LEAP – the risk and opportunity assessment approach

Since the launch of the TNFD, market participants have indicated that simple, accessible guidance on how to understand and respond to nature-related risks and opportunities would be a welcome complement to a set of disclosure recommendations. In response, the TNFD has developed an integrated assessment process for nature-related risk and opportunity management called LEAP.

• Locate your interface with nature;
• Evaluate your dependencies and impacts;
• Assess your risks and opportunities; and
• Prepare to respond to nature-related risks and opportunities and report.

LEAP has been designed and developed with three overarching considerations in mind:

• The LEAP approach encourages users to carefully consider the scope of their assessment before commencing;
• Analysts and preparers are encouraged to consult with relevant stakeholders as they work their way through the LEAP approach; and
• LEAP is designed as an iterative process – across business locations, business lines for corporates, and across investment portfolios and asset classes for financial institutions – in line with enterprise risk management processes and reporting and disclosure cycles.

LEAP is not, in itself, a recommended disclosure or a mandated process to adhere to the disclosure recommendations put forward by the TNFD. As such, not everything that is identified, assessed and evaluated using the LEAP approach needs to be disclosed.

This prototype of LEAP has been designed as a general approach for use by a wide range of corporates and financial institutions. The TNFD recognises that a general approach is difficult to develop, given variations in business models, sector-based market dynamics and the information needs of users. Financial institutions, in particular, have different decision making and information requirements to corporates; and there is significant difference among financial institutions.

The TNFD also recognises that some organisations may already have an equivalent process built into their enterprise risk management framework. In such cases, the LEAP approach can be used as a checklist to ensure existing internal processes adequately address nature-related risks and opportunities.

With these complexities and nuances in mind, the TNFD has developed an extended LEAP approach for financial institutions (LEAP-FI). This LEAP-FI focuses on the assessment of nature-related risks and opportunities in relation to financed activities (e.g. debt and equity investing, trading and insuring). Complex financial products such as derivatives are not included within the scope of the LEAP approach.

Finally, in developing the LEAP approach, the Taskforce has built on and integrated existing, high-quality nature-related frameworks, tools, data sources and other guidance developed by a range of other organisations that are aligned with the TNFD’s principles and approach. The source frameworks and tools used are signposted throughout the phases of the LEAP approach, with descriptions of how they may be used by organisations. As new frameworks, tools, data sources and guidance are developed, the TNFD will add additional signposts into the LEAP approach.

The LEAP approach for corporates involves four core phases of analytic activity:

• Locate your interface with nature;
• Evaluate your dependencies and impacts;
• Assess your risks and opportunities; and
• Prepare to respond to nature-related risks and opportunities and report.

These four core phases are broken down into 16 analytic components for corporates, each framed by a guiding question.

Figure: The TNFD’s revised risk and opportunity assessment approach (LEAP) in v0.4 of the beta framework

ExpandFigure: The TNFD’s revised risk and opportunity assessment approach (LEAP) in v0.4 of the beta framework

The TNFD believes that all aspects of the TNFD LEAP approach should be incorporated by all types of organisations into any robust nature-related risk and opportunity assessment process. However, for the financial services sector as providers of financial capital, different entry points into the LEAP approach and a greater or lesser emphasis on different components of LEAP may be appropriate.

LEAP and LEAP-FI aim to meet the needs of five types of financial institutions as both users and beneficiaries of the approach:

1. Banks;
2. Insurance companies;
3. Asset managers;
4. Asset owners; and
5. Development finance institutions.

In developing the LEAP approach, including LEAP-FI, the Taskforce has built on and integrated existing, high-quality nature-related frameworks, tools, data sources and other guidance developed by a range of other organisations that are aligned with the TNFD’s principles and approach. The source frameworks and tools used are signposted throughout the phases of the LEAP approach and LEAP-FI, with descriptions of how they may be used by organisations. As new frameworks, tools, data sources and guidance are developed, the TNFD will add additional signposts into the LEAP and LEAP-FI approaches, where relevant.

The LEAP-FI process is based on the following considerations:

• Financial institutions operating as a corporate entity can apply the LEAP approach for corporates as it pertains to their own operations and supply chain. However, these impacts will be limited compared to those of financed activities.
• Financial institutions can encourage their clients (recipients of financial capital) to use the LEAP approach for corporates and report information in line with the TNFD disclosure recommendations. Data provided to financial institutions by clients can be used to complement other sources of data, such as proxy data available from public and/or private providers.
• Financial institutions will need to apply the LEAP-FI approach flexibly to accommodate variations in the nature and structure of the business, the type of asset classes/financial products and level of aggregation of financial products/services.
• Tools and data already exist to help financial institutions get started with the assessment of their portfolios. These include matrices of high impact and high dependency sectors, such as the SBTN. 2022. Sector Materiality Tool[1], and data and metrics on ecosystem integrity and importance. Examples and case studies are referenced in the framework online platform ‘Additional guidance[2] to support LEAP for financial institutions (LEAP-FI).’

Some asset classes and financial institutions may initially find it challenging to secure a comprehensive view of nature-related risks and opportunities. However, developments in data and analytics and greater transparency will support a more comprehensive understanding of risks and opportunities over time. As with corporates, financial institutions can start with a narrow scope for their assessment and build a more comprehensive assessment over time.

LEAP-FI focuses on the Scoping step of the LEAP approach.

The v0.4 release includes seven significant updates and additions to LEAP guidance in response to feedback received from market participants and pilot testers:

Figure: The TNFD’s revised risk and opportunity assessment approach (LEAP) in v0.4 of the beta framework

ExpandFigure: The TNFD’s revised risk and opportunity assessment approach (LEAP) in v0.4 of the beta framework

Figure: The TNFD’s revised risk and opportunity assessment approach (LEAP) in the v0.3 framework

ExpandFigure: The TNFD’s revised risk and opportunity assessment approach (LEAP) in the v0.3 framework

To implement the LEAP approach in practice, organisations need access to high-quality, trusted, decision-useful data on nature-related risks and opportunities. While LEAP already builds on and integrates existing, high-quality tools and data sources, the TNFD has identified the following five priority areas where work is still needed on data, analytics and tools to implement the TNFD’s LEAP approach. The priorities were identified through the first set of workshops with members of the Nature-related Data Catalyst:

• Data coverage: Advancing comprehensive nature-data solutions is limited by the availability of data for particular realms (e.g. ocean), remote locations (e.g. locations away from where organisations have their operations), and across temporal scales.
  • Next steps: Further collaboration and investment is needed to ensure data are capable of meaningfully capturing the relevant variable/s, both static and dynamic. Standards will need to be clearly defined to enable the collection of data that is relevant and useful, and at required frequencies for corporates and financial institutions.

• Data standardisation: Data is often not attributed, collated or presented in a standardised way, which makes it challenging to ensure consistency in measurement between spatial locations or across a time series. Often, data is collected for specific research questions that are not always relevant for the purposes for which data are being used.
  • Next steps: Development of a data standard will increase trust in datasets being collected, collated and compared. A standardised set of principles may also channel additional funding into the collection of additional data where gaps are identified. It would also improve the auditability of data.

• Transparency: In order for data or models to be used by TNFD users or other data providers, the underlying data must be trusted and its limitations understood. There is a need for more transparency on models used and the limitations of assessment and data.
  • Next steps: Increase transparency over data gaps, such as self-assessment datasets, and highlight where there is spatial/temporal uncertainty.

• Data accessibility: Data accessibility is another limiting factor for the advancement of nature-related data, as there are often strict licensing restrictions in place, particularly for commercial use.
  • Next steps: Increase collaboration between private companies, governments and NGOs to make data publicly available

• Relevance to decision making: It is important for data providers and users to understand the TNFD definitions of nature-related impact, dependency, risk and opportunity to be able to assess what is required and relevant, and to be able to conduct analysis and decision-making aligned with the TNFD framework. There is also a need for more context, understanding and definition of what is nature positive. This would enable corporations and financial institutions to make a commitment, have a point of benchmark, establish baselines and measure progress. This would help clarify what types of data are relevant.
  • Next steps: Distinguish between data required for different nature-related risks and opportunities. Some pre-prioritisation and guidance developed by scientific and technical experts by sector, country, region and ecosystem of top impacts would be helpful. Transparency about how metrics and risks/opportunities were developed and identified will facilitate decision making.

Building on these insights from the Data Catalyst, the TNFD has created a beta version of an online searchable Tools Catalogue that provides an overview of tools that organisations can use to apply each phase of the LEAP approach. The Catalogue will continue to be updated over time.

As part of the LEAP approach, the TNFD proposes that organisations consider the following criteria to select assessment indicators and metrics, during the dependency and impact assessment (i.e. the ‘E’ phase of LEAP – see further details in Annex 1), noting that they should be sensitised to the specific sector and location of business operations:

1. Select a range of relevant indicators: Select indicators for each element of sub-category 2 in Table 7 on an ‘assess or explain basis’. Have a clear, justifiable rationale for the reasons why a category is not relevant for the assessment.
2. Consider materiality: Choose indicators based on the results of the location prioritisation (LEAP component L3) and materiality assessment (LEAP component A4). Indicators should be selected based on their ability to measure the most material dependencies, impacts, risks and opportunities for the entity.
3. Cover all the TNFD’s four realms of nature, where relevant: The range of indicators selected should assess ecosystem assets across the four realms of nature, (land, freshwater, ocean, atmosphere) where relevant to the organisation’s direct, upstream and downstream interface with nature.
4. Consider interconnectedness: Indicators selected should reflect the relationships between impact drivers, state of nature and ecosystem services. Indicators should cover an interconnected suite across the assessment categories, taking into account measurability and frequency of inclusion in existing standards and frameworks.
5. Use a set of metrics: Indicators should be measured using a set of metrics, including where possible an absolute metric; the rate of change, intensity/efficiency and prevalence; and level (direct operations at the product, site and corporate level and upstream and downstream);
6. Consider scalability: Metrics selected should be scalable and able to be applied at different levels across sectors and locations, and for targets; and
7. Baselines and reference states: State of nature metrics should compare the current ecosystem condition to a baseline and reference state. Rate of change metrics should be compared to a starting baseline. Guidance on reference condition is provided in Annex 2.1A.

Annex 2.1a: Determining reference condition

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Figure: Sets of metrics for each indicator (where possible)

ExpandFigure: Sets of metrics for each indicator (where possible)

Further guidance on the measurement of dependencies and impacts, and illustrative sets of indicators and metrics for each category are provided in Annexes 2.1 and 2.2.

Annex 2.1: Guidance on Metrics for the Evaluate Phase of LEAP (dependencies and impacts on nature)

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Annex 2.2: Illustrative Dependency and Impact Assessment Metrics for Pilot Testing

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