. The following is a representative list of companies that have published TNFD reports by September 2023.

Company Name	Open to the public	report
Kirin Holdings Company Limited	July 2022 July 2023	."Environmental Report 2022."Environmental Report 2023.'
Sumitomo Mitsui Financial Group	Apr 2023.	."SMBC Group 2023 TNFD Report.'
Kao Corporation and Accenture Joint Research.	Apr 2023.	."Business risks and opportunities posed by biodiversity.-TNFD assessments - Case studies based on regional characteristics -.'
Shiseido Co.	May 2023.	."2023 Shiseido Climate/Nature-related Financial Disclosure Report '
KDDI Corporation	Jun 2023.	."TNFD Report 2023.'
NEC Corporation	July 2023.	."NEC TNFD Report 2023.'
Tokyu Land Holdings Limited	Aug 2023.	."TNFD Report〜˜In the Tokyu Land Holdings GroupContribution to Nature Positive ~.'
Kyushu Electric Power Group	Sep 2023.	."Kyuden Group TNFD Report 2023.'

Type of TNFD report.

For more information on the detailed configuration of the TNFD, seePrevious report.but the four pillars of the disclosure recommendations, governance, strategy, risk and impact management, and selection indicators and targets, are central to it (Figure 1).

Figure 1: Draft TNFD disclosure recommendations (Source: TNFD Full Beta Summary v0.4)

Many of the existing reports have attempted to follow these recommendations. Several companies have also made practical efforts to address the LEAP approach, Discover, Diagnose, Assess and Prepare (Figure 2), which is recommended to help assess nature-related risks and opportunities.

Figure 2: LEAP approach (Source: TNFD Full Beta Summary v0.4)

There are several possible patterns of disclosure in reports, depending on the information currently available.

The ideal form would be to calculate as many indicators as possible for the entire entity and describe explanations and quantitative assessments in line with disclosure recommendations. While this is the final format to aim for, it is not easy to collect nature-related indicators for the entire supply chain. Only a limited number of organisations, such as companies with a track record of regularly publishing detailed ESG and environment-related reports for some time, will find it difficult to reach perfect disclosure.

In other cases, high-risk operations and regions may be identified first and reporting on them is prioritised. In practice, many company reports take this approach. Narrowing the scope of investigation by materiality can reduce the cost of disclosure, but the route and rationale for identifying them should be clearly stated. The LEAP approach can also be used at this stage to make the argument more persuasive.

On the other hand, reports that focus mainly on case studies can also be considered. By focusing on the risks and specific initiatives for each scenario, it is possible to make disclosures that are relevant to the TNFD, even if it is difficult to align quantitative indicators. However, if the information is not in line with the basic recommendations required, the TNFD report may not be sufficient.

Examples of report disclosures

This section presents the contents of some TNFD reports in more detail. In addition to the general requirements and disclosure recommendations, there are various attempts to use the LEAP approach according to company-specific interpretations, but what are the actual examples?

Disclosure example 1: Kirin Holdings, "Integrated environmental management information disclosure based on the TCFD Framework, the draft TNFD Framework and other frameworks" from Environmental Report 2023 [1].

https://www.kirinholdings.com/jp/investors/files/pdf/environmental2023_03.pdf

proposal	Overview.
General requirements	No corresponding part, but the requirements are mostly fulfilled.
governance	Introduction of supervisory and enforcement systems and risk management systems
strategy	Risk and impact assessment, scenario analysis, approach and transition planning
Risk and impact management	'Risk management' chapter presents physical/transition risks and response strategies for each scenario.
Metrics and targets	Targets and results by type, investment plans

In July 2022, Kirin became the first company in the world to trial TNFD-compliant disclosure [2]. This report summarises the features of the report with regard to the 2023 edition.

⚫︎TCFD (Task Force on Climate-related Financial Disclosures) and TNFD collectively
These frameworks, which share the pillars of disclosure recommendations, can be efficient in this way, as there is a lot of overlap when looking through a company's initiatives. However, there is a risk that it may be unclear which framework the content is aligned with.

⚫︎Define target projects and timeframes at the beginning.
The scope envisaged by the report is clarified.

⚫︎Use of tools recommended by the TNFD
The chapter 'Risk and Opportunity Analysis on Natural Capital' uses ENCORE [3] at the outset to show the dependencies and impacts in the Group's overall business areas.

⚫︎Use of the LEAP approach
Based on the ENCORE screening results and the actual local situation, the analysis applies the LEAP approach recommended by TNFD for tea production areas in Sri Lanka.

While the overall report complies in considerable detail with the general requirements and the four pillars of the disclosure recommendations, quantitative disclosure of core indicators is not yet fully addressed, and the aim is to further improve the accuracy of the report by disclosing indicators that are considered relevant on a trial basis.

Disclosure example 2: Kyushu Electric Power Company 'Kyuden Group TNFD Report 2023'.[4]

https://www.kyuden.co.jp/var/rev0/0448/2017/v5m2tdk4.pdf

proposal	Overview.
General requirements	Particular reference to 'integration with other sustainability issues'
governance	Introduction of sustainability promotion committees, environmental management systems, etc.
strategy	Assessment of impact and dependence per power generation project.
Risk and impact management	Assessment of risk per power project.
Metrics and targets	Targets on natural capital, specifying correspondence with core indicators.

The Kyushu Electric Power Company published its TNFD report in September 2023. Electricity utilities are also included in the TNFD's proposed priority sectors (industries where compliance with the TNFD is a priority recommendation) and are one of the sectors with the greatest interactive impacts with natural capital. This report has the following features.

Define the target project at the beginning of ⚫︎
The scope envisaged in the report is clear. The risk assessment for each power generation project in the report also makes the structure easier to understand.

Use of tools recommended by ⚫︎TNFD
In the chapter 'Natural capital-related impacts and dependencies', ENCORE is used to create a heat map of the impacts of direct operations and fuel procurement on natural capital and dependence on ecosystem services.

⚫︎ Introduces its own evaluation criteria
The heatmap is updated by introducing additional individual items, such as company-specific conditions and the likelihood of natural disasters, to the ENCORE results above.

⚫︎ Introduction to our own initiatives
The chapter 'Opportunities related to natural capital' specifically describes the natural capital-related initiatives that companies are undertaking.

The report is relatively focused on explaining the impact of each risk and the basis for making assessment decisions (risk and impact management). The figures and other information corresponding to the core indicators are shown by directing the reader to the ESG Data Book.

Hurdles to the release of TNFD reports.

Through this analysis of existing reports, we have identified a number of challenges that companies may face. Three of the major hurdles that are considered to be common across industries and company sizes are as follows

Issue 1: Determination of priority areas and projects
As has been mentioned, it is difficult for many companies to conduct a full retrospective analysis of the value chain concerning all business areas from the outset. One solution is to narrow the scope of information disclosure, but a rationale is needed for such a decision.

Tools such as ENCORE, which is also used in the above report, are often used as an initial means of understanding the interface between your business and nature, as they have the advantage of giving a rough idea of which regions and business areas are at risk. On the other hand, they cannot analyse detailed indicators or reflect the characteristics of your business. More granular measures need to be considered in order to determine priorities with sufficient persuasiveness.

Issue 2: Content of disclosure recommendations.
The decision on what and to what extent to disclose in each of the four pillars of the disclosure recommendations and the 14 underlying recommendations is currently largely up to company interpretation. In particular, it is difficult to draw a line between the two pillars of 'Strategy' and 'Risk and Impact Management' and to determine the order in which they should be listed, and we got the impression that a lot of trial and error was going on. Some companies, such as Kyushu Electric Power, have dared to create reports that do not clearly correspond as sections. It is expected that a general format will gradually be established through feedback from TNFD and investor groups in the future.

Issue 3: Measuring core indicators
In addition to the Global Core Disclosure Indicators, which are strongly recommended for disclosure across all businesses, the TNFD publishes sector- and biome-specific disclosure indicators. These indicators require quantitative data and the content required ranges from land use and pollutant emissions to the proportion of assets exposed to nature-related risks.

The hurdle is relatively low for companies that already publish annual ESG-related reports or have a detailed understanding of their supply chain, but even so, disclosure that fully meets the required indicators has yet to be made.

The ESG analysis provided by aiESG is based on proprietary big data and enables the visualisation and identification of hotspots of high-risk areas, tracing back to the end of the supply chain. The approximately 3,200 ESG indicators include not only greenhouse gas emissions and other indicators that can be measured by conventional services, but also community impacts and indigenous rights, providing a quantitative view of the social aspects required by the TNFD.

Conclusion.

With more than half of the world's total GDP, or USD 44 trillion worth of economic value, moderately or highly dependent on the natural environment [5], the focus on nature-related disclosure is expected to increase further in the future. The TNFD is expected to be a disclosure framework that is easily accepted by both companies and investors. Now that the steps towards disclosure are becoming increasingly concrete with the publication of the final recommendations, it is important to start discussions on disclosure as soon as possible.

aiESG can provide support from the basics of TNFD to the actual disclosure of non-financial information. aiESG is happy to assist companies that need help in complying with TNFD.

Enquiry: 
https://aiesg.co.jp/contact/

Bibliography

[1] https://www.kirinholdings.com/jp/investors/files/pdf/environmental2023_03.pdf
[2] https://project.nikkeibp.co.jp/ESG/atcl/column/00005/080500243/
[3] ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure)
A risk assessment tool jointly developed by the United Nations Environment Programme World Conservation Monitoring Centre (UNEP-WCSC), the Natural Capital Finance Alliance (NCFA) and others.
https://www.encorenature.org/en
[4] https://www.kyuden.co.jp/var/rev0/0448/2017/v5m2tdk4.pdf
[5] https://www3.weforum.org/docs/WEF_New_Nature_Economy_Report_2020.pdf

*Related page*.
[The [ibid.Explanation] What is the TNFD? A new bridge between finance and the natural environment
https://aiesg.co.jp/report/230913_tnfdreport/

[Commentary] Key points of the TNFD final recommendations and the responses required from companies.
https://aiesg.co.jp/report/231106_tnfdreport3/

aiESG participates in the Task Force on Nature-related Financial Disclosures (TNFD) Forum.
https://aiesg.co.jp/news/2309_tnfd/