Practical Issues for Regional Financial Institution Considering TNFD Disclosure: Implications Gained from the Initiatives of the Bank of the Ryukyus

Zeroboard Research Institute Natural Capital Team Masako Ishimori and Mizuki Nabeshima

Since the publication of the recommendations of the Task Force on Nature-related Financial Disclosures ( TNFD), how to organize nature-related risks and opportunities and reflect them in information disclosure has become an important topic of discussion for Financial Institution. This paper uses the case of the Bank of the Ryukyus to examine practical issues that regional Financial Institution should consider when undertaking TNFD disclosure.

Why Regional Finance Needs TNFD: The Inseparability of Nature and Economy

For Financial Institution, dependence on and impact on nature generally occurs downstream through the companies they invest in. For regional Financial Institution , the locations of the companies they invest in are somewhat limited, so nature-related Issue vary depending on the natural characteristics and Industry characteristics of the region. The significance of regional Financial Institution working on TNFD is that it allows them to quantitatively and qualitatively grasp the interdependence between the regional economy and nature, and manage regional sustainability from the perspective of their loan portfolios. For regional Financial Institution, responding to the TNFD recommendations suggests that they will rediscover the value of regional resources and serve as a compass for building a resilient regional economic foundation for the future.

Characteristics of Bank of the Ryukyus' TNFD disclosure

Bank of the Ryukyus clearly defines Okinawa's rich natural environment not simply as a target for protection, but as an important "capital" that supports the sustainability of the local economy, centered on the tourism Industry . While "main Industry cannot survive if the natural environment is destroyed," "low productivity cannot contribute to environmental conservation" - this interdependence is seen as a materiality for management, and the bank is working to disclose information based on its own unique Issue of "the relationship between Okinawa's nature and business." Based on this consistent story, the bank faithfully implements the LEAP approach, disclosing the process and nature-related dependencies, impacts, and risks through its investments and lending partners.

Source: Bank of the Ryukyus, "Integrated Report 2025", p. 83, published August 8, 2025

Practical Issues of LEAP Analysis

The following three important practical issues emerged during the process of Ryukyu Bank's TNFD disclosure.

1) Scoping

Financial Institution' relationship with natural capital is primarily through the activity of their investments and loans, rather than through their own direct operations. Therefore, without scoping to consider the scope of assessment, the scope of analysis will be extremely diverse, making it difficult to conduct an effective analysis.

After screening for dependence and impact, Bank of the Ryukyus comprehensively assesses the loan balance ratio, Okinawa's Industry structure, and the degree of impact on the environment, narrowing down the priority sectors to three industries - Real estate, construction, and accommodation and food service - and then conducts detailed analysis. This "narrowing down" is the key to practical implementation in an organization with limited resources.

2) Limitations of using existing tools

Utilizing global tools for assessing dependence and impacts on nature, such as the commonly used ENCORE, is useful at the initial screening stage to identify general trends.

On the other hand, because geographical characteristics are not reflected, the results will be similar regardless of the region in which the Financial Institution conducts the analysis, making it difficult to make a judgment based solely on the tool's analysis results.

Therefore, in practice, it is essential to understand the limitations of these tools and to engage in an "interpretation" process that starts with a macro-evaluation using the tools and combines it with business characteristics, Industry characteristics, and the natural conditions specific to the location.

Source: Bank of the Ryukyus, "Integrated Report 2025", p. 86, published August 8, 2025

3) Identifying priority sectors and digging deeper into risks

The priority sectors identified through scoping and initial screening are sectors that may have significant nature-related Issue. Only by conducting an analysis that reflects the environmental characteristics of the region can specific risks be identified.

For example, the TNFD framework will enable regional financial institutions to structure risks that they have previously perceived intuitively, such as "natural disaster risk" caused by typhoons and landslides that are unique to Okinawa, and "reputation risk" due to Industry that depend on local Financial Institution .

Regional Financial Institution and TNFD Utilization: Engagement and Creating Opportunities

The core issue for regional Financial Institution in promoting TNFD is how to link the results of analysis to "engagement with clients" and "solution provision."

1) Integrated management of climate change risks and natural capital risks

The loss of natural capital directly leads to increased credit costs for banks and a loss of collateral value (Real estate) through the risk to the business continuity of investment and lending recipients. In island regions like Okinawa, climate change and natural capital, such as coral reef bleaching, are closely related. In such regions, it is essential to have a perspective on managing these factors in an integrated manner.

2) Transformation as an opportunity

The insights gained through this analysis will lead to increased funding for businesses that have a positive impact on the environment. Bank of the Ryukyus has formulated a sustainable investment and financing policy and is working to promote environmentally friendly investment and financing.

The Bank of the Ryukyus Integrated Report 2025 is available here.

https://www.ryugin.co.jp/common/uploads/integrated2025.pdf

The Bank of the Ryukyus has proactively conducted internal discussions regarding the organization and disclosure of nature-related risks and opportunities, while referring to the TNFD framework, and has disclosed natural capital information.

During this review process, Zeroboard Inc. provided information on organizing the LEAP approach and shared its opinions as an external expert on the Contents of disclosure.

This initiative is an example of the consideration process that regional Financial Institution should go through when putting the TNFD framework into practice, taking into account their own business characteristics and regional characteristics.

Zeroboard Research Institute will utilize the knowledge gained from these cases in future surveys and research activity, and contribute to companies' proactive consideration of nature-positive management.

You can also find out more about Zeroboard Research Institute's efforts regarding natural capital at the following URL:

https://www.zeroboard.jp/service/zri#naturalcapitalresearchgroup

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  Article author

  Masako Ishimori (Senior Fellow, Zeroboard Research Institute)

  He has been engaged in sustainability management work for 16 years in the Manufacturing/technology sector, including environmental audits, the Container Recycling Law, CFP calculations, ESG information disclosure and evaluation responses, materiality identification, and human rights policy formulation in the corporate sector. He is in charge of ESG management advisory and research on natural capital information disclosure. He completed the Master's course at Meiji University Graduate School of Agriculture and Life Sciences, with a Master's degree in Agriculture.