Assess Material Risks and Opportunities

ASSESS Material Risks and Opportunities

Introduction

Leveraging the dependency and impact analysis developed in the EVALUATE phase of LEAP, analysts should then seek to identify how those impacts might translate into risks for the organisation. Risks identified as material should be disclosed in line with the TNFD’s ‘Strategy A’ draft disclosure recommendation.

The LEAP approach has also been designed to help organisations surface not just risks, but also potential commercial opportunities; either to eliminate or mitigate risks or to create new commercially valuable business models, products and services that contribute to nature positive outcomes for society. In this sense, the ‘L’, ‘E’ and ‘A’ phases of the process can play an important role in shaping a wide range of leadership decisions about strategy, growth and capital allocation, not just disclosure.

Additional Content

Figure: Financial risks and opportunities emerging from nature loss

Guiding Questions

A1: Risk identification and assessment – What are the corresponding risks for our organisation?
A2: Existing risk management – What existing risk mitigation and management approaches are we already applying?
A3: Additional risk management – What additional risk mitigation and management actions should we consider?
A4: Materiality assessment – Which risks are material and should be disclosed in line with the TNFD disclosure recommendations (Strategy A)?
A5: Opportunity identification and assessment – What nature-related opportunities does this assessment identify for our business?

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.

Additional Content

Annex 4: Nature-related risks and opportunities and their financial impact

Table: Nature-related risks and financial impacts

	Nature-Related Risks	Financial Impact
Physical Risk	Acute Degradation of nature and loss of their natural protection (e.g. caused by vegetation clearance for initial clearing for mining sites) can exacerbate severity of damages from extreme weather events such as cyclones, droughts, flooding and storms Species loss and ecosystem degradation (e.g. loss of connectivity associated with species ranges, impacting flyways or marine migratory corridors) due to leaks or accidental discharges (e.g. oil) contaminating air, soil and water bodies by the organisation itself or by other stakeholders located in the same area Disease or pests affecting the species or variety of crop the organisation relies on, especially in the case of no or low genetic diversity	Increased natural hazard costs, for example, impaired assets due to damages resulting from floods or cyclones, not limited to the organisation’s property (e.g. the infrastructure it relies on) Reduced revenue and/or increased costs due to interruption of operations or interruption/ deterioration of supply chain because of uncertainty over natural inputs/raw material supply (e.g. loss of pollinators, pests, loss of fish stocks, water), or damage caused by natural hazards Increased insurance premiums and potential for reduced availability of insurance on assets Increased capital expenditure due to adaptation (e.g. mechanical pollination, protection against floods) Reduced productivity and consequent rethinking of production processes or timing (e.g. agricultural production) Write-offs, early retirement of existing assets and relocation of operations and suppliers, affecting the costs of raw materials (e.g. transport)
Physical Risk	Chronic Increasing scarcity of key natural inputs Ecosystem degradation due to operations leading to, for example, deforestation Ocean acidification Overfishing Land loss to desertification and soil degradation and consequent loss of soil fertility Species loss and degradation due to soil, water and ocean contamination caused by organisation itself or stakeholders in specific areas
Transition Risk	Policy and Legal Changes to existing regulation/new regulation aimed at achieving nature-positive outcomes and targets Tighter (emerging) legislation (e.g. trade restrictions or taxes) on activities, products and/or services that impact nature, and rights, permits and allocations on natural resources designated to alleviate pressure on nature or impacts on local communities Enhanced reporting obligations	Increased costs of operations and inputs Increased costs of personnel and monitoring of activities required for reporting Increased fines and penalties Increased capital costs or production losses due to permit denials or delays
	Market Shifting customer values or preferences to products (e.g. foods, textiles) with lower impacts on nature Volatility or increased costs of materials	Reduced demand for products and services- supply disruption Increased production costs Loss of market access Increased raw material costs
	Reputation Shifts in consumer sentiment towards the organisation/brand as a result of poor nature management and/or lack of stewardship activities	Reduced demand for products Decreased employee retention and worker strikes Reduced loyalty of suppliers or key stakeholders
	Technology Transition to more efficient and cleaner technologies (i.e. with lower impacts on nature) Lack of access to data or access to poor quality data that hamper nature-related assessments New monitoring technologies used by regulators	Increased expenditure for research & development of new and alternative technologies Increased costs of operations and raw materials required to achieve nature-related goals Lack of access to technology developed by competitors resulting in higher operational costs

Compiled from: CDSB (2021) CDSB Framework Application guidance for biodiversity-related disclosures, TCFD (2021) Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures and TNFD (2021) Nature in scope

Table: Nature-related opportunities and financial impacts

Nature-Related Opportunity	Financial Impact
Resource Efficiency Transition to more efficient services and processes that require fewer natural resources, energy or impacts on nature Increased reuse and recycling of natural resources Reduced waste production	Reduced operation and compliance costs Reduced exposure to raw material and natural resource price volatility Reduced reliance on natural resources and increased resilience to potential shortages
Products/ Services Development of less natural resource-intensive products and services (e.g. regenerative agriculture that preserves and restores soil fertility and leads to a reduced use of fertilizers) Development of green solutions (e.g. nature-related insurance risk products) Diversify business activities (e.g. new business units on green infrastructures)	Increased resilience due to business diversification New revenue streams Reduced costs of raw materials and production inputs Better competitive position to reflect shifting consumer preferences
Markets Access to new markets Use of public-sector incentives Access to new assets and locations needing insurance coverage	Increased revenues through access to new and emerging markets Access to public sector incentives Increased diversification of financial assets
Resilience Diversification of nature-related resources (e.g. use of different plant species) and business activities (e.g. start a new business unit on nature restoration) Participation in programs and adoption of resource efficiency and circularity mechanisms that reduce impacts and dependencies on nature Improve nature-related monitoring and data availability Implement nature-based solutions Invest in green infrastructure (e.g. protection against natural hazards)	Increased business stability Business and supply chain continuity Reduced capital infrastructure costs and costs for damages Improved risk mitigation Increased resilience to natural disasters Improved readiness and response to regulatory changes Increased market valuation through resilience planning
Financial Incentives Access to nature-related and/or green funds, bonds, or loans Incentives for suppliers to improve their nature- and ecosystem management	Increased access to funds and loans Access to capital for high-risk projects
Reputation Collaborative engagement with stakeholders to tackle nature-related challenges Improve condition of nature the organisation relies on	Improved reputation among stakeholders located in different areas Improved stability of operations and working conditions, and ability to attract and retain employees Increased brand value Improved supply chain engagement Increased influence of government policy

Compiled from: CDSB (2021) CDSB Framework Application guidance for biodiversity-related disclosures and TCFD (2021) Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures

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.

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Introduction

Guiding Questions

Internal and External Tools to Support your analysis

Acute

Chronic

Policy and Legal

Market

Reputation

Technology

Resource Efficiency

Products/ Services

Markets

Resilience

Financial Incentives

Reputation

Suggested outputs from the ASSESS Phase