Based on feedback from pilot testers, the Taskforce has decided to streamline the Assess phase by combining previous components A1 (risk identification) and A5 (opportunity identification) into one component, A1 (risk and opportunity identification), and incorporating ‘opportunities’ into components A2, A3 and A4 as well.
Framework and guidance: Assess Material Risks and Opportunities
LLocate The interface with nature
EEvaluate Priority dependencies and impacts
AAssess Material risks and opportunities
PPrepare To respond and report
ASSESS Material Risks and Opportunities
The TNFD recommends that organisations use the four components of the Assess phase of LEAP outlined below to assess the nature-related risks and opportunities to their organisation. The LEAP components adapt and build on the TCFD steps for assessing climate-related risks. As with TCFD guidance, the Assess components also relate to integrating nature-related risks into existing enterprise and portfolio risk management processes.
Before starting the Assess phase of LEAP, organisations should apply the Locate and Evaluate phases, referring to the TNFD framework online platform and the TNFD additional guidance on impact and dependency analysis and measurement.Additional Content
Additional guidance on the Assess phase
v0.3 includes additional guidance on the Assess phase of the LEAP approach:
- Guidance on assessing material nature-related risks and opportunities, following the components of the LEAP approach (see updates to the Assess phase);
- Nature-related risks and opportunity registers;
- Illustrative indicators for categories of nature-related risks and opportunities (Annex 3.2); and
- Guidance on selecting metrics for nature-related risks and opportunities (updates to the Assess phase).
This is cross-sector guidance, rather than sector or biome guidance, which is still being developed by the TNFD.
Considerations for the TNFD’s draft guidance on the Assess phase of LEAP
In developing its draft guidance on assessment of nature-related risks and opportunities, the TNFD identified the need to:
- Retain flexibility for organisations to integrate into their own risk and opportunity management processes: Corporates and financial institutions use a wide range of practices and techniques to assess and manage their risks and opportunities and are best positioned to determine their overall approach. The TNFD’s approach to assessment of nature-related risks and opportunities can be integrated into existing enterprise risk and opportunity management processes.
- Build towards an integrated approach that considers other environmental and social risks and opportunities: Consideration of environmental risks in existing risk management practice is currently largely focused on climate. The many connections between climate- and nature-related risks and opportunities necessitates an integrated approach that builds on emerging best practice with climate risk assessment and management.
- Recognise connections between nature-related risks and opportunities and impacts on nature and society: Nature provides ecosystem services upon which business and wider society relies, such as the provision of clean water, clean air and the absorption of carbon from the atmosphere. Business impacts on nature can have impacts on wider society, which can present transition risks, such as changes in consumer preferences and reputational and litigation risk, as well as systemic risks.
- Draw on existing frameworks and standards to create an integrated approach: The TNFD can build upon coverage, albeit limited, of the assessment of nature-related risks and opportunities in existing disclosure frameworks and standards. Some cover nature or biodiversity in an integrated fashion, but many focus on one biome such as forests or one driver of nature change such as pollution.
- Recognise and fill gaps where aspects of nature-related risk assessment are underdeveloped: A number of technical aspects of nature-related risk and opportunity assessment are underdeveloped and still emerging, including: 1) measurement of the exposure of corporates and portfolios to nature-related risks; 2) the assessment of financial implications on the balance sheets and profit and loss accounts of corporates and financial institutions; 3) metrics for risks related to degradation of specific ecosystem services or ecosystems; 4) links with scenario analysis; 5) risk metrics that account for potential ecosystem tipping points and thresholds; and 6) metrics for nature-related opportunities, which currently largely focus on the mitigation of risks as opposed to the strategic transformation of business models and transition plans for nature-positive outcomes.
- A1: Risk and opportunity identification – What are the corresponding risks and opportunities for our organisation?
- A2: Existing risks mitigation and risk and opportunity management – What existing risk mitigation and opportunity management approaches are we already applying?
- A3: Additional risk mitigation and risk and opportunity management – What additional risk mitigation and risk and opportunity management actions should we consider?
- A4: Risk and opportunity materiality assessment – Which risks and opportunities are material and should be disclosed in line with the TNFD disclosure recommendations?
Internal and External Tools to Support your analysis
- Tools for risk analysis such as COSO Enterprise Risk Management Framework, Enterprise Risk Management (CGMA), ISO 31000 Risk Management Standard
- Risks and opportunities for the TNFD disclosure recommendations.
Suggested outputs from the ASSESS Phase
- A ‘long list’ of relevant nature-related risks and opportunities the organisation should act on.
- A matrix of material risks consistent with the enterprise management framework of the organisation (e.g. significance by sector, business line, location, value chain, etc).
- Executive Committee and Board level guidance outlining the organisation’s proposed nature-related risk management strategy.
- Executive Committee and Board level advice on ways to avoid, minimise and mitigate nature-related risks and identify nature-related opportunities for the organisation.
Metrics for the Assess phase of LEAP
In this v0.3 release, the Taskforce has given additional consideration to the approach to measurement required for the Assess phase of LEAP (see Annex 3.1). This approach introduces two types of assessment metrics:
- Exposure metrics, based on nature-related dependencies and impacts identified in the Evaluate phase of LEAP (Evaluate priority dependencies and impacts);
- Magnitude metrics, which can be used to assess the financial implications to the organisation of nature-related risks and opportunities. Magnitude metrics should be used as part of the criteria to prioritise nature-related risks and opportunities (as well as the other criteria outlined in Annex 3.1). As far as possible, magnitude metrics should quantify the financial value of nature-related risks and opportunities for the organisation.
Determining the financial implications of nature-related risks and opportunities generally involves an organisation assessing its:
- potential for damages or benefits against identified risks and opportunities;
- planned responses; and,
- response effectiveness.
The table below provides an illustration of exposure and magnitude metrics using the example of acute physical risks. Annexes 3.1 and 3.2 contains illustrative examples of metrics for all categories of nature-related risks and opportunities.Additional Content Additional Content
|Type||Risk||Example||Exposure metrics||Magnitude metrics|
|Acute risk||Changes in the state (condition and/or extent) of ecosystems on which the organisation is dependent or has an impact, resulting in changes to the flow of ecosystem services||Degradation of freshwater habitat due to pollutants released by the organisation and other stakeholders
||Quantity and concentration of pollutants emitted (impact driver)Change in mean species abundance in freshwater ecosystems (ecosystem condition) Concentration of pollutants in water (ecosystem condition)
||Costs associated with the relocation of operations and suppliers
Reduction in revenue due to interruption of operations/supply chain
Increased costs due to interruption of operations/supply chain
Value of assets/revenue dependent on area
Number of locations/business lines/facilities exposed