09.18.25

Nature Is the New Material Risk: Inside the TNFD–IFRS “S3” Pivot—and Why IUCN Must Be in the Room

In boardrooms from New York to Nairobi, a quiet revolution is underway. Climate once owned the sustainability spotlight; now nature—the species, ecosystems, and services that keep supply chains alive—is taking the stage. Two initiatives sit at the center of this shift: the Taskforce on Nature-related Financial Disclosures (TNFD) and the International Sustainability Standards Board (ISSB) ’s emerging biodiversity project, often shorthand in markets as “IFRS S3 (BEES)” for Biodiversity, Ecosystems and Ecosystem Services. One is voluntary and already in the wild; the other is moving through the IFRS Foundation’s exacting due process toward a potential global baseline. The story of how these two efforts braid together reveals a simple truth: without the IUCN —and its Red List and Green List—the market will be flying half blind.

The New Disclosure Playbook: From Climate to Nature

In September 2023, TNFD published its final recommendations—14 disclosures organized under four familiar pillars (Governance, Strategy, Risk & Impact Management, Metrics & Targets), together with the LEAP approach (Locate, Evaluate, Assess, Prepare) to help companies actually do the work of assessing nature-related issues. The process drew on pilots with hundreds of organizations and intentionally mirrored the architecture of TCFD and the ISSB to speed adoption. By 2025, TNFD reported hundreds of early adopters and launched capacity tools to close the skills gap.

Meanwhile, the International Sustainability Standards Board (ISSB)—which issued IFRS S1 (general requirements) and IFRS S2 (climate) in 2023 and secured IOSCO’s endorsement—turned its research lens to BEES. The ISSB has been explicit: biodiversity disclosures must be decision‑useful for investors, interoperable with other frameworks, and grounded in the ISSB system that already leans on SASB’s industry-based content. The timeline is cautious: research first, then any potential standard-setting. But the direction of travel is clear.

A key inflection point arrived in April 2025, when the IFRS Foundation and Taskforce on Nature-related Financial Disclosures (TNFD) signed a Memorandum of Understanding to formalize collaboration: the ISSB would consider the TNFD recommendations in its BEES research; the two bodies would share technical work and engage markets together. Translation: TNFD’s market-tested guidance will not sit on a shelf while the ISSB builds; it is raw material for the next standard.

Why This Matters to Markets

The mechanics are wonky; the stakes are not. Nature loss is a cash‑flow issue—for water‑intensive processors, raw‑material‑dependent manufacturers, land‑using sectors, and financial institutions with exposures all along those chains. The Kunming‑Montreal Global Biodiversity Framework’s Target 15 calls on jurisdictions to require large and transnational companies and financial institutions to assess, monitor, and disclose biodiversity risks, dependencies, and impacts. Regulators will increasingly look to the ISSB’s global baseline as they draft rules. BEES is where the plumbing gets built.

In other words, can investors compare Company A’s exposure to critically endangered species with Company B’s? Can lenders price the risk of a plantation’s encroachment near a protected area? Can insurers factor ecosystem service degradation into catastrophe models? Without common definitions, location‑specific metrics, and authoritative reference lists, the answer is no.

The Missing Ingredient: IUCN

Enter the International Union for Conservation of Nature ( IUCN )—the world’s largest conservation network and a trusted repository of conservation data and standards, with deep convening power across governments, civil society, academia, and business. IUCN has already produced corporate biodiversity performance guidelines and operates two assets whose value to markets is hard to overstate: the Red List of Threatened Species and the Green List of Protected and Conserved Areas. Each could be native infrastructure for IFRS S3.

  • The IUCN Red List is the world’s most comprehensive source on the conservation status of species and the threats they face. It’s a living database—now counting over 169,000 assessed species, with ~47,000 threatened—used by governments, scientists, and businesses alike. It offers common categories (CR, EN, VU) and rich ecological context that can be operationalized in risk models.

  • The IUCN Green List is a certification standard for protected and conserved areas that meet rigorous criteria for governance, design, management, and conservation outcomes. With dozens of certified sites and hundreds in the pipeline, it provides a quality signal that goes beyond a polygon on a map. Not all protected areas are equal; Green List sites are the ones proven to deliver results.

IUCN’s data and methods are not just scientifically credible—they are built for aggregation, designed to translate site‑level realities into corporate‑level performance. That is exactly the chasm IFRS S3 must bridge.

How TNFD and ISSB Set the Table—And Where IUCN Must Sit

TNFD’s LEAP method forces companies to Locate their interface with nature and identify priority locations—a nod to the local character of biodiversity risk. It’s hard to implement without authoritative signals about which species and ecosystems matter most and where. The Red List and Green List fill that gap: Red List for which species are at risk, Green List for which areas are effectively conserved.

The ISSB’s system, for its part, mandates industry-specific thinking and financial materiality. SASB heritage matters here: sectors from forestry and food to mining and apparel face different biodiversity vectors, and the ISSB requires entities to refer to industry-based guidance and to report on location‑specific and value‑chain exposures when material. IUCN’s datasets would anchor those sector stories in comparable, verifiable facts.

The MoU between IFRS and TNFD foreshadows this integration: TNFD’s market-facing machinery plus IUCN’s scientific backbone equals an implementable global baseline regulators and investors can trust. Without IUCN at the center, BEES risks becoming a taxonomy of intent—without the biology.

A Practical Blueprint: Bringing Red List and Green List Into IFRS S3

1) Location‑based metrics that mean something. Require disclosure of operations and supply nodes located within (or materially affecting) ranges of Red‑Listed species (CR/EN/VU), and within set buffers of Green Listed sites. Phrased in IFRS language: disclose exposure and sensitivity to biodiversity risks in priority locations, with quantitative counts of assets and revenue share at risk.

2) A minimal viable metrics set (MVM) for comparability. Borrowing from IUCN’s Pressure‑State‑Response‑Benefit logic for corporate biodiversity performance, define a small, scalable indicator set that every company with material BEES exposure must report:

  • Pressure: area (ha) of habitat conversion within supply chains; pesticide or nutrient intensity in sensitive catchments.

  • State: number of Red‑Listed species potentially impacted (by category) and ecosystem condition where feasible.

  • Response: percent of priority sites under Green List-aligned management effectiveness; share of suppliers under verified nature‑positive practices.

  • Benefit: proxy indicators of ecosystem services relevant to financial performance (e.g., water yield stability).

3) Interoperability with TNFD’s LEAP and the GBF’s Target 15. Encourage preparers to use LEAP to identify priority locations, then map those against Red List ranges and Green List sites; ensure disclosures meet Target 15 expectations on dependencies, impacts, and risk reduction. This embeds policy relevance into investor-grade reporting.

4) Assurance and data quality. IUCN can support methodological notes, reference layers, and confidence ratings for species and site data—akin to how GHG reporting references the GHG Protocol. For BEES, IUCN becomes the default scientific reference, improving auditability without prescribing a single tool.

5) Safeguards for rights and equity. IUCN has already worked with TNFD to bring Indigenous Peoples and Local Communities (IPLCs) into the nature‑risk conversation. Codifying stakeholder rights and engagement into IFRS S3’s governance disclosures would reduce social license risk and align with modern stewardship expectations.

What Could Go Wrong Without IUCN

Data drift and greenwish metrics. Without Red List and Green List anchoring, companies will choose heterogeneous proxies—think “biodiversity hectares”—that obscure comparability and invite greenwashing. Markets trade on standardized definitions; biodiversity lacks them unless IUCN’s are adopted.

Blind spots in priority locations. TNFD correctly insists on site‑specificity. But recognizing which sites matter requires ecosystem and species intelligence. Absent IUCN, firms will rely on vendor tools with uneven methods, fragmenting the very baseline the ISSB is trying to build.

Social backlash. Ignoring IPLCs’ rights in disclosure design invites litigation and reputational risk. IUCN’s rights‑based practice is the shortest route to legitimacy—and to investor confidence that biodiversity strategies won’t blow up in the field.

The Regulatory Weather Is Changing

IOSCO’s endorsement of the ISSB standards in July 2023 unlocked a path to jurisdictional adoption; early movers are already aligning domestic rules to S1/S2. When BEES matures into a standard, expect the same “adopt or be informed by” approach by regulators. That makes the quality of the inputs—IUCN’s data and standards—a systemic issue for risk pricing.

The ISSB has said out loud that its BEES research will build on existing frameworks—explicitly TNFD and SASB—and strive for interoperability with GRI and ESRS. The IFRS–TNFD MoU is therefore more than a press release; it is a design choice to converge voluntary practice with the global baseline. IUCN is the missing leg of that tripod.

A Reporter’s Take: Follow the Biology

Markets have learned the climate lesson: when you standardize the language (TCFD → S2), adoption takes off; when you anchor it to publicly accessible, science‑based references, assurance becomes cheaper and capital becomes smarter. Biodiversity is messier than carbon, but the same rule applies. The IUCN Red List tells us who is at risk; the Green List tells us where conservation actually works. Bake both into IFRS S3, and you shift disclosures from aspiration to accountability.

The alternative is an expensive detour: a proliferation of methods, a credibility problem for issuers, and investors discounting nature claims they cannot compare. A standard that clears the bar for capital markets should also clear the bar for conservation science. That is a test IUCN helps the ISSB pass.

What Companies Can Do Now

1) Use TNFD’s LEAP to surface priority locations, then overlay Red List ranges and Green List sites to quantify exposure; report internally while the standard evolves. 2) Align your sector metrics with ISSB/SASB guidance and prototype PSRB‑style indicators from IUCN’s corporate guidelines to ensure data scale from site to enterprise. 3) Build governance for IPLC engagement now; it is cheaper than a retrofit when IFRS S3 (BEES) lands.

The Call to Action—for Standard Setters and IUCN

  • ISSB: Make Red List and Green List the default references in the exposure and metrics sections; specify a minimal viable metrics set that every material reporter must disclose, with location‑specific counts and revenue-at-risk linkages.

  • TNFD: Update guidance to show worked examples of LEAP using Red List/Green List overlays, accelerating capacity building for preparers.

  • IUCN: Formalize a data partnership with the ISSB, publish assurance‑friendly documentation, and continue rights‑based safeguards—to keep science, society, and finance in the same room.

If you’re wondering whether this is doable, remember: the ISSB already harmonized an alphabet soup for climate. Nature is harder—but the pieces exist. Put them together, and capital markets will finally be able to see nature risk with the clarity they demand.

Sources

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09.12.25

Small, Smart, and Compliant: How IFRS Proportionality Lowers the ESG Barrier for SMEs

The IFRS Sustainability Disclosure Standards (IFRS S1 and S2) embed proportionality, enabling SMEs to produce decision-useful ESG disclosures without incurring undue cost or complexity. Two mechanisms drive this: (1) reliance on reasonable and supportable information available at the reporting date, and (2) methods commensurate with resources, such as qualitative scenario analysis and narrative disclosure of anticipated financial effects.
This approach addresses global policy priorities (OECD, G20) and aligns with Hong Kong’s move toward IFRS adoption, ensuring interoperability with frameworks like the EU’s VSME. For SMEs, proportionality means faster compliance, improved access to capital, supply-chain resilience, and operational efficiency. It’s not a free pass—it’s a scalable pathway to full compliance and competitive advantage.
Simon Mak

Think ESG reporting is only for big corporations? Think again. The IFRS Sustainability Disclosure Standards—IFRS S1 (General Requirements) and IFRS S2 (Climate)—bake in proportionality so smaller businesses can publish decision‑useful sustainability information without hiring a platoon of consultants or standing up enterprise systems on day one. That design choice isn’t a footnote; it’s the feature that makes a global baseline usable for the businesses that power most economies. IFRS Foundation factsheet, Jan 2025 | PwC Viewpoint summary of ISSB webcasts, Feb 2025

Why proportionality matters now

SMEs are being asked for ESG data by banks, insurers, and large customers who’ve made climate and sustainability commitments of their own. Without a practical pathway, smaller firms risk losing contracts and paying more for capital—not because they’re unwilling, but because reporting has felt out of reach. International policy work recognizes this: the G20/OECD has called out the need for sustainability reporting that works for SMEs and emerging markets, and European authorities introduced a simplified Voluntary SME Standard (VSME) to ease value‑chain frictions. The message is consistent: keep proportionality and scalability front and center. OECD for G20 SFWG (2024) policy note | World Bank/Accountancy Europe deck on SME proportional approach (Mar 2025)

Against this backdrop, the ISSB’s proportionality mechanisms are not an afterthought; they are central to making S1/S2 feasible for all companies, including SMEs in developing markets. IFRS Proportionality Factsheet | KPMG overview of proportionality/scalability

The two levers SMEs can pull today

1) Use “reasonable and supportable information… without undue cost or effort.”
When information is hard or costly to obtain, you are expected to use relevant and appropriate data that’s already available at the reporting date—and explicitly not to conduct exhaustive searches. Examples include using utility bills for energy, fuel invoices for fleet emissions, HR records for workforce metrics, and supplier attestations or spend-based estimates for selected Scope 3 categories. The standard asks for a balanced judgment between effort and investor benefit. IFRS Proportionality Factsheet | ISSB webcast explainer

2) Apply methods “commensurate with skills, capabilities and resources.”
Your methods can match your maturity. That could mean a qualitative climate scenario analysis in year one (instead of complex modeling), and qualitative disclosure of anticipated financial effects when quantification would require skills or systems you don’t yet have. The standards anticipate that your capacity—and your disclosures—scale up over time. IFRS Proportionality Factsheet | PwC Viewpoint summary

Key takeaway: proportionality doesn’t lower the bar; it builds a ramp.

Where proportionality shows up in practice

The IFRS Foundation has summarized where these mechanisms apply. For SMEs, four areas are especially helpful:

Debunking three SME myths

Myth 1: “We must quantify everything on day one.”
Not so. IFRS S2 allows qualitative scenario analysis and qualitative anticipated financial effects when quantification would require undue cost or specialized skills you don’t yet have—so long as the narrative is decision‑useful and you commit to improving. IFRS Proportionality Factsheet | PwC Viewpoint

Myth 2: “Scope 3 is impossible for SMEs.”
You’re expected to start with reasonable, supportable methods—supplier questionnaires, spend‑based estimates, and narrower focus on the most material categories—then enhance over time. IFRS Proportionality Factsheet | KPMG guide

Myth 3: “These are big‑company frameworks.”
S1/S2 are globally applicable and intentionally scalable. IFRS S1 even instructs companies to consider SASB Standards to identify industry‑specific topics—an efficient way for SMEs to focus on what’s financially material in their sector. IFRS SASB Standards page | KPMG on SASB in IFRS S1

A 90‑day SME playbook (practical and proportionate)

Days 1–15: Define scope and material topics
Sketch your business model and value chain; shortlist sustainability‑related risks/opportunities that could affect cash flows, access to finance, or resilience. Use SASB sector guidance as a starting compass. IFRS SASB Standards page | KPMG—SASB in S1

Days 16–45: Collect “reasonable and supportable” data
Pull utility bills (Scope 2), fuel invoices (Scope 1), procurement spend + supplier declarations (priority Scope 3), and HR records (workforce). Document estimates and why they’re reasonable. IFRS Proportionality Factsheet | ISSB webcast

Days 46–60: Run a qualitative climate scenario analysis
Pick two plausible scenarios (e.g., orderly transition vs. delayed transition). Map exposure channels—input costs, policy changes, customer demand—and explain your response (supplier diversification, route optimization, equipment upgrades). IFRS Proportionality Factsheet | PwC Viewpoint

Days 61–75: Draft to the four pillars

  • Governance: Who is accountable? What decisions are escalated?
  • Strategy: How do material issues influence your business model and resilience?
  • Risk management: Identification, assessment, and response processes.
  • Metrics/targets: Begin with S2 cross‑industry metrics (Scope 1, 2, and material Scope 3; energy; risks) and set one or two near‑term, achievable targets. IFRS Proportionality Factsheet—S2 metrics | HKICPA guidance

Days 76–90: Get feedback and publish
Share a concise draft with your bank and two key customers. Ask: “Is this decision‑useful? What would make it more so next year?” Incorporate feedback, then publish—explicitly noting where you applied proportionality and how you’ll scale. KPMG—transition and first‑year reliefs | PwC Viewpoint—climate‑first application support

A lightweight case example (composite SME)

A regional food distributor with 140 employees needs to keep a major supermarket client. Using proportionality, it:

  • Scopes topics via SASB (Food Retail/Distribution): energy management, fleet emissions, food waste, worker safety.
  • Compiles energy and fuel data from bills and invoices; uses spend‑based estimates for upstream transport (a material Scope 3 category).
  • Runs a qualitative scenario comparing orderly vs. delayed transition, highlighting potential fuel cost volatility and refrigeration retrofits, and commits to driver training and route optimization.

The result: decision‑useful insight now, with a commitment to add intensity KPIs and refine Scope 3 next year—the iterative, capacity‑building pathway the standards envision. IFRS Proportionality Factsheet | KPMG transition pathway

Strategic payoffs for SMEs

  1. Access to finance on better terms. Banks and investors are integrating climate and ESG factors into pricing and diligence; proportionate S1/S2 reporting signals preparedness and improves comparability. OECD/G20 policy note | World Bank/Accountancy Europe
  2. Supply‑chain resilience. Preferred supplier lists now routinely require ESG data. Proportionate disclosures help you remain eligible and win tie‑breakers. World Bank/Accountancy Europe | PwC Viewpoint
  3. Operational efficiency. Baselines often surface quick wins: consolidating deliveries, optimizing refrigeration set‑points, or reducing waste. These lift margins and emissions performance. IFRS S2 cross‑industry metrics summary | HKICPA guidance

How this fits with policy and other standards

The ISSB’s proportionality approach aligns closely with policy moves to avoid SME overload while improving informational comparability. Europe’s VSME offers a modular, simplified structure designed primarily for business‑partner information needs and intended to be interoperable with the global baseline. Meanwhile, the OECD is working toward a core set of indicators that satisfy banks and supply chains without imposing full large‑company reporting burdens. Translation: reporting proportionately to IFRS S1/S2 is increasingly recognized across borders. World Bank/Accountancy Europe VSME summary | OECD SME reporting convergence

Final thought (and a nudge)

Proportionality is a ramp, not an exemption. The ISSB expects you to use what’s reasonable today, make transparent judgments, and ratchet up sophistication over time. That’s exactly what investors and customers want: comparable information that improves each year. Start with one material topic, one core metric, and one improvement you’ll deliver in 12 months. Publish the plan. Then iterate.

Ready to move? Drop “Proportionality” in the comments if you want a one‑page checklist and template to publish your first proportionate IFRS S1/S2 disclosure this quarter.

References

Note: This article provides general information and does not replace reading and applying the IFRS Sustainability Disclosure Standards themselves.

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