LEAP – the risk and opportunity assessment approach

: E3 and E4: Dependency and impact analysis

For nature-related dependencies and impacts in priority locations, analysts will firstly need to understand the current integrity and resilience of the ecosystem in more detail. This includes the integrity and resilience of specific environmental assets and ecosystems services that the organisation relies upon for business processes that drive financial value creation, as well as the integrity and resilience of specific environmental assets and ecosystem services that are impacted through business activities. This analysis involves forming a view as to the short-, medium- and long-term capacity of the ecosystem to continue to provide reliable access to, and consistent quality of, the ecosystem services used by the organisation.

Second, in most cases, ecosystem services are used by a wide range of stakeholders as a shared resource. For example, organisations that use a natural water source will need to be mindful of the re-filling rate of the source and understand the other users of that source. It is therefore essential that dependency and impact analysis incorporates an understanding of the current and expected future actions and behaviours of others with respect to the same environmental assets and ecosystem services.

Third, because the long-term integrity and resilience of an ecosystem is a shared public good, governments play a key role in monitoring and regulating ecosystems, including the use of environmental assets and ecosystem services, on behalf of all of society’s stakeholders, including business. Governments typically do so through policy and regulatory instruments such as mandated resource usage thresholds and allocations. It is therefore critical for analysts to understand the regulatory arrangements in place at a local level for ecosystem management, and specific instruments such as thresholds and allocations, as they seek to form an organisational view about the size and scale of dependencies and impacts in priority locations.

Finally, given the need to consider dependencies and impacts over multiple time frames and the range of uncertainties that can shape an organisation’s assessment of the size and scale of its own dependencies and impacts, scenario analysis can be a useful tool for understanding plausible future outcomes for an ecosystem and associated ecosystem services to the business.

Science-Based Targets for Nature (SBTN)

The SBTN Initial Guidance suggests that organisations consider three levels of assessment to identify relevant dependencies and impacts: (i) sector-level, (ii) value chain level and (iii) company level. Together, these assessments would produce an extended list of dependencies and impacts. Organisations should note that if they have chosen a narrower scope for the assessment, not all of these levels may be relevant to them.

For the sector-level, SBTN provides a table that connects sectors and sub-sectors with impact drivers. The table provides a preliminary assessment of the level of relevance (from 1 to 5, very low to very high) that a given impact driver might have on the value chain of the sector (upstream, operations and downstream). The scores in this table are averaged across different locations but, by using the table, organisations can get a preliminary sense of how relevant the impact driver is to their business. Organisations are likely to first consider impact drivers with very high relevance, (level 5 on the table), high relevance (level 4) or medium relevance (level 3). SBTN is currently developing an updated version of this table that will also include downstream impacts.

For the value-chain level, SBTN recommends that organisations should focus on identifying where dependencies and impacts occur, since nature-related assessments must be location specific (as covered in the LOCATE phase). With information on the geolocation of business activities, organisations can use more sophisticated tools to assess dependencies and impacts in specific locations, leading to a more accurate and robust assessment. SBTN provides a table with a sample of existing tools that can help map geo-located dependencies and impacts across the land, freshwater and ocean realms (see list of tools in L2).

The Natural Capital Protocol – Impact and dependency pathways

To help organisations decide which dependencies and impacts are most relevant, the NCP suggests identifying a set of criteria to determine their relevance.

The NCP suggests organisations map dependency and impact pathways.

ExpandThe Natural Capital Protocol – Impact and dependency pathways

With the information collected, organisations should be able to assess the relevance of the impacts and dependencies according to the criteria they have selected. The information collected might include the type, scale or consequence of the impact and dependency. The NCP also notes that to collect the information, organisations might seek expert opinion, leverage existing information, consult stakeholders, use publicly available information, or conduct a rapid assessment of value.

CDSB Application Guidance for Biodiversity-related disclosures

Aligned with the LEAP approach, the CDSB Biodiversity Application Guidance provides guidance on the process of evaluating relevant dependencies and impacts in priority locations using the pathway approach outlined in the Natural Capital Protocol and the Driver-Pressure-State-Impact-Response framework (DPSIR). DPSIR assumes a chain of causal links, with economic/social drivers exerting pressure on the environment, consequently causing changes in the state of the environment. These changes lead to business or societal impacts that may require a response.

ENCORE

ENCORE is a web-based tool that allows users to link sectors and sub-sectors to potentially relevant dependencies and impacts and provides an assessment of their potential material risks through consideration of impact drivers. ENCORE allows users to identify the potential material risks of dependencies on 21 ecosystem services for the production processes of 157 sub-industries. It also identifies the environmental assets underpinning each ecosystem service and the potential drivers of environmental change that could influence them in a way that materially affects business performance. It contains maps of environmental assets, drivers of environmental change and impact drivers which could help organisations further understand location-specific risks. ENCORE is managed by the Natural Capital Finance Alliance (NCFA) – a collaboration between Global Canopy, UNEP Finance Initiative, and UNEP-WCMC.

Further guidance is provided in the Natural Capital Protocol’s Finance Sector Supplement.