This allowed participants to spend more time advancing their thinking in relation to potential business-specific risks, opportunities, strategies, and actions. The TNFD is designing its initial approach to scenario analysis focusing on use by corporates. This finding reinforced the idea that variation in business ecosystems can be seen, for this organisation, to be as important as local variation in natural ecosystems. The TNFD welcomes further feedback and pilot testing of this draft guidance by 1 June 2023 to help ensure the guidance is practical and useful for market participants. NGFS acknowledges that nature-related risks could have significant (. 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. Phase-in) AG SBM 4 Scenario analysis is a possible area for collaboration - TNFD A5 Opportunity identification and assessment. An introductory facilitation helps set the scene, clarifies expectations for the purpose of the exercise and, if needed, illustrates the TNFD approach to scenarios. Scenario analysis has become a vital tool for assessing climate risks with a number of modelers having developed various scenario pathways. Templates can help guide the discussion at scenario workshops by outlining clear and direct scoping questions. That could be in the form of a quantitative model that first builds on the qualitative understanding of the relevant variables from the farmers perspective, rather than what an outsider might expect them to be. This list is not comprehensive. These categories of driving forces are not mutually exclusive nor comprehensively exhaustive. The group also discussed possible early indicators that the Board and management team might watch such as legal and policy changes to water allocation arrangements in the Colorado River watershed to discern the probability of these, or other scenarios, beginning to emerge over the coming years. Categories of driving forces in the TNFD scenarios frame. 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. TNFD releases fourth and final beta framework - TNFD Our collaboration continues with a recent assignment to support the TCFD Secretariat through the World Business Council on Sustainable Development (WBCSD) Reference Scenarios project to be published ahead of the COP26 Climate Change Summit. This is most closely correlated with transition risk and connected with actions to address climate change. These scenario narratives are then modelled, including a set of driving forces relating to physical and transition risks, allowing the quantification of shocks on cost and demand in specific sectors. The Dow Chemical Company is a NYSE listed US-based chemicals company with over 100 operational sites worldwide. PDF Statement on Nature-Related Financial Risks - Banque de France TNFD: Bringing Nature Issues into Sustainable Financial Disclosures As illustrated by the TCFD in its Guidance on Scenario Analysis for Non-Financial Companies, ideally, scenario analysis should encompass the company as a whole, including supply and distribution chains. Task Force on Climate-Related Financial Disclosures | TCFD) The output of this step should be a clear overview of the data and tools that are currently available to make these judgments, but also a perspective on which additional tools would be necessary to perform a deeper assessment. 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. It intends to extend and enhance the application of the approach to financial institutions in updates of the TNFD framework, building on pilot testing and feedback from market participants. The predominant argument for how to allocate attention and resources is likely to shift to reducing carbon to begin to address the global aspect of the nature problem, rather than addressing the very complex nature-related local interdependencies that manifest in particular geographies and sectors. There is likely significant macroeconomic risk that manifests in, or significantly contributes to, a continued or exacerbated global downturn. Two other larger retailers follow. You will need to have a profile to provide feedback and upload a comment letter. The scientific community might inadvertently contribute to this lack of coherence. In Europe, the focus might shift from nature towards maintaining carbon discipline at a time of multiple energy transitions, including the loss of Russian gas. When you identify yourself in this scenario, what is the biggest difference between now and this future context? Scenario analysis is a process for identifying and assessing the potential implications of a range of plausible future states under conditions of uncertainty. It focused on the UK and Thailand. Financial risk disclosures may be seen as too disconnected from real action and corporates and financial institutions will find it challenging to cooperatively evolve their disclosure regimes quickly enough to appease their critics, whose voices will be loud, including in board proxy fights. Aligning Efforts: Science-Based Targets and TCFD - Guidehouse Insights The TNFDs 22 critical uncertainties matrix, focusing on select critical uncertainties at individual locations, may not be sufficient for these organisations, which may need to layer multiple chosen uncertainties on a broader geographic scale. New Belgium Brewing Company is a Colorado-headquartered brewing company in the United States and wholly owned subsidiary of global beverage and pharmaceuticals company Kirin Holdings Company. 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. Physical risk from increasingly frequent and more severe tropical storms and storm surge and the reliability of fresh water supply were identified as key challenges. Trucost physical climate risk data intelligence: pinpoint asset exposure to water stress, flooding, heatwave, cold wave, hurricane, wildfire and sea level rise under low, moderate and high climate . Scenarios are hypothetical constructs and not designed to deliver precise outcomes or forecasts. Discussion of potential physical and transition risks led to the generation of potential opportunities to meet those challenges, such as evaluation of further investment in coastal wetland restoration to mitigate storm water surges associated with hurricanes, and potential accelerated investment in water stewardship in the face of growing evidence of potential future water scarcity. The exercise should start with narrative descriptions of possible macro business environments in which the organisation may have to pursue its strategic objectives. Alignment of market and non-market driving forces. A set of initial pilot tests of the proposed approach has also been undertaken, focusing initially on use by corporates to improve decision-making, with a separate set of pilot tests with asset owners to begin to explore the approach when used by financial institutions. The TNFD Forum is a global gathering of institutions from across sectors who are aligned with the mission and principles of the TNFD, wish to learn more about nature-related risk management and disclosure trends and developments together as a community, and are willing to make themselves available to support the work of the Taskforce. However, organisations might decide to adjust or review these, depending on the specific context in which they operate and their unique characteristics. On one end of the critical uncertainty spectrum of ecosystem service degradation, organisations experience material disruptions to production as a result of severe degradation in the state of nature and loss in the provision of ecosystem services on which the organisation depends. PDF CDP Technical Note on the TCFD outlining its proposed approach to scenario analysis to support application of the TNFD framework, as part of v0.3 of the TNFD beta framework. Reporting businesses will also be required to use climate-related scenario analysis to identify climate-related risks and opportunities. This process could be accomplished by asking each workshop participant to plot where on each axis they think the organisation currently sits. Complexities and localisation of nature nature has multiple different dimensions compared to climate and while carbon emissions are a global phenomenon, nature degradation is local and interacts with threats to health and resilience locally. Organisations may choose to complement a qualitative workshop approach with quantitative models and tools to deepen the assessment of the business implications of nature-related risks and opportunities that can translate into quantitative indicators. 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. Early-stage investors and entrepreneurs shift their focus from carbon reduction toward natural asset protection and restoration. A description of the four possible narratives identified by the TNFD is included below. Additional considerations around social outcomes and potential impacts on Indigenous peoples and local communities should be incorporated into future iterations of scenario narratives and/or be considered as a critical component of workshop discussions. Figure 4: Illustrative result of scenario workshop discussion under Step 2. Consequently, making sense of transition risk is not simply a matter of whether that risk in aggregate is high or low, but whether the contributing market and non-market forces interacting with each other are trending in the same direction or pulling in different directions. What transition pathways start to become clear? In developed economies, consumer demand for nature impact transparency and traceability becomes as loud as demands for carbon transparency and the life cycle analysis of products. The main challenges encountered when performing the assessment were reported to be across the following key areas: While some of the points above were addressed, for the purpose of the scenario exercise GSK used extensive existing data from within the business alongside existing external tools for nature-related proxies and assumptions. . Launch: Enhancing TCFD Climate Risk Assessments: Scenario analysis A very useful piece of feedback for the Taskforce was a suggestion to characterise a more extreme Sand in the gears scenario to encourage users of the TNFD scenario approach to stretch their thinking about the resilience of their corporate strategy in conditions in which significant decline in the availability and quality of ecosystem services is already apparent (not emerging) and thus requiring much more difficult decisions about how to respond to future risk. Further pilot tests, including with financial institutions, will be conducted to improve the guidance and toolkit over time. The Science Based Targets initiative (SBTi) is considered the leading authority in developing guidance and assessing targets. To develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks and opportunities, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes. The TNFDs initial approach to scenario analysis focuses on use by corporates. Social movements around nature-positive life pop up in surprising parts of the world, including many developing countries. The TNFD will use those further insights to refine the guidance for v1.0 of the framework to be published in September 2023. The time frame for action will be severely compressed. 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. Global Biodiversity Scenarios: What Do They Tell Us For Biodiversity-Related Socioeconomic Impacts? 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. Approach to scenarios TNFD Please log in with an existing account or create a profile to access additional sector and biome guidance published in v0.4 beta framework. We encourage you to log into your user profile when exploring and providing feedback on the TNFD framework. Guidance to support international research on scenarios of biodiversity and ecosystem services, providing an entry point to the main concepts and pointing out essential resources that are available to the community to increase the development and use of biodiversity scenarios. Scenarios can be used by organisations in their strategic planning and risk management process to identify: Engaging in a scenario analysis exercise can also help organisations prioritise areas of their business and strategy, which in turn can inform appropriate governance, risk and impact management, capital allocation and target setting.