tnfd scenario analysis

Societal and financial pressures on corporates to protect and advance the nature agenda run far ahead of actual experienced loss. Further guidance on topics such as metrics and targets and scenario analysis . This might also consider the availability of data and models for further quantitative assessment, if desired. In order to generate useful insights from a scenario exercise, scenario workshops should include staff, and potentially external experts, from diverse professional backgrounds. Templates can help guide the discussion at scenario workshops by outlining clear and direct scoping questions. The team also identified a series of potential early warning signals and the ideal supporting data solutions that would be needed to inform management decisions around a shift from todays status quo to an alternate emerging reality. It helps in decision making and allows businesses to shape their strategy. The organisation used the average financial impacts for the business (expressed in potential change in cost of goods and Year-end profits) driven by each of the most relevant driving forces as set out in the TNFD scenarios discussion paper, and repeated the estimation for each of the four TNFDs proposed scenarios. The TNFD is designing its initial approach to scenario analysis focusing on use by corporates. Scenarios provide a structured approach that can be used in TNFD disclosures to understand and convey how the business environment could change, the way in which management is informed of the potential implications of their strategic choices, and the inputs and assumptions used to draw conclusions on their resilience. This will require aggregation and scaling up at a later stage; What the organisation considers the relevant time horizon for implications under scenarios; and. From measurement to action: getting prepared for TNFD The TNFD is designing its initial approach to scenario analysis focusing on use by corporates. Determining what the company would disclose in alignment with the TNFDs Strategy C recommended disclosure. A scenario analysis could include an organisations full operations, a specific facility or operation, or selected parts of the business, depending on a specific biome. There are a number of driving forces that can be considered in a scenario to explore nature-related issues. The tools developed by the TNFD that are outlined in the scenarios toolkit are draft and will be further tested in TNFD pilots for insights on their practical utility and application, especially whether they allow effective consideration of long-term trends and uncertainties and implications for nature-related risks and opportunities. The multiplicity of causes in different places contributes to the overall sense that the world is simply not aligned around the need to deal with nature loss. Stocklands scenario workshop aimed to develop a deeper understanding of nature-related uncertainties, as well as an appreciation of how nature risks and opportunities could play out for the business. When you identify yourself in this scenario, what is the biggest difference between now and this future context? Numerical examples on hypothetical baselines against the axes (e.g., for the cost/impact axis, low could be a limited further decline in species, and high could be more substantial decline, with a description of the associated severity of risks, as a purely illustrative example) could help inform the application of the scenarios and ensure that participants have a consistent interpretation of the cost/impact axis in particular. Scenarios are hypothetical constructs and not designed to deliver precise outcomes or forecasts. Meaningful proportions of social experience and value creation follow the pandemic pathway toward virtual and now metaverse-enabled platforms. The conclusion is used to compare the insights and implications that sub-groups generate from their respective scenarios. Break out of static, business-as-usual ways of thinking about the future to consider critical uncertainties that may create risks and opportunities over the medium to long term, including: Help identify variables necessary to achieve goals and targets under different plausible futures, and revisions to goals and targets that may be needed for resilience, P2 Performance measurement (including target setting), Explore the implications of different plausible futures for an organisations existing or emerging strategy, Local ecosystem asset interactions, dependencies and impacts, Speed of change (to state of nature and/or ecosystem services), Slow and incremental <-> fast and threshold, Climate change (one of five drivers of nature change), Abundant and cheap <-> scarce and expensive, Insensitive to nature impacts and dependencies <-> sensitive to nature impacts and dependencies, Impact of nature service delivery on consumer, Indirect through price <-> direct through availability, Sensitivity to inequity of nature impacts, States, municipalities, local <-> national, global coordination, Methodologies and expectations for science-based targets, Closed, incomparable, not shared <-> open, standardised, shared, Fractured, separating <-> uniform, conforming, Integrated, exploratory nature and climate scenario (2023) exploring the impact of forecast climate-and nature-related policies, focusing on the land use sector to produce a new database of value drivers to capture initial indications of the potential effect of action on nature, Comprehensive overview of macroeconomic values, market prices, energy and land use models based on set scenario assumptions. Climate change effects, including recent experience with some of Colorados largest bushfire in the past five years, were discussed as existing sources of physical risk and the current policy and legislative focus on water security issues across the broader western United States was highlighted as a marker of potential future transition risk. The core purpose of a scenario exercise when applying the TNFD framework is to prompt thinking around: The exercise can deepen an organisations understanding of nature-related risks and opportunities based on how the business environment could plausibly change. The workshop itself was structured in three parts: While the narratives were left sufficiently high-level to stimulate a discussion, the workshop benefitted from the introduction session and provision of pre-read / handout materials to participants to ensure they had a sound understanding of the range and depth of potential nature-related outcomes that could be of relevance to the business. The session concluded with consideration of common insights across these two divergent scenarios and possible implications for near-term corporate strategy. Review and comparison of existing global and quantitative biodiversity scenarios that could help to build a forward-looking assessment of the consequences of biodiversity loss. Market participants may also use other frameworks like Political, Economic, Social, Technological, Legal and Environmental (PESTLE) or Social, Technology, Economic, Environmental and Policy (STEEP) analyses to identify driving forces[1]. When identifying baseline assumptions for the core drivers of change under different scenarios, the organisation should start by deciding a point along these critical uncertainties where it believes the organisation currently sits. While users of scenarios can create a scenario analysis frame using any of the driving forces, the TNFD proposes constructing scenario analysis as a default around the following two critical uncertainties: Figure: Critical uncertainty 1: Ecosystem service degradation (closely aligned with physical risk). Similarly, organisations operating across multiple legal and regulatory jurisdictions might face very different levels of policy and regulatory uncertainty, creating a low level of alignment, or they might face a high level of alignment if governments across jurisdictions are coordinating closely and consistently due to a new international policy agreement or legal convention. Consumer sentiment, perception and attention to impact. Models are rarely used by financial institutions and even less so by corporates, which do not see the immediate value of incorporating costly and complex models into decision making. To use the TNFD scenarios outlined in this document, we suggest that users adopt a timeframe of 2030 as this is the agreed timeline established in the Global Biodiversity Framework at a policy level for halting and reversing nature loss. Introduction to the TNFD's draft approach to scenario analysis 1.1. Further pilot tests, including with financial institutions, will be conducted to improve the guidance and toolkit over time. The positive cascade effect from carbon reduction results in demand for corporates to meet the moment of opportunity, while avoiding the pitfalls of overpromising and being seen as nature-washing. Continued global experience of climate-related physical risks, combined with perceived, if piecemeal, success of broad and aggressive carbon reduction policies around the world, set the stage for a surprising degree of consensus behind a more proactive stance towards nature. Scenario analysis technical supplement - The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities In 2021, the TCFD released an update to the Implementation Annex. Global Biodiversity Scenarios: What Do They Tell Us For Biodiversity-Related Socioeconomic Impacts? Scenario analysis has become a vital tool for assessing climate risks with a number of modelers having developed various scenario pathways. This process could be accomplished by asking each workshop participant to plot where on each axis they think the organisation currently sits. Data availability and quality remain uneven and generally low. The Prepare to respond and report phase, in particular P1 Strategy and Resource Allocation where scenario analysis can test the resilience of an organisations strategic choices and response options to plausible futures. The scenario exercise can be useful to identify and refine the organisations need for quantification and modelling to understand nature-related risks and opportunities further. As it is clear from the planetary boundaries, the loss of biodiversity is an urgent societal . In a generally sluggish macro growth environment caused by many other factors, the macro impact of nature on the economy is not large enough to spark greater focus and coherence in regulatory and financial regimes or consumer behaviours. Publications - Task Force on Climate-Related Financial Disclosures How the exploration of decisions and options in multiple scenarios will later be reconnected into a strategic plan. Please consider, Executive Summary v0.4 of the TNFD beta framework, Executive Summary v0.3 of the TNFD beta framework, Executive Summary v0.2 of the TNFD beta framework, Executive Summary v0.1 of the TNFD beta framework, LEAP the risk and opportunity assessment, L3: Prioritisation according to the integrity and importance of relevant, L4: Identification of priority nature-risk locations by sector, business unit or value chain, Evaluate priority dependencies and impacts, E1: Identification of relevant environmental assets and ecosystem services by priority location, E2: Identification of dependencies and impacts by priority location, E3 and E4: Dependency and impact analysis, A2: Acknowledgement of current nature-related risk management efforts, A3: Additional risk mitigation and risk and opportunity management, A4: Risk and opportunity materiality assessment, Approach to additional sector and biome guidance, Ways to pilot test: Three-tiered approach, Practical steps for piloting Guidance for individual and TNFD Forum pilots, Summary of feedback on v0.3 of the TNFD beta, Summary of feedback on v0.2 of the TNFD beta framework, Summary of feedback on TNFD framework beta v0.1, (Worksheet: TNFD Framework Phase v0.4 (March 2023) Downloadable Worksheets), TCFDs Guidance on Scenario Analysis for Non-Financial Companies, Climate transition scenario tool for companies in the Food, Agriculture and Forest Products sectors, The Economic Case or Nature: A global Earth-economy model to assess development policy pathways, International Institute for Applied Systems Analysis (IIASA) Biodiversity and Natural Resources (BNR, Strong Environmental Sustainability Index (SESI), Strong Environmental Sustainability Progress Index, Methodological Assessment Report on Scenarios and Models of Biodiversity and Ecosystem Services, Exploring Natural Capital Opportunities, Risks, and Exposure (ENCORE), Guidance on Scenario Analysis for Non-Financial Companies. Analysis of TNFD staff informal feedback: ESRS E4 Issues Paper - EFRAG This step of the exercise should be facilitated using a set of scoping questions ideally using set templates. An introduction to nature risk and opportunity and the scenario framing; A breakout session considering each scenario individually to discuss the relevant drivers and potential business implications; and. Conflicting and ambiguous signals from market and non-market forces about nature assets stop corporates from taking systematic action, even while they are experiencing significant negative material impacts from the loss of ecosystem services. Linked to the TNFDs recommended risk management and disclosure approach, scenario analysis allows organisations to explore the possible consequences of nature loss and climate change, the ways in which governments, markets and society might respond, and the implications of these uncertainties for business strategy and financial planning. What disclosures would most efficiently enable external observers to assess the organisations current nature dependencies and its strategy to manage risks and capitalise on opportunities associated with nature? This lack of coherence in signals, from everything other than the natural environment itself, has different root causes in different political jurisdictions. Some corporates will likely experience a very rapid, threshold-type drop-off in essential ecosystem services a 70% reduction in water availability, for example which could pose an existential business threat. Tool that normalises, weights and aggregates indicators of environmental sustainability that use science-based sustainability reference values to measure absolute country performance across different environmental and resource issues related to the functions of natural capital. The same process can be repeated for other scenario quadrants of the TNFDs scenario matrix, allowing for a comprehensive overview of the relevant driving forces that characterise the selected scenarios. The conflicting directionality axis presented significant transition risks at both ends of the spectrum under the Go fast or go home and Sand in the gears scenarios based on the possibility of needing to meet strict compliance requirements or a lack of certainty in regulation and customer sentiment respectively. Conduct a first qualitative scenario workshop, especially in areas where quantification and quantitative models are not yet readily usable; Avoid jumping quickly toward specific implications for the organisation and decisions inside a scenario that describe a particular business environment; Focus on understanding the world in which the organisation may have to operate on a deeper and more intricate level first before making decisions; and. The demand for nature-relevant technologies that could have a broader and more systematic impact is muted as a result. Reporting and acting on evolving nature-related risks - KPMG Additional tools are outlined in Section 3.2 of this guidance, along with useful references in Section 5. On one end of the alignment of market and non-market forces spectrum, most or all of these categories of driving forces synchronise, creating a clear decision signal for business and finance, and therefore more stability and a lower-risk operating environment. In this step, the organisation focuses on each of the four pre-defined scenarios to prompt thinking around what is different from today, and what new risks and opportunities would emerge in each of the scenarios identified. List of direct potential dependencies and impacts of production processes on ecosystem services and natural capital assets, excluding dependencies and impacts that occur through the supply chain. Recommendations - Task Force on Climate-Related Financial Disclosures drivers of nature-related risks and opportunities, which are both highly uncertain and important for decision making. TCFD Climate Scenario Analysis - Accounting for Sustainability What decisions would need to be made to take steps down a promising transition pathway? Scenarios are an important component of both the TNFD draft recommended disclosures and the LEAP approach to nature-related risk and opportunity assessment: The primary focus of the TNFD draft scenario guidance and toolbox is risk and opportunity assessment and management when applying the LEAP approach. Individual companies might be deeply impacted by ecosystem service loss, but the whole is less than the sum of parts in all but perhaps a few sectors and a few geographies. This could be done by defining critical uncertainties, potentially related to specific impact and dependency categories depicted on the heatmap, and qualitatively assessing their effects at the sector level, and combining this with the financial exposure of the institution to that sector to assess its riskiness. The mission of the TNFD is to deliver a risk management and disclosure framework for organisations to report and act on nature-related risks and opportunities, with the ultimate aim of supporting a shift in global financial flows toward nature-positive outcomes. The Financial Stability Board (FSB) established the TCFD in 2015. Geneva/London, 15 March: The Taskforce on Nature-related Financial Disclosures (TNFD) has today released the beta version ("version 0.1") of its risk management and disclosure framework for nature-related risks and opportunities. Participants also discussed current dependencies and potentially material risks for other key ingredients such as hops and barley, relevant to the three operational sites across the United States. Discussion started with a focus of the businesss dependency on water flows, particularly from the Colorado and Poudre river watersheds that support the Fort Collins brewing facility. Task Force on Climate-Related Financial Disclosures | TCFD) This prototype toolbox aims to enable users of the TNFD framework to undertake scenario analysis with access to a collection of user-oriented, practical tools, templates and techniques, in addition to general guidance. Nature slips down the list of corporate risk priorities, because visible material costs are small and the expectation this will shift in the relevant time frame is low. A breakout session considering the scenarios collectively to assess which scenario(s) presented the greatest risks and opportunities. E3 and E4: Dependency and impact analysis; Assess Material Risks and Opportunities. It is intended to challenge market participants to think about what the future might be like and how they might respond under circumstances different from those they face today. TNFD framework FAQs - TNFD PDF ERM TCFD disclosure The scenario workshop was held in-person at New Belgium Brewings headquarters in Fort Collins, Colorado, drawing together five senior executives from the business as well as sustainability colleagues from Kirin Holdings and the sustainability director from Australian-based Kirin subsidiary. We encourage you to log into your user profile when exploring and providing feedback on the TNFD framework. There are small-to-start but vocal religious movements that draw on indigenous culture elements as inspiration, and they successfully broaden the appeal. This, combined with the breakneck pace of nuclear power plant construction in Northern Europe and a historically massive retrofit of Chinese housing stock with electric heat pumps, will create a self-reinforcing momentum for investment that spills over to action and investment in nature. First iteration of TNFD framework released for public consultation Policy, consumer and financial pressures are quickly mounting and creating the need for faster, bolder and more comprehensive action, putting corporates on the defensive about their past and present actions. Accurate data while this is key to full analysis, they recognise improving data will take time so began by building in detailed business data at the very first step of analysis. Once the most realistic vision for this status quo is defined, this exercise can also stimulate thinking about the possible variations in the business landscape in which the organisation may have to operate going forward, by practically identifying where on the critical uncertainty axes they believe the organisation would sit in a specified future. Join the TNFD Forum. London, 28 March 2023: The Taskforce on Nature-related Financial Disclosures (TNFD) releases its fourth and final beta framework for nature-related risk management and disclosure. This list is not comprehensive. This is already covered in E4. A novel modelling framework that integrates select ecosystem services into a computable general equilibrium (CGE) model for specific policy and tipping point scenarios. Disruptions to the organisation could be the consequence of a severe collapse in a single ecosystem service, such as pollination, or of several simultaneous minor or moderate declines in ecosystem services due to ecosystem degradation, such as a moderate decline in water availability intersecting with a moderate reduction in carbon storage and sequestration. Progress is frustratingly slow and this lack of agreement creates an opportunity for opponents of Environmental, Social and Governance (ESG) investing to extend their critique to nature. TNFD - Taskforce on Nature-related Financial Disclosures Measure of environmental sustainability of countries (EU only), Methodological assessment of scenarios and models of biodiversity and ecosystem services, A global, detailed Multi-Regional Environmentally Extended Supply-Use Table (MR-SUT) and Input-Output Table (MR-IOT), Tables of data related to environmental impacts grouped into 4 accounts: (i) emission; (ii) water; (iii) material; (iv) land.

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