The Necessary ‘LEAP’ for Nature

Nature has different ways of making itself present, and notorious. One of the quickest of them all is when it touches our pockets. Unfortunately, by now, we all have had experiences in our households of paying more for products we used to buy at lower prices, of dealing with increased tariffs for public services, finding alternative sources of water supply, or having to relocate in hopes of finding better living conditions  – in an extreme and regrettable circumstance –. Nature, or ecosystem services to be more precise, are under, above, and all around us. It is literally the air we breathe.

For companies, this same situation is not new at all. They constantly need to deal with supply chain disruptions, increases in prices of their main raw materials, costs of relocation or retrofitting, reduction in revenue as a consequence of the unexpected interruption of operations, increased insurance costs, more stringent and costly compliance requirements, and reduced market valuation of the company due to market perception or investors expectations, among many other examples. Despite not being new, it is increasingly challenging for companies to understand their level of dependency on ecosystem services as much as it is to understand the impact. Moreover, the valuation of the risks and opportunities identified once organizations better understand those dependencies and impacts is not yet homologated, and thus there is no prescriptive way of doing it.

Based on the widespread adoption of the recommendations provided by the Task Force on Climate-Related Financial Disclosures (TCFD), approximately three years ago, its twin initiative, the Task Force on Nature-related Financial Disclosures (TNFD), was established. After its initial inception and a maturing process, the TNFD finally released its recommendations in September 2023 after different beta versions and the contributions of over 200 organizations during the pilot testing phase. Although the TNFD is closer to a toolkit than to a standard, comprising various guidance documents, one key element sitting at its core is the LEAP approach.

The LEAP approach is intended to serve corporations, regulators, investors, rating agencies, and many other types of financial entities in any stage of the understanding of an organization’s interactions with nature. Although it will become useful first for companies that need to disclose information through CDP, to report following the GRI standards, or to report information in alignment with the IFRS Sustainability Disclosure Standards (also known as ISSB Standards) or the EU’s Corporate Sustainability Reporting Directive (CSRD), all kinds of companies can also benefit from LEAP as they seek to minimize or neutralize risks or to benefit from timely opportunities.

LEAP could be deemed as an interactive process that starts with a scoping phase, which helps companies produce a hypothesis about their relationship with nature as well as to have a better sense of the resources available in the company to undergo all the other steps and what additional skills or support is necessary to complete the process.

Once the scoping is completed, in the locate phase companies need to identify their priority locations, which is the intersection between those where the organization has material dependencies and impacts from and to nature (material locations) and ecologically sensitive locations where the company has either direct or indirect activities (sensitive locations). If more material and sensitive locations are identified later in the process, those should be added to the list of relevant locations for further examination.

In the evaluation phase, companies focus on understanding the magnitude of their dependencies on nature through the analysis of the association of their activities to ecosystem services and certain environmental resources. Based on this examination, organizations are able to determine how their dependencies affect the costs and benefits of their business, more concretely defined as dependency pathways. The same will happen in this phase for impacts since companies will also seek to understand how their activities affect the natural capital around them and thus different stakeholder groups. In other words, they will also define their impact pathway. At the end of this phase, corporations should be able to define a list of material locations in which it has dependencies and impacts.

During the assessment phase, corporates estimate the financial effects on the business of priority risks and opportunities linked to the dependencies and impacts defined in the previous step. As part of this phase, there are two particular elements of great added value: prioritization criteria and valuation process. Regarding prioritization, and in addition to the concepts of magnitude and likelihood, TNFD suggests the adoption of vulnerability and speed of onset as additional criteria (originally suggested by the TCFD) as well as the severity of impact on nature and impact on society. Regarding valuation, TNFD acknowledges that different approaches are possible, including monetary valuation, quantitative valuation, and qualitative valuation. Companies may find that using a combination of these different approaches can be helpful in addressing the breadth of nature-related risks and opportunities in their full value chain.

Finally, in the prepare-to-respond-and-report phase, the objective is twofold. On the one hand, companies need to define the set of activities they want to implement to either reduce their negative impacts on nature or to contribute to producing nature-positive outcomes. To do this, organizations need to set objectives according to the risks and opportunities they have deemed as material while also considering their objectives and overarching commitments to nature and biodiversity, and to set metrics that assist them in the monitoring of their progress. On the other hand, TNFD provides a set of 14 recommendations on what may be disclosed on the same four pillars as the TCFD: governance, strategy, risk and impact management, and metrics and targets.

As previously mentioned, TNFD is not a rigid standard for all companies to follow in a linear fashion. TNFD is rather a guide for an iterative discovery process that allows every organization to hedge their business in relation to material risks and set them up to benefit from numerous opportunities.

Although TNFD and many other frameworks and standards addressing nature-related topics are under construction right now and will keep evolving quickly in the coming years, the current state of development of approaches such as LEAP represents a sound alternative to close lingering knowledge and information gaps.

Currently, there are a few early adopters of the TNFD recommendations who are also embedding LEAP into their business models. Those same companies are the ones making the necessary leap toward a more resilient future by avoiding and reducing negative nature-related impacts and also through regenerating and restoring ecosystems. Such actions will also result in building stronger communities that are better prepared to face challenging climate conditions. With that, they will ultimately position themselves for longer-term success.