EVALUATE priority, dependencies and impacts

Introduction

Developing an understanding of nature-related dependencies and nature impacts at each location where a business interfaces with nature is the essential pre-requisite for developing a robust understanding of risks and opportunities.

As outlined in the LOCATE phase above, early identification and screening of locations which are most likely to present critical dependencies, substantial impact and material risks and opportunities can help to focus the evaluation of dependencies and impacts in this phase of the LEAP approach. The prioritisation approach suggested in the LOCATE phase is suggestive and not prescriptive. There is no substitute for judgement. Analysts and executives within an organisation know their business model and processes best and it may be that critical dependencies and impacts that do not meet the definition of ‘priority locations’ could still create exposure to material risks. This underscores the importance of consulting widely with both internal and external stakeholders to form a sound judgement of the locations where it would be prudent to undertake a detailed assessment of nature-related dependencies and nature impacts as outlined below.

Dependency and impact analysis stems from an understanding of the environmental assets that provide ecosystem services to society, including business processes that create revenues, cashflows and ultimately, enterprise value. At the interface between natural systems and business processes are ‘impact drivers’ that help a company identify how their activities and those of others are driving nature impacts.

Most organisations and financial investors take for granted that nature will continue to provide ecosystem services to support the business processes that produce products and services, and ultimately, revenues, cashflow and enterprise value. In this phase of the LEAP approach, an organisation makes explicit the environmental assets and ecosystem services on which it depends and from which its business processes at each location generate financial value. Making dependencies more visible in corporate and investment decision-making is a first, critical step to better understanding nature-related risks.

Given that organisations are benefiting from ecosystem services, while simultaneously having impacts on nature through the interface of their business processes with ecosystems, dependencies and impacts are interrelated. The process of extracting freshwater from a watershed, for example, has an impact on the health and resilience of the ecosystems in that watershed. In short, the impacts an organisation has on ecosystems today can create risks to the environmental assets and ecosystem services that it and others depend on now and in the future.

Guiding Questions

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.[1] 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[2] 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.[3]
  • 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.[4]
  • 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]; 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.

Additional Content

Guidance on impact mitigation and positive impacts

The Evaluate phase of LEAP asks organisations to evaluate priority dependencies and impacts on nature. Recognising that reducing negative impacts on nature is not the same as having a positive impact on the state of nature and its long-term resilience, the Taskforce has reviewed the existing science on drivers of nature change to ensure that the framework incorporates and reflects the capacity of business to both mitigate negative impacts and have positive impacts on nature.

Assessments by the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES) outline five drivers of nature change. The Taskforce has built upon these to reflect drivers can have both a negative and positive impact on nature, as illustrated in the figure below.

Additional Content

Taking this approach leads to an emerging taxonomy of business and nature-based solutions and business model innovations that can enable business and finance to create positive impacts on nature – including, for example, nature conservation and preservation, regenerative agriculture and the cultivation of biotic material such as in forestry and seaweed farming. In line with the overall aspiration of the TNFD, this helps capital providers  shift the flow of capital both away from nature negative outcomes; and towards nature positive outcomes.

The TNFD’s definitions of impact and impacts drivers

The TNFD has defined an impact on nature as a change in the state of nature, which may result in changes to the capacity of nature to provide value to business and society and/or instrumental, relational and intrinsic value. The TNFD recognises that impacts on nature can be both negative and/or positive.

The TNFD has defined impact drivers as measurable quantities of a natural resource that are used as an input to production and measurable non-product outputs of a business activity that affect nature.

The TNFD’s proposed approach to evaluating dependencies and impacts on nature

As set out in v0.2 of the beta framework, the TNFD proposes that organisations evaluate their dependencies and impacts by considering:

  • Impact drivers;
  • Changes to the state of nature; and
  • State of, and changes in, ecosystem services.

Building on the Additional Draft Guidance on the Evaluate Phase of LEAP released alongside v0.2 of the TNFD beta framework, this v0.3 of the beta framework includes more detailed guidance on impact mitigation and identification of potential positive impacts on nature.

Guidance on evaluating impact mitigation and positive impacts

Since the TNFD recognises that impacts on nature can be negative and/or positive, as part of evaluating their dependencies and impacts on nature, the TNFD proposes that organisations should evaluate their negative impacts, impact mitigation (reducing negative impacts on nature) and positive impacts. These should be assessed, measured and, if relevant, disclosed separately – not on a net basis.

The TNFD proposes the following non-exhaustive lists of potential categories of impact mitigation and positive impacts.

Example categories of impact mitigation (reducing negative impacts on nature)
  • Circular economy measures that reduce, reuse, recycle and share materials (reducing pressure on nature from resource extraction);
  • Waste prevention, pollution prevention and control, and manufacturing of products that reduce pollution harmful to nature (reducing pressure on nature from waste production);
  • Use of spatial intelligence to avoid impacting low integrity ecosystems, ecosystems of high importance for biodiversity and water stressed areas.
  • Transformation of business processes and operations to improve impact mitigation on a permanent basis over time;
  • Technological innovations that increase the efficiency with which businesses transform services from nature for economic activity, such as innovations that substitute degradable waste for persistent pollutants, or efficiency in water use by considering the allocation of the total consumptive amount of available resources;
  • Integrating sufficiency as a sustainability strategy aiming for (1) a decrease in absolute resource consumption on individual and societal levels, and (2) for the fair distribution of costs and benefits of resource use to meet every human’s basic needs.

The TNFD acknowledges that reducing negative impacts on nature can help nature to regenerate and restore itself (and is thus connected to positive impacts).

Example categories of positive impact (conserving, regenerating and restoring nature and its services):
  • Actions to increase the health, integrity, function and productivity of an ecosystem or its components;
  • Sustainable production and operation practices that conserve, enhance and restore ecosystems and their biodiversity, including nature-based solutions; and
  • Cultivation of biotic material that adds to the stock of environmental assets and/or improves the quality and provision of ecosystem services to business and society. Examples include forestry and seaweed farming, which can sequester carbon, contribute to the increasing stock of other environmental assets (other surrounding flora and fauna) and improve the quality of ecosystem services, such as enhanced water filtration and cleaning from the prevalence of seaweed or improved air quality from the presence of more trees).

As well as improving the state of nature, identification of positive impacts can enable businesses to mitigate their nature-related risks and build resilience, and also be the basis for the creation of new business models, products and services of future commercial value, as well as value to nature and society. See Annex 3.1 for additional guidance on assessing nature-related opportunities as part of the Assess phase of LEAP.

Mapping impact drivers to negative impacts, impact mitigation and positive impacts

Adapting the existing five drivers of nature change identified by IPBES, the Taskforce is continuing to explore with its knowledge partners how impact drivers map to negative impacts, impact mitigation and positive impacts. Table 1 provides examples of how organisations can identify negative impacts, reduce those impacts and identify positive impacts for each driver of nature change. This is an illustrative and not exhaustive list.

Additional Content

The Taskforce will continue its work to help organisations systematically identify, assess, manage and disclose both negative and positive impacts on nature, with guidance on the Evaluate phase of the LEAP approach. This will ensure that assessments following the TNFD framework and related disclosures can inform strategy, risk management and capital allocation decisions, including the identification and funding of nature-related opportunities and shifting of finance towards nature-postive outcomes.

Internal and External Tools to Support your analysis

Suggested outputs from the EVALUATE Phase

  1. A list of the relevant environmental assets and ecosystem services at each priority location;
  2. A list of relevant nature-related dependencies and nature impacts, according to the selected scope; and
  3. An assessment of the size and scale of nature-related dependencies and nature impacts material to the business, according to the scope of the assessment.