Introduction

Late last month, the Transition Finance Council (TFC) provided clarity that a company with material gaps in the credibility of its transition plan on nature and biodiversity should not be eligible for transition finance. 

This guidance sends a positive signal that evaluating an entity’s management of nature-related issues is therefore no longer a “nice to have”. Rather, it is a necessary step to realign financial flows with the whole-of-economy transition envisaged by the Global Biodiversity Framework. 

Background 

The GFI Hive team worked alongside the Transition Finance Council (TFC) on its Implementation Handbook: How to Apply the Transition Finance Guidelines, and as part of this collaboration, co-developed a case study that explores a critical but often under-examined question in transition finance: how should nature be considered when assessing the credibility of a company’s transition plan and its eligibility for transition finance? 

Nature is likely to be a material risk for businesses across many sectors. As a result, it needs to be factored into decisions about whether an entity qualifies for transition finance. By including this case study within the Implementation Handbook, the TFC has provided valuable guidance for how financial institutions can credibly evaluate an entity’s management of its nature-related issues. 

Setting the context: the role of the Transition Finance Council

The TFC was co-launched by the City of London Corporation and HM Government in 2025 with a clear mission: to drive delivery of the Transition Finance Market Review’s roadmap and position the UK as a global hub for raising and deploying transition finance. 

To support this ambition, the TFC has released a suite of publications designed to shape market practice, inform policy, and unlock investment at scale. Central to this package is the Transition Finance Guidelines Exposure Draft – a practical framework to help financial institutions evaluate whether entity-level equity and debt finance can credibly be labelled as transition finance. 

The Guidelines set out a structured approach built around Principles, Assessment Factors, and Contextual Factors, helping capital providers judge both the quality of transition plans and the reality of their implementation. To bring this framework to life, the TFC has also published the Implementation Handbook, which offers practical guidance and illustrative case studies showing how the Guidelines can be applied in real-world decision-making. 

Bringing nature into transition plan assessments 

The case study we co-developed, included below in full, shows how weaknesses in management of nature-related issues can undermine an otherwise well-developed transition plan: 

Introduction  

Case study 5 illustrates why capital providers may wish to consider an entity’s material Contextual Factors. Within the food and agriculture sector, nature-related risks and opportunities can be as material as emissions reduction. This makes it essential for an entity to demonstrate how nature-related risks and opportunities are managed alongside decarbonisation. This example was selected to show how gaps in management of nature-related issues risk undermining an otherwise credible transition plan, and how financial institutions can draw on existing guidance from the TNFD to consider sector-specific Contextual Factors that should be assessed under these Guidelines.

Context: Food and retail business  

A large food retail business has set Scope 1 and 2 emissions-reduction targets, and a Scope 3 target that covers its material indirect emissions by 2030, alongside a commitment to achieve net zero by 2050.  

The company has published a transition plan outlining actions it considers necessary to achieve these ambitions. To support the financing of its decarbonisation initiatives, the company engages a bank to explore eligibility for transition finance. The bank conducts an initial assessment against the Guidelines.  

Assessment of material Contextual Factors  

On reviewing the company’s time-bound implementation actions, the analyst notes that its decarbonisation levers primarily focus on energy efficiency improvements. The company is also pursuing the procurement of 100% renewable electricity in its direct operations, as well as electrifying and improving the efficiency of agricultural equipment in its supply chain. While these measures would enable the company to meet its interim emissions targets, the bank identifies important gaps when assessing the materiality of potentially relevant Contextual Factors.  

The analyst draws on the TNFD’s sector guidance for the food and agriculture sector to identify the most material nature-related impacts, dependencies, risks, and opportunities across: (i) agricultural production; (ii) meat, poultry, and dairy; (iii) processed foods; and (iv) food retail. This information allows the bank to assess additional Contextual Factors from the Guidelines, including: 

• “Nature and biodiversity” Factor
• “Adaptation and resilience” Factor

Nature and Biodiversity Contextual Factor  

The TNFD sector guidance clarifies that food retail businesses depend on soil health, pollination services, freshwater supply for irrigation, agrobiodiversity, as well as on resilience to climate impacts in their supply chains. Agricultural production also directly impacts these ecosystem services and environmental assets, including through land-use change, such as deforestation, freshwater consumption and pollution from chemical inputs. 

The sector guidance details risks and opportunities which can arise from these dependencies and impacts. Indicative risks include higher production and sourcing costs driven by water stress and increased compliance costs linked to the company’s dependency on forest risk commodities in jurisdictions with regulatory requirements. Opportunities include lower input costs resulting from investment in precision farming technologies, as well as potential to increase revenue growth from sustainably certified food offerings.   

The business does not have a TNFD report, nor does it adequately reference the material nature-related risks and opportunities identified as relevant to the sector in its other climate disclosures. The bank determines that although the company’s actions support its emission targets, it does not have sufficient evidence that the business is effectively managing interrelated nature and climate issues in an integrated way, undermining the credibility of its path to net zero. 

To better address nature-related risks and opportunities, the company could engage with their suppliers to ensure products are certified as deforestation-free, or fund technical assistance for their supply chain farmers to reduce synthetic chemical inputs. To better address its exposure to water risks, the company could identify “hot spots” of water scarcity in its supply chain. It could also support the co-development of water stewardship plans in partnership with local stakeholders.  

Adaptation and Resilience Contextual Factor   

The entity has not incorporated adaptation measures to create resilience, such as incentivising farmers in its supply chain to enhance soil health on farms to build resilience to climate impacts like flooding and drought. Measures could include adding a premium to the prices paid to farmers tied to the implementation of a menu of practices, such as reduced or no-tillage cultivation, crop rotation, application of natural fertilisers, or cover cropping.

Key learnings  

This case study shows that a company may satisfy the Core Criteria in the Assessment Factors, yet sector-specific Contextual Factors can reveal material gaps in the credibility of its transition plan, including how it manages nature-related risks and opportunities. For capital providers, this illustrates the relevance that a Contextual Factors may have in classifying an investment.  

Nature is likely to be a material Contextual Factor for a variety of sectors such as metals and mining, chemicals, biotechnology and pharmaceuticals, real estate, engineering and construction services, electric utilities and power generators, apparel, fishing and aquaculture, marine transportation and cruise lines, forestry, pulp and paper, water utilities and services, oil and gas, and alternative fuels.