Reproduced with permission by the ABA
Co-written by Jennifer Wollenberg, Ph.D., Principal, Sustainability – Integral Consulting
There is growing global recognition of the material financial risks posed by biodiversity loss and nature degradation. Biodiversity—encompassing ecosystems, species, and vital ecosystem services—has significant implications for industries reliant on nature for raw materials, supply chain stability, and long-term viability. PwC estimates that approximately 55 percent of global gross domestic product—around $58 trillion—is nature dependent. As ecosystems face increasing pressures from climate change, pollution, deforestation, and overexploitation, the financial risks of nature and biodiversity loss are becoming more apparent. These escalating financial and ecological risks are intensifying expectations from investors, regulators, and consumers for businesses to do more to consider and disclose their nature-related impacts and dependencies.
Regulatory and Voluntary Disclosure Frameworks
Globally, regulatory frameworks are evolving in response to the biodiversity crisis. For example, the European Union’s Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) are already requiring companies to disclose nature-related risks and impacts. While there are no U.S. laws or regulations directly requiring nature and biodiversity disclosures, some U.S. companies with EU operations or global supply chains will be required to comply with the CSRD. The CSRD serves as a strong indicator of where global standards are heading more generally. The Kunming-Montreal Global Biodiversity Framework (GBF), adopted at the 15th Conference of the Parties to the Convention on Biological Diversity, emphasizes the integration of biodiversity considerations into financial decision-making by calling on large transnational companies and financial institutions to monitor, assess, and disclose risks, dependencies, and impacts on biodiversity associated with their operations, supply and value chains, and portfolios.
Quantifying biodiversity risks and impacts is inherently complex, requiring specialized expertise and metrics tailored to different levels of biological organization. In response, experts from various organizations have been working to streamline these complexities, developing approaches to assess and disclose biodiversity-related risks in line with the GBF.
For example, in 2021, the Taskforce on Nature-Related Financial Disclosures (TNFD) was established to create a framework for companies and financial institutions to assess, manage, and disclose both their dependencies on nature and biodiversity, as well as the impacts of their activities on ecosystems. TNFD helps businesses identify these dependencies and impacts, evaluate associated risks, and report them to inform strategic planning, risk management, and asset allocation decisions related to nature-related risks. As of October 2024, there are 502 TNFD adopters, including 129 financial institutions representing $17.7 trillion in assets under management. In addition to TNFD, other frameworks such as the Global Reporting Initiative (GRI), CDP (formerly Carbon Disclosure Project), and the Science Based Targets Network (SBTN) include approaches to evaluating dependencies and impacts on nature.
Benefits of Adoption for U.S. Companies
Although there are no binding disclosure requirements in the United States, legal counsel should consider the benefits and risks to their clients of engaging with voluntary, nature-related disclosure frameworks, such as the TNFD. In addition to potential future disclosure obligations for U.S. companies under the CSRD, there are significant financial risks associated with ignoring biodiversity and nature and companies may also be overlooking substantial business opportunities by failing to adopt nature-positive strategies. The World Economic Forum estimates that embracing nature-positive transitions could unlock $10.1 trillion in business opportunities by 2030. Adopting the TNFD framework, for instance, could yield operational benefits, including improved access to capital, reduced costs through greater efficiency, enhanced resilience to environmental disruptions, and stronger sustainable supply chain practices. Non-operationally, it strengthens a company’s reputation, opens opportunities for stakeholder engagement and new revenue streams, attracts top talent, and taps into growing consumer demand for sustainable products.
There is growing pressure from investors, consumers, and nongovernmental organizations for businesses to adopt more sustainable and nature-positive practices. As expectations for environmental transparency rise, in the future companies that fail to disclose their nature-related risks and impacts could face class action lawsuits or investor litigation, particularly for misrepresentation, greenwashing, or non-compliance with emerging regulations. Beyond legal risks, failure to transition exposes companies to reputational damage, eroded investor confidence, and a weakened competitive position in an increasingly sustainability-driven market.
Given the complexity of engaging with voluntary frameworks like the TNFD, lawyers will play an essential role in helping clients recognize the risks of failing to disclose nature-related dependencies and impacts associated with their operations. Widespread adoption of these voluntary frameworks across industries provides legal advisors an excellent opportunity to translate these frameworks into actionable strategies for their clients, enabling businesses to better assess and manage their nature-related risks and opportunities. In this context, understanding how the TNFD’s approach applies across industries equips legal professionals to help businesses navigate nature-related risks.
Practical Applications of TNFD
The TNFD provides a structured, systematic approach to identifying, assessing, and managing a broad range of nature-related risks—ranging from physical risks like water scarcity, flooding, and biodiversity loss, to regulatory risks related to environmental laws and policies, and reputational risks stemming from supply chain practices and human rights concerns. This framework helps companies—and their legal advisors—pinpoint material risks that could affect operations, compliance, and corporate reputation, ensuring that no significant issue goes unaddressed.
For instance, a beverage company may discover through TNFD’s analysis that several of its bottling facilities are located in regions facing significant water stress. This finding could trigger the need for legal counsel to evaluate the regulatory landscape around water use, wastewater discharge, and environmental impact. Lawyers would assist the company in exploring water reuse strategies—such as implementing closed-loop systems or upgrading treatment technologies to reduce water consumption and reliance on local water sources. In such cases they could guide the company through the regulatory compliance process, including eligibility and acquisition of water supply and discharge permits, and relevant water rights, particularly in areas with escalating competition for water resources.
Consider further how this sort of analysis might apply to an apparel company. Experience counsel utilizing the TNFD framework could identify material risks within the company’s supply chain, such as sourcing cotton from regions subject to changing regulation, facing environmental degradation—like soil erosion or pesticide contamination—or from areas with documented human rights violations, such as forced labor or unsafe working conditions. In this context, a legal team could advise the company on enhancing its due diligence processes and implementing stronger supply chain monitoring practices to ensure compliance with both environmental regulations and labor laws. Lawyers would also assist the company in assessing the potential legal implications of its sourcing decisions, ensuring that sustainability claims—such as reducing pesticide use or promoting fair labor practices—are supported by verifiable data to mitigate the risk of greenwashing or false advertising claims.
These examples illustrate how companies can use the TNFD framework to better understand material nature-related risks, dependencies, and opportunities. The framework applies to a wide range of market participants, including investors, financial institutions, analysts, corporations, regulators, stock exchanges, accounting firms, credit rating agencies, and financial service providers. It also offers sector-specific guidance for industries such as aquaculture, biotechnology, pharmaceuticals, chemicals, electric utilities, power generation, food and agriculture, forestry, paper, metals, and mining. Lawyers play a crucial role in helping clients navigate the regulatory, strategic, and reputational considerations raised through this analysis, ensuring that nature-related risks are properly understood and managed to protect against unnecessary financial and legal exposure.
The growing recognition of nature-related risks underscores the importance for companies to adopt frameworks like the TNFD to assess, manage, and disclose their environmental dependencies and impacts. By doing so, businesses can manage financial, reputational, and regulatory risks while unlocking new opportunities for sustainability-driven growth. Legal professionals play a critical role in helping companies navigate this evolving landscape, ensuring compliance and minimizing exposure to potential liabilities as nature-related disclosures become a key component of corporate strategy.