TNFD LEAP Pilot Update

Applying the Locate and Evaluate steps

The recently launched Taskforce on Nature-related Financial Disclosures (TNFD) was established to improve private sector interaction with the natural world, leveraging reporting  to direct finance away from nature negative activities and towards positive outcomes for nature. As a market-led initiative, it aims to create a standardised framework for disclosure which will provide financial institutions with decision-useful information to encourage redirection of financial flows towards nature-positive outcomes.

Climate Asset Management has been actively participating in the TNFD’s iterative development process, engaging across a number of the taskforce’s working groups on behalf of our shareholder, HSBC Asset Management, notably around targets and metrics, as well as building capacity both internally and externally to deliver on the TNFD’s ambition.

Over the last year, we have partnered with Phoenix, the UK’s largest long-term savings and retirement business, to pilot the TNFD framework to a portfolio of investment opportunities, which provide a unique perspective based on:

• Comprehensive location-specific information – we collect a range of site-level information on every investment opportunity. The granularity of this data grows as investment opportunities progress through due diligence and into asset management phases. Data is typically available on location, habitats, species, chemical and water inputs, and other specific metrics relevant to particular projects.
• Focus on nature-related opportunities – while the primary initial focus of many applying the TNFD framework is to understand nature risks, our focus on nature restoration positions us well to assess nature-related opportunities. Our approach to investments is well-aligned with the TNFD, with all projects accepted for further review expected to contribute meaningfully to our impact objectives.
• Forward looking – as a relatively young organisation, we have been in an excellent position to integrate the requirements of the TNFD into our processes and management systems. This ensures investments start to capture the necessary data from day one and removes the need to retrofit requirements.

Working alongside experts from The Biodiversity Consultancy, who were engaged by Phoenix, we have applied a bespoke methodology translating the TNFD’s LEAP framework (Locate, Evaluate, Assess, Prepare) into a process applicable to our site-based approach to investment due diligence.  Our objective was to understand better the TNFD process, including data requirements, prioritisation, target setting and disclosure. This information can then inform our management processes to align with our objective to demonstrate quantifiable improvements to the state of nature as well as to articulate and manage clear nature-related risks and opportunities associated with our investments.

This white paper details the findings of the first stage of the pilot, looking at a set of investment opportunities and focused on the Locate and Evaluate phases. The results of this stage identified a number of material impact and dependency pathways associated with each of the projects within the pilot. During the ensuing Assess and Prepare phases we expect some of these will likely translate into nature-related risks which will need to be managed. The majority, however, have the potential to represent nature-related opportunities both from a commercial as well as a sustainability performance perspective. The next stage of the pilot will now focus on how these impacts and dependencies can be translated into quantifiable risks and opportunities.