Step 3: Follow the recommended risk assessment process
In this step, we explain how to implement the TNFD LEAP approach to assessing nature risk as outlined in the TNFD Recommendations (Figure 2).
Following this process should prepare you to meet most ESG disclosures frameworks for nature-related financial risks, including the CSRD.
The TNFD and other nature disclosures frameworks recommend or require quantified analysis where possible, acknowledging that methodologies for quantification are still under development. Companies should work to quantify as much as possible, or at least collect the data needed for future quantification efforts.
However, qualitative results may be sufficient for the first year of disclosures while the quantification mechanisms are being introduced and adopted.
Dunya Analytics' nature risk analytics solution makes it easy for companies to quantify financial risks associated with biodiversity and nature loss. We combine company operational information with third party datasets in our proprietary and transparent methodology to make nature risk assessment fast, easy, and affordable.
The TNFD LEAP Approach
Figure 2. The TNFD LEAP approach for measuring and disclosing nature-related financial risk.
Source TNFD.
Locate the interface with nature
The Locate step of the LEAP approach answers question 1, what are you doing and where are you doing it? The TNFD recommends that you analyze all of your "Business Activities" on two dimensions: material locations and sensitive locations.
Material locations are defined by the activities of your organization. They are the places where your organization identifies material nature-related dependencies, impacts, risks and/or opportunities, usually where you have material Ecosystem Pressures.
The Locate step should enable you to answer the following questions:
Which of our Business Activities are in areas important for biodiversity, Indigenous Peoples and Local Communities, or water stress?
Which of our Business Activities could be impacting legally protected areas or community lands, presenting a legal risk?
How should we prioritize our Business Activities from a nature risk perspective?
Priority Locations
Figure 3. Visual Representation of TNFD recommendations and CSRD requirements. Adapted from the TNFD.
Evaluate dependences and impacts
The Evaluate step of the LEAP approach answers question 2, what do your business activities mean for the ecosystems in which you operate? Focusing on priority locations, this step involves a deeper analysis of your impacts and dependencies on nature, starting with the applicable Ecosystem Pressures or drivers of nature change.
At the time of this publication, the TNFD recommends 29 different metrics for the Locate and Evaluate steps of the LEAP approach. Download our free TNFD Metrics Map to see the metrics that cover these first two steps.
The Dunya Analytics platform also evaluates impacts and dependencies at a screening level, to help you identify and prioritize where onsite measurements should be made.
The Evaluate step should enable you to identify which are the most important Ecosystem Pressures for your business – key information for setting meaningful science-based targets and establishing strategic programs within the company.
For example, if you identify water use as a material Ecosystem Pressure for your business, you need to identify where your water use is most material. The Business Activity that uses the most water may not pose the highest risk. A Business Activity that uses a moderate amount of water, but is operating in an area of increasing water stress, and is in competition with ecosystems or people for that water, may be a much higher risk for the company.
Assess risks and opportunities
The Assess step in the LEAP approach answers question 3, how do your impacts and dependencies on nature translate into risks and opportunities for the company? In this step you should connect the dots between your impacts and dependencies, and financial materiality for the company. Risks and opportunities come in many forms, and are nicely segmented into 24 metrics in the TNFD. Consult the TNFD Recommendations or our TNFD Metrics Map for more details.
This step should yield very valuable insights for the company, both in identifying material financial risks and uncovering promising business opportunities.
Returning to the water use example in the previous section, once you have identified which locations have material risks associated with water use, you can connect the water use to company financials and answer questions like:
How much revenue depends on a dwindling water resource?
Where can we reduce operating costs by reducing water use?
Where might we face lawsuits, regulatory fines, or lose our license to operate because of our water use?
Prepare to respond and report
The last step in the LEAP approach, but not the last in your journey, is to disclose what you learned in the Locate, Evaluate, and Assess steps, and to prepare your response.
The backlash and subsequent legal implications of greenwashing have made some companies wary of communicating their sustainability progress (referred to as "greenhushing"). However, companies that provide a comprehensive view of their relationship with nature – celebrating the successes while acknowledging the work yet to be done – yield significant benefits, including:
Lower cost of capital
Stronger competitive positioning and customer loyalty
Increased trust from communities, regulators, and investors
These days, it is important for companies to be thoughtful about how they communicate sustainability initiatives, and we recommend this Harvard Business Review article to help companies navigate the complexities of sustainability communications.
Many companies are also nervous about measuring nature risk, and wonder if it means they will have to relocate operations if risks are identified. Hopefully not! Moving a business is expensive and can be devastating for local communities and economies dependent on that business operation. In fact, there are many things a company can do to address nature risks that are easy, affordable, good for the local community, and financially beneficial for the company. Following the process in this document can help you to identify and prioritize those responses to build a more profitable and resilient business.
“Connect the dots between your impacts and dependencies, and financial materiality for the company.”
About Dunya Analytics
Dunya Analytics is a SaaS platform offering companies science-based risk analytics for biodiversity and nature, enabling them to meet ESG disclosures requirements, and empowering them with insights in actionable financial terms to drive sustainability strategy.