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Additional guidance on scenario analysis

Download – Annex 4.10
TNFD v0.4 Annex 4.10

1. Introduction to the TNFD’s draft approach to scenario analysis

1.1 Context

Good strategy is the art of making choices with the best available information under conditions of uncertainty. Like the Task Force on Climate-related Financial Disclosures (TCFD), the TNFD recognises the utility and importance of scenario analysis to help organisations develop and test the resilience of their organisation’s strategy given a complex set of uncertainties. Linked to the TNFD’s recommended risk management and disclosure approach, scenario analysis allows organisations to explore the possible consequences of nature loss and climate change, the ways in which governments, markets and society might respond, and the implications of these uncertainties for business strategy and financial planning.

In November 2022, the Taskforce published a discussion paper

outlining its proposed approach to scenario analysis to support application of the TNFD framework, as part of v0.3 of the TNFD beta framework. The TNFD has received feedback from market participants on this proposed approach through its open innovation process which has informed the development of this draft guidance. A set of initial pilot tests of the proposed approach has also been undertaken, focusing initially on use by corporates to improve decision-making, with a separate set of pilot tests with asset owners to begin to explore the approach when used by financial institutions. The TNFD has drawn on feedback and insights from these pilot tests to develop this draft scenario guidance for v0.4 of the beta framework.

The TNFD is designing its initial approach to scenario analysis focusing on use by corporates. It intends to extend and enhance the application of the approach to financial institutions in updates of the TNFD framework, building on pilot testing and feedback from market participants.

The TNFD welcomes further feedback and pilot testing of this draft guidance by 1 June 2023 to help ensure the guidance is practical and useful for market participants. The TNFD will use those further insights to refine the guidance for v1.0 of the framework to be published in September 2023.

1.2 Primary objectives of a scenario analysis

The core purpose of a scenario exercise when applying the TNFD framework is to prompt thinking around:

  • What may be different in the future from today;
  • How changes may unfold over time and why;
  • What new nature-related risks and opportunities may emerge as a result of those changes; and
  • What key uncertainties may affect potential changes.

The exercise can deepen an organisation’s understanding of nature-related risks and opportunities based on how the business environment could plausibly change. This can inform application of the TNFD framework, including assessments based on the LEAP approach and disclosures based on the TNFD’s recommendations.

1.3 Summary of the draft approach to scenarios

In the TNFD framework, a scenario is defined as a logically consistent story that describes a plausible future. It identifies some significant events, the main actors and their motivations, and how the world functions in this plausible future. It is intended to challenge market participants to think about what the future might be like and how they might respond under circumstances different from those they face today. The emphasis is on identifying several plausible but distinctly different views of the future, not predicting or forecasting forward from today’s reality, or describing the world in which the organisation hopes it might be operating.

The TNFD defines nature to include the atmosphere, and therefore the climate system, alongside land, ocean and freshwater realms of nature. As such, the TNFD disclosure recommendations build on existing TCFD-aligned market practice, and TNFD’s draft guidance on scenarios builds on TCFD’s scenario resources and macro-prudential use of climate scenarios. In so doing, the TNFD is working towards an approach that fully integrates considerations of climate and nature both to disclosure generally and to scenario analysis specifically.

While recognising the demand for nature-related scenarios to replicate the approach taken to climate-related scenarios in light of the Paris Agreement, there are practical limitations to taking an identical approach to nature. While climate scenarios are based on the understanding that businesses and society everywhere share one atmosphere, nature-related impacts, dependencies and risks are highly localised. As a result, nature-related scenarios necessitate an approach that recognises the location-specificity of nature-related dependencies, impacts, risks and opportunities, the current challenges in quantifying nature-related issues, and the lack of a single global target or single agreed indicator or metric for nature, akin to the 1.5°C global temperature change target for climate.

1.3.1 Scenario design characteristics

To address the inherent challenges with nature-related scenario analysis and learn lessons from climate-related scenario analysis, the TNFD has developed its draft approach to scenarios based on a set of key design characteristics:

  • Exploratory scenarios that describe a range of critical uncertainties and set out plausible futures. The TNFD’s scenarios ask “what if?” questions that allow the user to identify and aggregate data to drive internal risk and opportunity assessment. This is in line with the definition used by the TCFD in its Guidance on Scenario Analysis for Non-Financial Companies, which distinguishes between exploratory scenarios (describing a diverse set of plausible future states) and normative scenarios (starting with a preferred or desired future outcome and then back-casting plausible pathways from the preferred future to the present). Because of the shared and singular nature of the planet’s atmosphere and of the global climate target of limiting temperature change to 2ºC/1.5ºC, climate scenarios can be normative. Given that no such equivalent singular target exists for tackling nature loss, nature-related issues require a different approach. See Figure 1 below for a visual representation of the two, as presented in the TCFD guidance.

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  • Qualitative scenario storylines that allow for targeted quantification to be layered into this approach to interrogate issues that emerge.
  • Provides ‘building blocks’ for scenario analysis through a set of standardised elements that organisations can use and adapt to develop their own customised scenarios that reflect the location and specific context of nature-related dependencies, impacts, risks and opportunities that are unique to their organisation.
  • Oriented around two critical uncertainties – closely correlated to physical risk and transition risk – to create a tractable approach that can be customised to an organisation’s specific context, but still create a common approach to aggregate data. The TNFD’s identified critical uncertainties are the following:
    1. Ecosystem service degradation. This is most closely correlated with physical risk and connected with climate change as one of the five drivers of nature loss identified in the existing science.
    2. Alignment of market and non-market driving forces. This is most closely correlated with transition risk and connected with actions to address climate change.
  • Versatile and adaptable to allow organisations to tailor the scenario analysis approach to their own contexts and unique characteristics, rather than following a ‘one size fits all’ approach.
  • Complementary and synergistic with other scenario approaches and tools.
  • Medium- to long-term time horizon to generate insights on nature-related risks and opportunities.

The TNFD has designed a 2×2 critical uncertainties matrix with four scenarios to be considered. These narratives can be tailored to maximise the relevance and decision-utility to the organisation, encouraging the versatile approach described above.

These scenarios are designed to enable organisations to get started with the use of scenarios and provide a basis for broad comparability within and across sectors in the application of scenarios. Larger organisations with more complex analytic or reporting needs and in-house capabilities may wish to adapt these scenarios and/or layer a more heavily analytic or quantitative approach on top of the guidance outlined in this document. The TNFD has sought to provide a common starting point and baseline for the use of scenarios, not a rigidly prescriptive approach or one dependent on advanced analytic capabilities such as modelling.

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1.4 The toolbox

The TNFD has taken a ‘toolbox’ approach to reflect the value of a flexible and adaptable approach to scenario analysis when applying the TNFD framework. This prototype toolbox aims to enable users of the TNFD framework to undertake scenario analysis with access to a collection of user-oriented, practical tools, templates and techniques, in addition to general guidance. The TNFD envisages adding more advanced analytic tools over time, such as the ability to overlay more quantitative modelling of impacts, dependencies and risks.

The tools developed by the TNFD that are outlined in the scenarios toolkit are draft and will be further tested in TNFD pilots for insights on their practical utility and application, especially whether they allow effective consideration of long-term trends and uncertainties and implications for nature-related risks and opportunities. The TNFD has already undertaken a small set of pilot tests with corporates and will run additional pilots to test and refine the toolbox and guidance further. The results and feedback gathered through the first four scenario pilots are provided in Section 4.

1.5 Application of scenario guidance within the TNFD Framework

Scenarios are an important component of both the TNFD draft recommended disclosures and the LEAP approach to nature-related risk and opportunity assessment:

  • TNFD draft recommended disclosure Strategy C: Organisations are asked to ‘Describe the resilience of the organisation’s strategy to nature-related risks and opportunities, taking into consideration different scenarios.’
  • TNFD draft recommended disclosure Strategy B: Organisations are asked to ‘Describe the effect nature-related risks and opportunities have had on the organisation’s businesses, strategy and financial planning’. The implementation guidance references ‘if scenarios were used to inform the organisation’s strategy and financial planning, such scenarios should be described.’
  • The LEAP approach for nature-related risk and opportunity assessment: Scenario analysis should inform all phases of the LEAP approach, and especially:
    • The Assess material risks and opportunities phase. Scenario analysis can explore risks and opportunities – and management of those – under plausible futures.
    • The Prepare to respond and report phase, in particular P1 – Strategy and Resource Allocation where scenario analysis can test the resilience of an organisation’s strategic choices and response options to plausible futures.

The primary focus of the TNFD draft scenario guidance and toolbox is risk and opportunity assessment and management when applying the LEAP approach. The guidance and toolbox will be further developed for v1.0 of the TNFD framework, with an additional focus on disclosure guidance.

1.6 Benefits of applying scenarios

Scenarios provide a structured approach that can be used in TNFD disclosures to understand and convey how the business environment could change, the way in which management is informed of the potential implications of their strategic choices, and the inputs and assumptions used to draw conclusions on their resilience.

Scenarios can be used by organisations in their strategic planning and risk management process to identify:

  • How to respond to identified risks and opportunities;
  • Whether strategic plans are resilient to plausible events that are not generally considered in mainstream forecasts;
  • The organisation’s potential gaps and the potential demand for quantification and scientific modelling; and
  • Potential decisions an organisation would need to make or revise based on an observed gap or weakness in the current strategy.

Engaging in a scenario analysis exercise can also help organisations prioritise areas of their business and strategy, which in turn can inform appropriate governance, risk and impact management, capital allocation and target setting.

2. The TNFD scenario toolbox

2.1 Where to start

It can be useful and important to:

  • Conduct a first qualitative scenario workshop, especially in areas where quantification and quantitative models are not yet readily usable;
  • Avoid jumping quickly toward specific implications for the organisation and decisions inside a scenario that describe a particular business environment;
  • Focus on understanding the world in which the organisation may have to operate on a deeper and more intricate level first before making decisions; and
  • Not rush to quantification before nature-related dependencies, impacts, risks and opportunities are identified and understood from a qualitative point of view.

In line with the TCFD’s Guidance on Scenario Analysis for Non-Financial Companies, the scenario drivers, constraints, assumptions and logic identified and discussed within the organisation during the qualitative analysis of scenario narratives may be used as inputs to models, with the aim of quantifying the impact of scenarios on its costs and operations. An example on how financial institutions could follow this approach is provided in Section 3.1.

2.2.  A participatory workshop-driven approach

Scenario workshops should focus on testing, refining and stretching an organisation’s thinking, planning and decision-making, focusing on those aspects that are most relevant to understand the organisation’s exposure to dependencies and impacts on nature, and the resilience of its strategy under different scenarios that affect nature-related risks and opportunities.

A full and robust scenario exercise is typically conducted in multi-day workshops. Recognising that many organisations may find it challenging to commit that level of time and resources up front, a one-day or even a half-day workshop could generate preliminary hypotheses and results, which can be developed further as suits the organisation.

In order to generate useful insights from a scenario exercise, scenario workshops should include staff, and potentially external experts, from diverse professional backgrounds. Additional guidance on the successful design of scenario workshops is outlined in the TCFD’s Guidance on Scenario Analysis for Non-Financial Companies.

Each workshop should begin and conclude with the full group of participants. An introductory facilitation helps set the scene, clarifies expectations for the purpose of the exercise and, if needed, illustrates the TNFD approach to scenarios. The conclusion is used to compare the insights and implications that sub-groups generate from their respective scenarios.

A series of workshops can usefully follow a structured flow:

  1. Start with an initial focus on multiple exploratory “what if” scenarios, following the TNFD’s 2×2 scenario frame, to identify risks and opportunities and inform strategy thinking. This might also consider the availability of data and models for further quantitative assessment, if desired.
  2. Then turn to framing the organisation’s specific strategy and planning decisions to identify future targets and transition pathways to achieve those targets under different scenarios.
  3. Having selected a strategy, targets and pathways for different scenarios, the organisation can then apply further analysis to assess the resiliency of its chosen strategic choices.

Table 1 highlights where in the LEAP approach the insights gained from scenario thinking in these workshops can be helpful to  develop a robust, forward-looking assessment of nature-related dependencies, impacts, risks and opportunities.

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2.3.  Step-by-step guidance

These workshop exercises can be based on a step-by-step approach to assess the resilience of an organisation, focused on ‘critical uncertainties’, i.e. drivers of nature-related risks and opportunities, which are both highly uncertain and important for decision making.

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2.3.1     Step 1: Identifying the relevant driving forces

The exercise should start with narrative descriptions of possible macro business environments in which the organisation may have to pursue its strategic objectives.

In order to define the most pertinent uncertainties, the organisation should assess which driving forces are most relevant to explore in their scenarios. There are a number of driving forces that can be considered in a scenario to explore nature-related issues. Table 2 provides an overview of the driving forces used as the basis for the two critical uncertainties in the TNFD’s scenarios approach.

These categories of driving forces are not mutually exclusive nor comprehensively exhaustive. Market participants may also use other frameworks like Political, Economic, Social, Technological, Legal and Environmental (PESTLE) or Social, Technology, Economic, Environmental and Policy (STEEP) analyses to identify driving forces[1]. The range of variation captured in simple words on a continuum for each driving force is intended as a placeholder for more specific analyses at the local level by organisations undertaking scenario analysis.

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While users of scenarios can create a scenario analysis frame using any of the driving forces, the TNFD proposes constructing scenario analysis as a default around the following two critical uncertainties:

  1. Ecosystem service degradation. This is most closely correlated with physical risk and connected with climate change as a driver of nature loss.
  2. Alignment of market and non-market driving forces. This is most closely correlated with transition risk and connected with actions to address climate change.
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On one end of the critical uncertainty spectrum of ‘ecosystem service degradation’, organisations experience material disruptions to production as a result of severe degradation in the state of nature and loss in the provision of ecosystem services on which the organisation depends. The ability of the organisation to adapt to increasing costs or disruptions is limited by a combination of external driving forces, such as the cost of finance, or by systemic nature-related risk.

Disruptions to the organisation could be the consequence of a severe collapse in a single ecosystem service, such as pollination, or of several simultaneous minor or moderate declines in ecosystem services due to ecosystem degradation, such as a moderate decline in water availability intersecting with a moderate reduction in carbon storage and sequestration.

On the other end of the ‘ecosystem service degradation’ spectrum, nature loss is moderate or low and organisations have continued access to the provision of ecosystem services on which they depend. If there is moderate nature loss, the organisation is able to adapt by reducing its dependency on nature, through technology improvements or changes in production processes or shifts in locations where it operates, or it can absorb any cost increases of accessing the ecosystem services on which it depends.

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The second critical uncertainty is most closely related with the definition of ‘transition risk’ under climate-related risk assessments, with the main difference stemming from the fact that, as mentioned in Section 1.3.1, the presence of a global temperature change target for climate allows the creation of a concept of transition towards a future that is pre-defined.

Both the TCFD and the TNFD recognise that there are multiple types of potential transition risks faced by organisations as society takes action to address the twin crises of climate change and nature loss. These market and non-market forces are multifaceted and interact with each other, including stakeholder and customer demands and regulatory, legal and policy regimes (see Table 2 for a list of relevant categories of driving forces).

Consequently, making sense of transition risk is not simply a matter of whether that risk in aggregate is high or low, but whether the contributing market and non-market forces interacting with each other are trending in the same direction or pulling in different directions. In other words, whether there is coherence and alignment among the contributing factors that shape the transition risks facing the organisation.

For example, it may be the case that consumer attitudes towards a particular environmental issue such as plastic pollution are changing quickly, but that government policy and regulatory responses are moving much slower, or not at all. Similarly, organisations operating across multiple legal and regulatory jurisdictions might face very different levels of policy and regulatory uncertainty, creating a low level of alignment, or they might face a high level of alignment if governments across jurisdictions are coordinating closely and consistently due to a new international policy agreement or legal convention.

On one end of the ‘alignment of market and non-market forces’ spectrum, most or all of these categories of driving forces synchronise, creating a clear decision signal for business and finance, and therefore more stability and a lower-risk operating environment.

On the other end of the alignment spectrum, most or all of these categories of driving forces pull in different directions or move at contrasting speeds, creating conflicting decision signals for business and finance, and therefore a more unstable and high-risk context.

2.3.2     Step 2: Placing the business or facility along the uncertainty axes

When identifying baseline assumptions for the core drivers of change under different scenarios, the organisation should start by deciding a point along these critical uncertainties where it believes the organisation currently sits.

This process could be accomplished by asking each workshop participant to plot where on each axis they think the organisation currently sits. This would also stimulate a wider reflection on whether the participants hold a common view on the current and expected state of the business.

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Once the most realistic vision for this status quo is defined, this exercise can also stimulate thinking about the possible variations in the business landscape in which the organisation may have to operate going forward, by practically identifying where on the critical uncertainty axes they believe the organisation would sit in a specified future. More guidance on how to think of this specified future is provided in Box 1.

Box 1: Time horizons for nature-related scenarios

In setting time horizons for its scenario analysis, an organisation should consider the definition of short-, medium- and long-term time frames, and how those timeframes align with the organisation’s strategic planning horizons and capital allocation plans. As part of its key design characteristics, the TNFD refers to scenario analysis and foresight exercises that suggest that to plan for a three-year future with clarity, organisations generally have to look out five or more years. In order to plan for the next five years, they have to look out seven to 10 years, and so on.

To use the TNFD scenarios outlined in this document, we suggest that users adopt a timeframe of 2030 as this is the agreed timeline established in the Global Biodiversity Framework at a policy level for ‘halting and reversing nature loss’. Users may also want to explore a much longer timeframe of ‘living in harmony with nature by 2050’, also in the Global Biodiversity Framework, as a second reference point for transition.

The output of this step should be a clear overview of the data and tools that are currently available to make these judgments, but also a perspective on which additional tools would be necessary to perform a deeper assessment. The scenario exercise can be useful to identify and refine the organisation’s need for quantification and modelling to understand nature-related risks and opportunities further.

This step focuses on qualitative descriptions of the business environment, rather than quantitative models or numerical targets, to stimulate a conversation on what data (both internal and external) and/or models would be most pertinent and useful to resolve important uncertainties in the decision-making process. It also aims to help the organisation identify the disclosures that would most effectively enable an accurate evaluation from the market.

2.3.3. Step 3: Using scenario storyline descriptions

When put together as an intersection, the scenario axes selected by the organisation generate four possible scenarios (so-called “quadrants”), each including a description or storyline of a plausible future state of the world in which the company might find itself operating. The emphasis is on plausible, not preferred. The two critical uncertainties (axes) might not cause this plausible future state of the world to come about and certainly not on their own. It is up to the scenario analyst to ask and answer the question: How and why did this plausible future state of the world come about? Or, in other words, what are the causal drivers that would lead to a world where those descriptions are accurate?

As outlined in Step 1, the TNFD proposes four narratives of plausible futures based on two critical uncertainties, which can be tailored to maximise the relevance and usefulness to the organisation, based on its own context and unique characteristics.

Figure 5 presents a visual representation of the 2×2 frame in which the axes intersect, and to which organisations can add the relevant scenario narratives.

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In this step, the organisation focuses on each of the four pre-defined scenarios to prompt thinking around what is different from today, and what new risks and opportunities would emerge in each of the scenarios identified. This step of the exercise should be facilitated using a set of scoping questions ideally using set templates.

Box 2: Use of templates

Templates can help guide the discussion at scenario workshops by outlining clear and direct scoping questions. Some examples of scoping questions include:

  • What is the high-level narrative of the scenario?
  • What are the four most important drivers of this change?
  • When you identify yourself in this scenario, what is the biggest difference between now and this future context?
  • What are the new business goals and opportunities that would be relevant/would need to be abandoned in this context?

These questions should ideally prompt detailed discussions around a set of dimensions. As an example, a multinational consumer goods company could think of the following dimensions:

  • This is a world in which… (descriptive)
  • This world is credible because… (plausibility)
  • This world happens because… (causality)
  • In this world, we would see more of X,Y,Z… and less of A,B,C (business relevance)
  • The opportunities and challenges for the company trying to make nature-risk and opportunity weighted business decisions in this world are…. (decision application)

This step should be repeated and analysed for each of the four scenario quadrants, ideally separating workshop participants into break-out groups with meaningful and diverse representation of different parts of the business.

By organising parallel break-out discussions, each sub-group of participants can fully immerse themselves in one of the four scenario quadrants to simulate the decisions and trade-offs that the organisation would encounter if it found itself operating in that future world.

A description of the four possible narratives identified by the TNFD is included below. These narratives were developed using a landscape assessment of existing and ongoing market practice on scenarios relevant to both climate- and nature-related decision-making and disclosures. However, organisations might decide to adjust or review these, depending on the specific context in which they operate and their unique characteristics.

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2.3.4. Step 4: Identifying high-level business decisions

2.3.4     Step 4: Identification of high-level business decisions

As also highlighted in the TCFD Guidance on Scenario Analysis, the scenario workshop team has a key role that often informs leadership decisions about strategy and risk management. This is aligned with the organisation’s governance on nature-related risks and opportunities.

One approach would be that a team of mid to senior managers from across the organisation undertakes a longer scenario workshop that is then distilled into a background paper for the senior management team or board, who then do their own shorter scenario exercise and discuss strategic issues for the organisation.

Well-constructed scenarios, and a robust internal discussion about the possible implications of a set of plausible future scenarios (i.e. the four quadrants of the 2×2 scenario matrix), should play a key role in:

  • Informing medium to long-term decision making about governance, strategy, risk and impact management, targets and capital allocation;
  • Surfacing key insights about potential changes that could make the organisation’s core business model and processes more resilient to climate change and nature loss;
  • Identifying new business models, such as nature-based solutions, that are aligned with net zero and nature-positive targets and societal outcomes; and
  • Determining what the company would disclose in alignment with the TNFD’s Strategy C recommended disclosure.


After performing an in-depth assessment of the changes faced by the organisation in each of the described scenarios, the team should be able to draw reasonable, qualitative observations to proceed from strategy options to strategy decisions.

The following questions can also guide the evaluation of initial high-level decisions:

  • How do the LEAP approach and scenario analysis intersect in practice?
  • What transition pathways start to become clear? What decisions would need to be made to take steps down a promising transition pathway?
  • Balance sheet insights: what data now seem most valuable, both in terms of what you have and what you would want?
  • What would your organisation need in order to carry out a full scenario analysis to give you more confidence in your answers to the previous questions?
  • What disclosures would most efficiently enable external observers to assess the organisation’s current nature dependencies and its strategy to manage risks and capitalise on opportunities associated with nature?

In line with the TCFD’s Guidance, this final step should ensure that high-level decisions and recommended strategy:

  • Improve how well prepared the organisation will be for nature-related surprises or disruptions;
  • Identify important uncertainties and contingency plans for those uncertainties; and
  • Strengthen resiliency.

2.4  Key considerations when running a scenario

It is important that scenario workshop participants understand the following:

  1. How the scenario exercise supports application of the TNFD framework, both in terms of disclosure and in terms of the LEAP approach for nature-related risk and opportunity assessment;
  2. How to decide the right level at which to conduct the scenario analysis. A scenario analysis could include an organisation’s full operations, a specific facility or operation, or selected parts of the business, depending on a specific biome. A narrower focus — for example, on one or more facilities or functions that share core exposures and dependencies – may be most revealing. This will require aggregation and scaling up at a later stage;[2]
  3. What the organisation considers the relevant time horizon for implications under scenarios; and
  4. How the exploration of decisions and options in multiple scenarios will later be reconnected into a strategic plan.

2.5 Outputs of the exercise – robust findings and contingent findings


By running these four scenario discussions (one for each quadrant) in a parallel and independent fashion, the workshop will have a greater chance of surfacing ‘robust findings’, which are common among all four, as well as ‘contingent findings’, which are significantly different among the four quadrants, or even in tension with each other.

Both are important and valuable outputs of the scenario workshop, since it is recognised that the organisation does not know and cannot predict where on the scenario landscape it will have to operate in the future. Two immediate considerations for this output are:

  1. Decisions and actions that emerge from the exercise as robust should be on the table for immediate and concerted action, especially if tools are already available to action them; and
  2. Decisions and actions that emerge from the exercise as contingent should prompt the question: What additional data and analyses would the organisation need to conduct or obtain in order to decide to move toward one or another of these contingent options?

2.6 TNFD proposed templates for scenario workshops

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3. More advanced approaches and tools

3.1 Scenarios for financial institutions and multinational companies

The TNFD’s initial approach to scenario analysis focuses on use by corporates. It intends to extend and enhance the application of the approach to financial institutions in subsequent releases and updates of the TNFD framework, building on pilot testing and feedback from market participants.

The draft toolkit aims to provide a solid starting point for any kind of organisation that would like to approach a nature-focused scenario analysis at an organisation/facility/biome-level, but also recognises the need for more advanced tools or approaches for other types of organisations wanting to build from there.

In particular, large multinational companies and financial institutions may tend to favour an approach to scenario analysis that can:

  • Accommodate more advanced analytics and modelling of nature-related dependencies, impacts, risks and opportunities; and/or
  • Provide an overview of potential strategic actions that can be applied to the entirety of the organisation, and not only individual facilities or limited geographies.

The second point is important for multinationals and financial institutions, because both may have operations and portfolios that span many geographies and sectors of the economy. When conducting a scenario assessment, they may therefore need to consider a large and diverse set of variables and uncertainties. The TNFD’s 2×2 critical uncertainties matrix, focusing on select critical uncertainties at individual locations, may not be sufficient for these organisations, which may need to layer multiple chosen uncertainties on a broader geographic scale.

For example, exploring the range of outcomes for a geographically diverse portfolio of a financial institution under different scenarios requires many different driving forces to be considered. Further quantitative modelling would need to be undertaken to assess the financial implications to the organisation of the potential risks under different scenarios.

The scenario-based risk assessment methods used by asset owners pilot testing showed one way in which the TNFD scenario approach can be applied by financial institutions:

  • Off-the-shelf or bespoke scenario narratives can be mapped to the TNFD 2×2 scenario matrix. For example, one scenario could follow the TNFD ‘Ahead of the game’ quadrant, where the global targets in the Global Biodiversity Framework create a high alignment of market and non-market forces for reversing nature loss (top of the Y axis) and moderate nature loss occurs (left on the X axis).
  • These scenario narratives are then modelled, including a set of driving forces relating to physical and transition risks, allowing the quantification of shocks on cost and demand in specific sectors.
  • The same process can be repeated for other scenario quadrants of the TNFD’s scenario matrix, allowing for a comprehensive overview of the relevant driving forces that characterise the selected scenarios.

The TNFD’s approach to scenario analysis could also potentially be used in portfolio-wide (i.e., cross-sectoral) risk assessment methods for financial institutions such as heatmapping. This could be done by defining critical uncertainties, potentially related to specific impact and dependency categories depicted on the heatmap, and qualitatively assessing their effects at the sector level, and combining this with the financial exposure of the institution to that sector to assess its riskiness.

Box 3: GSK’s approach to scenario analysis

One example of a more advanced approach for multinational companies that build on the use of the TNFD’s 2×2 scenario frame has been carried out by a biopharma company, GSK. In 2020 GSK set out their commitment to a net zero, nature positive, healthier planet. At the same time as delivering against these targets, they carried out a scenario assessment to deepen their understanding of their nature-related risks and opportunities.

The organisation used the average financial impacts for the business (expressed in potential change in cost of goods and Year-end profits) driven by each of the most relevant driving forces as set out in the TNFD scenarios discussion paper, and repeated the estimation for each of the four TNFD’s proposed scenarios.

The main challenges encountered when performing the assessment were reported to be across the following key areas:

  • Accurate data – while this is key to full analysis, they recognise improving data will take time so began by building in detailed business data at the very first step of analysis.
  • Complexities and localisation of nature – nature has multiple different dimensions compared to climate and while carbon emissions are a global phenomenon, nature degradation is local and interacts with threats to health and resilience locally. This requires gathering data and implementing solutions in a more localised way.
  • Traceability – solutions demand traceability so partnering with suppliers is needed to increase levels of transparency on where and how materials are sourced, often well beyond those GSK procures directly from.

While some of the points above were addressed, for the purpose of the scenario exercise GSK used extensive existing data from within the business alongside existing external tools for nature-related proxies and assumptions.

Additional tools are outlined in Section 3.2 of this guidance, along with useful references in Section 5.

3.2 Other relevant scenario tools

As outlined above, qualitative scenarios can provide a deep understanding of the interactions between the different components of a business environment, as they are less constrained by modelling assumptions. Organisations may choose to complement a qualitative workshop approach with quantitative models and tools to deepen the assessment of the business implications of nature-related risks and opportunities that can translate into quantitative indicators.

Organisations may decide to use approaches that allow quantification of parameters and assumptions and quantification of scenarios through simulations of one or more models, or tools that provide variables to input into in-house models, such as the ones described in the table below. This list is not comprehensive.

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4. Initial observations from pilot exercises

A first set of pilot tests was undertaken in February to March 2023 to elicit corporate feedback that has helped the TNFD refine and elaborate this scenario guidance and toolkit. Further pilot tests, including with financial institutions, will be conducted to improve the guidance and toolkit over time. This will make this scenario guidance more efficient, effective and useful to a large variety of organisations to integrate the scenario process and results more closely with existing planning processes and disclosure regimes, particularly those associated with climate. The Taskforce’s general approach is to build additional and more advanced aspects of scenario applications on top of the foundational approach outlined in this guidance, much like add-ons or extensions to a software application.

4.1.  Reckitt

The organisation is a multinational producer of health, hygiene and nutrition products, with operations in around 60 countries and a specific strategic commitment on traceability and transparency, especially as it relates to its latex and palm oil supply chain.

The scenario workshop included ~10 staff members with functions including Sustainability, Procurement, Process Technology, Research and Development and Risk Management. It focused on the UK and Thailand. The scenarios focused on latex sourced from Thailand, which has been the subject of a quantitative biodiversity measurement study with Reckitt’s partners, Nature-Based Solutions (NBS), an interdisciplinary programme of research, education and policy advice based in the Department of Biology at the University of Oxford. This study is supporting the assessment of nature-related risk and associated interventions for Reckitt on this latex origin.

Over the course of a two-hour online workshop, the team was able to identify the organisation’s current position along the uncertainty axes, recognising that its current approach identified mostly location-specific driving forces on:

  • Quality concerns;
  • Seasonality;
  • Changes in cost;
  • Global regulation;
  • Engagement with manufacturer/sources of raw materials; and
  • Consumer sentiment, perception and attention to impact.

The team was then prompted to consider how these dependencies would change in the future, subject to two of the four scenarios in the TNFD’s 2×2 scenario matrix.

As a result, the stakeholder engagement point of view (mainly with small-scale farmers in the latex and palm oil value chain) was believed to have one of the largest potential impacts in all plausible scenarios, particularly how small farmers would be exposed to, interpret and respond to the market and non-market signals that the scenarios modelled. This finding reinforced the idea that variation in business ecosystems can be seen, for this organisation, to be as important as local variation in natural ecosystems.

One potential conclusion of this perceived gap, which the company is already actively addressing through its supply chain traceability assessment, could be to develop a model of small farmers’ behaviours in response to the pressures that the scenarios portray. That could be in the form of a quantitative model that first builds on the qualitative understanding of the relevant variables from the farmers’ perspective, rather than what an outsider might expect them to be.

Other initial observations from the pilot included demand for more advanced tools that could help determine the relevant interventions to contribute to nature-positive outcomes. This would build on the metrics for evaluating biodiversity, carbon and social impact in the location developed with NBS. It would allow for consideration of potential interventions at farm and wider landscape levels to assess these for positive impact. Internal (qualitative) exchanges are needed, especially with some of the actors closer to the ground, to prioritise activity and avoid creating a theoretical approach too focused on data availability, which may not trigger change in practice. Similarly, practical sampling approaches for current and future states are needed, and are being developed, to provide practical metrics and enable progress.

4.2.  Stockland

The organisation is one of the largest diversified property development companies in Australia, with an asset portfolio that spans a number of asset classes including residential communities, retail shopping centres, logistics sites and workplace offices. Biodiversity management has formed part of Stockland’s sustainability commitments with the business more recently extending their focus to supply chain nature risk and opportunity assessment piloting in line with the TNFD framework.

Stockland’s scenario workshop aimed to develop a deeper understanding of nature-related uncertainties, as well as an appreciation of how nature risks and opportunities could play out for the business. The organisation identified the exercise as an effective engagement tool for building understanding of the impact of the critical uncertainties represented by each scenario on the business, by raising key strategic questions for the organisation’s business model.

The scenario workshop included ~20 senior staff members, spanning environmental and social sustainability, indigenous engagement, finance, risk management, project development, investment management, legal and strategy functions.

The workshop itself was structured in three parts:

  1. An introduction to nature risk and opportunity and the scenario framing;
  2. A breakout session considering each scenario individually to discuss the relevant drivers and potential business implications; and
  3. A breakout session considering the scenarios collectively to assess which scenario(s) presented the greatest risks and opportunities.

While the narratives were left sufficiently high-level to stimulate a discussion, the workshop benefitted from the introduction session and provision of pre-read / handout materials to participants to ensure they had a sound understanding of the range and depth of potential nature-related outcomes that could be of relevance to the business. This allowed participants to spend more time advancing their thinking in relation to potential business-specific risks, opportunities, strategies, and actions.

From the workshop, three key reflections emerged:

  1. The conflicting directionality axis presented significant transition risks at both ends of the spectrum under the ‘Go fast or go home’ and ‘Sand in the gears’ scenarios based on the possibility of needing to meet strict compliance requirements or a lack of certainty in regulation and customer sentiment respectively.
  2. Numerical examples on hypothetical baselines against the axes (e.g., for the cost/impact axis, low could be a limited further decline in species, and high could be more substantial decline, with a description of the associated severity of risks, as a purely illustrative example) could help inform the application of the scenarios and ensure that participants have a consistent interpretation of the cost/impact axis in particular.
  3. Additional considerations around social outcomes and potential impacts on Indigenous peoples and local communities should be incorporated into future iterations of scenario narratives and/or be considered as a critical component of workshop discussions.

As immediate next steps, the organisation is committed to considering how to apply the scenarios in a further nature risk and opportunity assessment and will consider opportunities to leverage the scenario workshop approach to build awareness and understanding of the relevance of nature risk across the business.

4.3 New Belgium Brewing (Kirin Holdings)

New Belgium Brewing Company is a Colorado-headquartered brewing company in the United States and wholly owned subsidiary of global beverage and pharmaceuticals company Kirin Holdings Company.  New Belgium Brewing has been a certified B Corporation since 2012 operating three site across the United States, and Fort Collins, one of the New Belgium Brewing’s production sites, has the highest water stress among Kirin group’s production sites.

The scenario workshop was held in-person at New Belgium Brewing’s headquarters in Fort Collins, Colorado, drawing together five senior executives from the business as well as sustainability colleagues from Kirin Holdings and the sustainability director from Australian-based Kirin subsidiary.

Discussion started with a focus of the business’s dependency on water flows, particularly from the Colorado and Poudre river watersheds that support the Fort Collins brewing facility. Participants also discussed current dependencies and potentially material risks for other key ingredients such as hops and barley, relevant to the three operational sites across the United States. Climate change effects, including recent experience with some of Colorado’s largest bushfire in the past five years, were discussed as existing sources of physical risk and the current policy and legislative focus on water security issues across the broader western United States was highlighted as a marker of potential future transition risk.

Over the course of five hours, participants explored the default scenarios proposed in the TNFD’s discussion paper published in November 2022, including a current assessment against the two critical uncertainties that frame the four default TNFD scenarios.  Participants then broke into two groups to consider two of the four scenarios in detail – ‘Ahead of the game’ and ‘Sand in the gears’ – with the support of break-out group facilitation questions provided in the TNFD scenario’s toolkit.

During the break-out session on these two scenarios participants placed themselves inside the reality of these two scenarios in the year 2030, to explore the likely commercial realities of the business in that world as well as the surrounding economic, environmental and social context within which the business would likely be operating. These discussions surfaced a range of key insights about the types of economic and commercial pressures on the business – including likely water security considerations, ingredient price volatility, the company’s social license to operate in a world characterised by elevated water stress – as well as potential opportunities in these two worlds. These potential opportunities included new dimensions for product differentiation and marketing based on transparent, verifiable sustainability performance data available to consumers.

The session concluded with consideration of common insights across these two divergent scenarios and possible implications for near-term corporate strategy. The group also discussed possible early indicators that the Board and management team might watch – such as legal and policy changes to water allocation arrangements in the Colorado River watershed – to discern the probability of these, or other scenarios, beginning to emerge over the coming years.

4.4 Dow Chemical Company

The Dow Chemical Company is a NYSE listed US-based chemicals company with over 100 operational sites worldwide. Dow’s products are used across industries and supply chains globally as a key input into downstream manufacturing processes and a wide range of consumer goods.

A team of 15 Dow leaders and Subject Matter Experts gathered for an in-person pilot test of the TNFD’s beta scenarios approach in late March 2023 in Lake Jackson, Texas to explore scenarios with respect to Dow’s main manufacturing complex in the Texas Gulf Coast region of the United States. This world-scale site produces products for a wide range of uses across multiple value chains.  The coastal location of this site depends on a number of key ecosystem services, including a flow of fresh water used in Dow’s manufacturing processes, and coastal storm surge and floodwater protection services provided by adjacent wetlands enabling the optimal operation of Dow’s facilities. To help contextualise the scale and frequency of nature-related dependencies, the team reflected on recent extreme weather events such as the ice storm Yuri in 2021, hurricane events and periodic drought conditions placing pressure of the availability of water flow to Texas Operations.

Using the proposed scenarios, the group explored the state of the world and the Dow business in 2030 in each of three scenarios – ‘Sand in the gears’, ‘Back of the list’ and ‘Ahead of the game’ – and the potential implications for Dow’s corporate strategy, risk management and response options to a range of plausible physical and transition risks. Physical risk from increasingly frequent and more severe tropical storms and storm surge and the reliability of fresh water supply were identified as key challenges.

The team also identified a series of potential early warning signals and the ideal supporting data solutions that would be needed to inform management decisions around a shift from today’s status quo to an alternate emerging reality. Discussion of potential physical and transition risks led to the generation of potential opportunities to meet those challenges, such as evaluation of further investment in coastal wetland restoration to mitigate storm water surges associated with hurricanes, and potential accelerated investment in water stewardship in the face of growing evidence of potential future water scarcity.

The team found the draft TNFD scenarios and accompanying facilitation materials to be a helpful basis for kick-starting discussion about plausible future states. A very useful piece of feedback for the Taskforce was a suggestion to characterise a more extreme ‘Sand in the gears’ scenario to encourage users of the TNFD scenario approach to stretch their thinking about the resilience of their corporate strategy in conditions in which significant decline in the availability and quality of ecosystem services is already apparent (not emerging) and thus requiring much more difficult decisions about how to respond to future risk.

5. Useful Resources

Title (with link) Description
Guidance on Scenario Analysis for Non-Financial Companies (Task Force on Climate-related Financial Disclosures) Comprehensive guidance to assist non-financial companies wishing to implement climate-related scenarios as part of their risk management and strategy formulation processes. Aimed at non-financial companies at the early stages of using scenario analysis to assess climate-relates risks, it includes several aspects that could be useful also for a first approach to nature-related scenarios.
What are scenarios and models? (Intergovernmental Platform on Biodiversity and Ecosystem Services) Similarly to the TCFD guide, a methodological guidance to the use of scenarios and models as part of its “supporting policy” work, one of its six objectives to identify and promote the development and use of policy instruments, policy support tools and methodologies in the field of biodiversity and ecosystem functions and services.
Global Biodiversity Scenarios: What Do They Tell Us For Biodiversity-Related Socioeconomic Impacts? (Agence Française de Développement (AFD) Group) Review and comparison of existing global and quantitative biodiversity scenarios that could help to build a forward-looking assessment of the consequences of biodiversity loss.
Nature and financial institutions in Africa: A first assessment of opportunities and risks (FSD Africa and McKinsey) Application of five scenarios and a baseline scenario to 2030, considering both equity and loans for financial institutions in Africa. Explicitly shows how approach follows the TNFD’s LEAP process.
An Exploration of Nature-Related Financial Risks in Malaysia (World Bank and Central Bank of Malaysia) Uses a heatmap-type assessment and ENCORE data to assess both individual impacts and dependencies at the NACE sector level for a commercial lending portfolio to sectors with high or very high dependencies or impacts. Creates 21 physical and seven transition risk scenarios linked to dependencies and impacts.
Handbook on the use of Biodiversity Scenarios in support of decision-making (BiodivERsA-Belmont Forum) Guidance to support international research on scenarios of biodiversity and ecosystem services, providing an entry point to the main concepts and pointing out essential resources that are available to the community to increase the development and use of biodiversity scenarios.