TNFD's definitions of dependencies and impacts

Introduction

The underlying business model of an enterprise and its perceived value by investors depends, in varying degrees, on reliable and cost-effective access to environmental assets and the ecosystem services they provide.

Organisations also have impacts on environmental assets and ecosystem services, which may be positive or negative. Short-term impacts on nature can result in short-, medium- and long-term consequences for the quality and resilience of ecosystems; thereby creating potentially additional medium- and long-term risks and opportunities for enterprises given their dependencies. In short, today’s nature impacts can create tomorrow’s risks and opportunities.

The significance of the TNFD framework’s understanding of nature is that nature-related dependencies and nature impacts – the sources of risks to business continuity, earnings and ultimately enterprise value – are location specific. Location therefore matters greatly for the identification, assessment, mitigation and management of nature-related risks facing organisations, creditors and investors.

Consideration of location – and more specifically the interface of business processes with stocks of environmental assets and flows of ecosystem services – is central to the framework proposed by the TNFD.

The TNFD recognises that this specific attention to location can represent a novel way of thinking for many organisations and that access to information about locations can be a challenge – in particular for complex value chains or organisations operating in many geographies. Nevertheless, an organisation’s dependencies on nature and nature impacts are location-specific and therefore essential for an integrated and robust assessment of nature-related risks and their flow-on implications for cash flows, revenues, and enterprise value.

Defining 'Dependencies'

Definition

Dependencies

Aspects of ecosystem services that an organisation or other actor relies on to function. Dependencies include ecosystems’ ability to regulate water flow, water quality, and hazards like fires and floods; provide a suitable habitat for pollinators (who in turn provide a service directly to economies), and sequester carbon (in terrestrial, freshwater and marine realms).

SBTN (2022) Working Definitions [unpublished]

A dependency of a business on nature for operations and business continuity may be direct or through its supply chain. Further details on dependency analysis are provided in the LEAP approach section

Dependencies include an ecosystem’s ability to:

  • Regulate water flow and water quality;
  • Prevent or create resilience against hazards like fires and floods;
  • Provide a suitable habitat for pollinators (who in turn provide a service directly to pollinate crops); and
  • Sequester carbon (in realms across land, ocean, and freshwater).
Case examples

The tourism sector, for example, could have a high dependence on both cultural ecosystem services (the presence of a healthy intact reef for scuba diving) and coastal protection services (protection of coastal infrastructure from the impact of extreme weather events through the presence of healthy mangroves and coral reefs). In a confectionary company, the decline of insect populations may impact the pollination services available to pollinate cocoa crops, leading to loss of yield quantity and quality. In both these examples, location is particularly relevant (the proximity of healthy coastal ecosystems to coastal infrastructure to enable protection and the location of cocoa crops to declining insect and wild pollinator populations).

Analysing and measuring the degree to which business operations are dependent on nature is beneficial to the company, as potential changes in natural capital may affect the costs and benefits of doing business, and thereby present risks to short-, medium- and/or long-term earnings and cashflow.

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TNFD's definitions of impacts

Defining 'Impacts'

The TNFD considers an organisation’s effect on natural capital through its impact drivers.

Definition

Impact drivers

A measurable quantity of a natural resource that is used as a natural input to production (e.g. the volume of sand and gravel used in construction) or a measurable non-product output of a business activity (e.g., a kilogram of NOx emissions released into the atmosphere by a manufacturing facility).

Capitals Coalition (2016) Natural Capital Protocol

Definition

Impact pathway

An impact pathway describes how, as a result of a specific business activity, a particular impact driver results in changes in natural capital, and how these changes in natural capital affect different stakeholders.

Capitals Coalition (2016) Natural Capital Protocol

A simple impact driver may be associated with multiple impacts.

Definition

Impacts

Changes in the state of nature, which may result in changes to the capacity of nature to provide social and economic functions. Impacts can be positive or negative. They can be the result of an organisation’s or another party’s actions and can be direct, indirect or cumulative.

SBTN (2022) Working Definitions [unpublished], CDSB (2021) Framework application guidance for biodiversity-related disclosures.

Additional Content

Types of impact

Impacts may be:[1]

  • Direct – a change in the state of natural capital caused by a business activity with a direct causal link;
  • Indirect – a change in the state of natural capital caused by a business activity with an indirect causal link (e.g. indirectly caused by the climate change and greenhouse gas emissions); and/or,
  • Cumulative – a change to the state of natural capital that occurs due to the interaction of activities of different actors operating in a landscape, not only the target organisation.
Case example

Nature-related impacts in the textiles industry

In the production of natural fibres in the textiles industry, direct impacts on nature could occur through converting habitats for crop production. The textiles industry’s greenhouse gas emissions contribute to air pollution and climate change, as indirect impacts. Cumulative impacts could occur through pollutants, where the pollution impacts of the fibre producer combine with pollution from other producers and industries operating in the landscape, resulting in substantial negative impacts on freshwater ecosystems and sensitive species, and all people who depend on them. This could be financially material for the textile company, exposing it to potential fines, supply chain disruption and loss of social license to operate.