Case study: Nature-related financial disclosures (TNFD) — a city or utility pilot and the results so far

When Melbourne Water, the statutory authority responsible for managing water supply, sewerage, and waterways across greater Melbourne, Australia, became one of the first utilities globally to complete a full Taskforce on Nature-related Financial Disclosures (TNFD) pilot assessment in 2024, the results challenged assumptions that nature-related disclosure was primarily a concern for extractive industries or agriculture. The utility discovered that 38 percent of its infrastructure assets, valued at AUD 14.2 billion, had material dependencies on ecosystem services that were not captured in existing risk frameworks. This case study examines how Melbourne Water implemented the TNFD's LEAP approach, what the assessment revealed, and what other utilities and municipal authorities in the Asia-Pacific region can learn from the experience.

Why It Matters

Nature-related financial risks have moved from the periphery of corporate risk management to the center of regulatory attention across the Asia-Pacific region. The TNFD released its final recommendations in September 2023, providing a disclosure framework structured around four pillars: governance, strategy, risk and impact management, and metrics and targets. By early 2026, over 1,000 organizations globally have committed to adopting TNFD-aligned disclosures, with the strongest uptake in Japan (where 380 organizations have signed on), Australia, and Singapore.

For utilities and municipal authorities, nature-related risks are not abstract. Water utilities depend directly on watershed ecosystem services for water filtration, flow regulation, and sediment control. Electricity utilities rely on stable hydrological systems for hydropower generation and cooling water supply. Municipal governments manage parks, waterways, and coastal infrastructure whose function depends on healthy ecosystems. The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) estimates that nature provides services worth $125 trillion to $140 trillion annually to the global economy, with water purification and regulation representing one of the largest individual service categories.

In Australia specifically, the Australian Prudential Regulation Authority (APRA) issued guidance in 2025 indicating that nature-related risks should be integrated into financial risk management frameworks for regulated entities. The Australian Securities and Investments Commission (ASIC) signaled that TNFD-aligned disclosures would be considered best practice for entities reporting under Australia's mandatory climate-related financial disclosure regime, which took effect in January 2025. For Melbourne Water, early adoption was both a risk management imperative and a regulatory positioning decision.

The Pilot: Design and Implementation

Scoping and Governance

Melbourne Water established a cross-functional TNFD working group in early 2024, comprising representatives from asset management, environmental science, finance, risk management, and corporate strategy. The working group reported to the Chief Financial Officer and the General Manager of Waterways and Land, reflecting the TNFD's emphasis on integrating nature considerations into both financial and operational governance structures.

The initial scoping decision was critical: rather than attempting a comprehensive assessment across all operations, Melbourne Water focused its pilot on two business segments where nature dependencies were hypothesized to be highest. These were the managed catchments supplying approximately 80 percent of Melbourne's drinking water, and the 25,000 kilometers of waterways and drainage systems the utility manages across the metropolitan region. This scoping decision, aligned with the TNFD's guidance on materiality-based prioritization, reduced the pilot's complexity while covering the operations most likely to reveal nature-related financial risks.

Applying the LEAP Approach

The TNFD's LEAP approach provides a structured methodology for nature-related assessment, organized into four phases: Locate interfaces with nature, Evaluate dependencies and impacts, Assess risks and opportunities, and Prepare to respond and report.

Locate. Melbourne Water mapped its operational interfaces with nature across 157,000 hectares of managed catchment land and the metropolitan waterway network. The utility used the Exploring Natural Capital Opportunities, Risks, and Exposure (ENCORE) tool developed by the Natural Capital Finance Alliance to identify ecosystem services relevant to each operational site. It supplemented ENCORE data with high-resolution spatial analysis from the Integrated Biodiversity Assessment Tool (IBAT) and state-level biodiversity databases maintained by the Victorian Department of Energy, Environment, and Climate Action. The Locate phase identified 847 distinct interfaces between Melbourne Water's operations and natural ecosystems, categorized by biome type, conservation status, and proximity to infrastructure assets.

Evaluate. For each identified interface, the working group assessed both dependencies (where operations rely on ecosystem services) and impacts (where operations affect natural systems). The evaluation revealed that Melbourne Water's water supply operations depend critically on five ecosystem services: water flow regulation provided by native forest cover, water quality maintenance through natural filtration in intact catchments, erosion control from riparian vegetation, flood mitigation from wetland systems, and climate regulation from forest carbon sequestration. Quantifying these dependencies required collaboration with the University of Melbourne's School of Ecosystem and Forest Sciences, which provided hydrological modeling showing that every 10 percent reduction in mature native forest cover within priority catchments would increase water treatment costs by AUD 8 to 12 million annually due to higher turbidity and dissolved organic carbon levels.

The impact assessment identified that Melbourne Water's drainage infrastructure affects waterway health through altered hydrology, increased pollutant loads from urban runoff, and habitat fragmentation. The utility's own waterway condition monitoring program, covering 8,600 monitoring points, provided empirical data showing that 42 percent of monitored waterway reaches were in poor or very poor ecological condition, with infrastructure modifications identified as a contributing factor in 65 percent of degraded reaches.

Assess. The risk assessment translated ecological dependencies and impacts into financial terms. Three categories of nature-related financial risk emerged as material.

Physical risks: Bushfire damage to catchment forests, which occurred during the 2019-2020 Black Summer fires, increased water treatment costs by AUD 15 million in the following two years due to post-fire sediment and ash runoff. Climate projections indicate a 20 to 40 percent increase in severe fire weather days across Melbourne Water's catchments by 2050, suggesting that this physical risk will intensify. The assessment estimated annualized expected losses from catchment degradation at AUD 25 to 45 million under moderate climate scenarios.

Transition risks: Strengthening environmental regulations, including Victoria's updated waterway management obligations and potential Commonwealth biodiversity legislation, could require AUD 200 to 400 million in additional investment over the next decade for waterway rehabilitation, fish passage construction, and stormwater treatment upgrades. The utility's existing capital plan had allocated AUD 120 million for these purposes, leaving a potential gap of AUD 80 to 280 million.

Systemic risks: Biodiversity loss across the greater Melbourne region threatens the long-term viability of nature-based infrastructure solutions (constructed wetlands, bioretention systems, and vegetated swales) that Melbourne Water has increasingly deployed as cost-effective alternatives to traditional engineered drainage. If the ecological function of these systems degrades due to regional biodiversity decline, replacement with conventional infrastructure would cost an estimated AUD 1.2 billion over 30 years.

Prepare. Based on the assessment findings, Melbourne Water developed a nature-related risk response strategy organized around three priorities: protecting catchment ecosystem services through expanded forest management and fire risk reduction, rehabilitating priority waterway reaches to reduce regulatory transition risk, and strengthening monitoring of nature-based infrastructure performance to provide early warning of systemic risk materialization.

Results and Outcomes

Financial Materiality Findings

The TNFD pilot assessment identified AUD 2.1 billion in nature-dependent asset value (38 percent of total infrastructure assets) and AUD 300 to 725 million in potential nature-related financial impacts over a 30-year planning horizon. These figures exceeded initial expectations and prompted the Melbourne Water Board to classify nature-related risk as a material financial risk category in its 2025 corporate risk register, alongside climate change, cyber security, and regulatory compliance.

Capital Allocation Changes

The assessment directly influenced Melbourne Water's 2025-2030 capital investment program. The utility increased its allocation for catchment management by AUD 45 million (a 35 percent increase) and added AUD 30 million for waterway rehabilitation above previous plans. The Board approved AUD 8 million for enhanced biodiversity monitoring infrastructure, including environmental DNA (eDNA) sampling capability across priority waterways and real-time water quality sensors in fire-prone catchments. These investments were justified through the financial risk quantification produced by the TNFD assessment, which demonstrated that proactive natural capital maintenance is significantly more cost-effective than reactive infrastructure responses to ecosystem degradation.

Disclosure and Stakeholder Response

Melbourne Water published its first TNFD-aligned disclosure in its 2024-2025 Annual Report, making it one of the first water utilities globally to do so. The disclosure followed the TNFD's recommended structure across governance, strategy, risk management, and metrics and targets. Initial stakeholder response was positive. The Essential Services Commission of Victoria, Melbourne Water's economic regulator, cited the TNFD assessment as evidence of improved risk management practices in its 2025 price review. Two of Melbourne Water's major banking partners (ANZ and National Australia Bank) indicated that the nature-related risk assessment would be considered favorably in future green bond issuances.

Metrics and Targets Established

The pilot produced Melbourne Water's first set of nature-related metrics aligned with TNFD's core disclosure recommendations:

Metric	Baseline (2024)	2030 Target
Priority catchment native forest cover	78%	82%
Waterway reaches in good/excellent condition	58%	65%
Nature-based infrastructure coverage (% of drainage network)	22%	30%
Monitored biodiversity index (waterways)	0.62	0.70
Annual spending on natural capital maintenance	AUD 128M	AUD 180M
Supplier nature-risk screening coverage	0%	40%

Transferable Lessons

Start with Dependencies, Not Impacts

Melbourne Water found that framing the TNFD assessment around operational dependencies on nature generated stronger executive engagement than leading with environmental impact. When the working group presented the financial cost of catchment degradation to the Board, the conversation shifted from "why should we report on biodiversity" to "how do we protect the natural assets our operations depend on." This framing is particularly relevant for utilities and municipal authorities where nature dependencies are direct and quantifiable.

Use Existing Data Before Commissioning New Studies

The pilot leveraged 15 years of waterway condition monitoring data, existing catchment hydrological models, and state biodiversity databases. The incremental cost of the TNFD assessment, approximately AUD 1.2 million including staff time and external advisory support, was modest relative to the value of findings because the utility already possessed most of the ecological data required. Organizations contemplating TNFD adoption should inventory existing environmental monitoring data before assuming that expensive new assessments are necessary.

Integrate with Climate Disclosure Rather Than Creating Parallel Processes

Melbourne Water structured its TNFD assessment to complement its existing TCFD-aligned climate disclosure, using the same governance structure, overlapping risk scenarios, and integrated metrics. This approach reduced duplication and ensured consistency between climate and nature risk narratives. The TNFD itself was designed for compatibility with the TCFD framework, and Melbourne Water's experience confirms that integration is both practical and beneficial.

Engage Regulators Early

Melbourne Water briefed its economic regulator and the state environmental regulator on the TNFD pilot before publishing results. This proactive engagement ensured that regulators understood the methodology and could incorporate findings into their own frameworks. For utilities in regulated industries, early regulator engagement reduces the risk of disclosure creating unintended regulatory consequences.

Financial Quantification Is Possible but Requires Cross-Disciplinary Collaboration

Translating ecological dependencies into financial terms required collaboration between environmental scientists, hydrological engineers, and financial analysts. No single discipline could complete the assessment independently. Organizations should plan for 6 to 12 months of cross-functional work and budget for external ecological economics expertise where internal capability is limited.

Action Checklist

• Establish a cross-functional TNFD working group with representation from finance, risk, operations, and environmental management
• Scope the assessment to focus on business segments with the highest nature dependencies rather than attempting comprehensive coverage immediately
• Use the ENCORE tool and IBAT database to map operational interfaces with nature and identify priority ecosystems
• Inventory existing environmental monitoring data that can inform the LEAP assessment before commissioning new studies
• Quantify at least three categories of nature-related financial risk (physical, transition, systemic) in monetary terms
• Integrate TNFD governance and reporting structures with existing climate disclosure frameworks
• Brief relevant regulators on TNFD assessment methodology and findings before publication
• Establish baseline nature-related metrics with measurable targets aligned to TNFD core disclosure recommendations
• Include nature-related risk in corporate risk registers and capital allocation decision processes

FAQ

Q: How long does a TNFD pilot assessment take for a utility or municipal authority? A: Melbourne Water's pilot took approximately 14 months from working group formation to Board-approved disclosure. Organizations with less existing environmental monitoring data should plan for 18 to 24 months. The LEAP approach can be phased, with the Locate and Evaluate steps completed in 6 to 9 months and the Assess and Prepare steps in an additional 6 to 9 months.

Q: What does a TNFD assessment cost? A: Melbourne Water's total cost was approximately AUD 1.2 million, including staff time (equivalent to 3 full-time employees for 12 months), external advisory fees (AUD 350,000), and spatial analysis and ecological modeling costs (AUD 180,000). Organizations starting with less existing data should budget AUD 1.5 to 3 million for a comparable scope. Smaller utilities or municipalities can reduce costs by focusing on a single business segment and using publicly available ecological databases.

Q: Is TNFD disclosure mandatory in the Asia-Pacific region? A: As of early 2026, TNFD-aligned disclosure is not explicitly mandatory in any Asia-Pacific jurisdiction, but regulatory momentum is strong. Japan's Financial Services Agency recommended TNFD adoption in its 2024 sustainability disclosure guidance. Australia's mandatory climate disclosure regime considers nature-related risks as part of climate-related financial risks where material. Singapore's MAS Guidelines on Environmental Risk Management reference nature-related risks. Organizations that adopt TNFD voluntarily now will be better positioned for likely mandatory requirements within 3 to 5 years.

Q: How does TNFD relate to the Kunming-Montreal Global Biodiversity Framework? A: The Global Biodiversity Framework's Target 15 requires governments to ensure that large and transnational businesses assess and disclose their nature-related risks, dependencies, and impacts. TNFD provides the primary disclosure mechanism for meeting this target at the organizational level. Countries implementing Target 15 through national legislation are likely to reference or require TNFD-aligned reporting. For utilities and municipal authorities, the GBF creates the policy context that makes TNFD adoption strategically important.

Q: Can the Melbourne Water approach be applied to electricity utilities or municipal governments? A: Yes, with modifications. Electricity utilities should focus the LEAP assessment on dependencies related to water availability for cooling and hydropower, land use for transmission corridors and renewable energy siting, and biodiversity impacts from infrastructure construction and operation. Municipal governments should assess dependencies on urban ecosystem services including flood mitigation, urban heat reduction, and recreational amenity values. The fundamental approach of mapping dependencies, quantifying financial risks, and establishing metrics and targets is transferable across all sectors.

Sources

• Taskforce on Nature-related Financial Disclosures. (2023). Recommendations of the Taskforce on Nature-related Financial Disclosures. Geneva: TNFD.
• Melbourne Water. (2025). Annual Report 2024-2025: Nature-Related Financial Disclosures. Melbourne: Melbourne Water Corporation.
• IPBES. (2024). Global Assessment Report on Biodiversity and Ecosystem Services: Updated Economic Valuation. Bonn: IPBES Secretariat.
• Natural Capital Finance Alliance. (2025). ENCORE: Exploring Natural Capital Opportunities, Risks and Exposure. Updated Methodology and Database. Oxford: NCFA.
• Australian Prudential Regulation Authority. (2025). Prudential Practice Guide: CPG 229 Climate Change Financial Risks, Nature-Related Addendum. Sydney: APRA.
• University of Melbourne. (2024). Hydrological Impacts of Catchment Forest Cover Change on Melbourne's Water Supply: Scenario Analysis. Melbourne: School of Ecosystem and Forest Sciences.
• Japan Financial Services Agency. (2024). Sustainability Disclosure Guidance: Nature-Related Financial Risks and Opportunities. Tokyo: JFSA.