As businesses and financial institutions increasingly recognize the importance of environmental stewardship, frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) are becoming essential. TNFD’s LEAP approach is a central tool in guiding organizations to assess and disclose nature-related financial risks and opportunities, aiming to create transparency around how their operations impact ecosystems and biodiversity. In this article, we’ll explore what the LEAP approach entails and why it’s crucial in the evolving landscape of sustainability and financial disclosure.

What Is TNFD?

The Taskforce on Nature-related Financial Disclosures (TNFD) is an initiative designed to provide a framework for organizations to report on and act upon evolving nature-related risks and opportunities. It seeks to address the increasing pressure from stakeholders for businesses to understand and mitigate their impact on the natural environment. The TNFD framework encourages companies to incorporate nature-related considerations into their governance, strategy, and risk management processes, thereby promoting long-term resilience and sustainable value creation.

TNFD and TCFD

The TNFD is comparable to the Taskforce on Climate-related Financial Disclosures (TCFD), which is a well-established framework for managing and reporting climate-related financial risks. Both initiatives share the goal of aiding organizations in identifying, managing, and disclosing specific environmental impacts, yet each has a distinct focus.

While TCFD is centered on climate-related financial considerations such as greenhouse gas emissions and climate change adaptation, TNFD extends this approach to include broader biodiversity and ecological aspects. As a result, TNFD encompasses a wider array of environmental factors, reflecting a shift toward more comprehensive sustainability disclosures. Both frameworks encourage the integration of their respective environmental risks into mainstream financial reporting, supporting better-informed investment decisions and fostering accountability and transparency in corporate environmental impacts.

Understanding the LEAP Approach

The LEAP approach [1], introduced by TNFD, is a four-step framework designed to help organizations assess nature-related risks and opportunities comprehensively. LEAP stands for Locate, Evaluate, Assess, and Prepare, each step offering specific actions to integrate nature aspects into financial disclosures.

1. Locate

The first LEAP’s step involves locating the organization’s interactions with nature, focusing on where the organization’s value chain intersects with important ecosystems. This could include sourcing raw materials, direct land use, or other forms of environmental impact. Identifying these locations helps companies understand where they might be at risk due to environmental changes or biodiversity loss.

2. Evaluate

After locating interactions with nature, organizations must evaluate the risks and opportunities that these interactions create. This step of LEAP requires assessing the dependencies on natural capital, such as water, soil, or biodiversity, and determining the potential impacts of environmental changes on business performance.

3. Assess

The LEAP’s assess step focuses on evaluating how nature-related risks will impact the organization in financial terms. This includes considering how disruptions in ecosystem services—such as pollination, water filtration, or flood protection—might lead to financial losses, reputational damage, or operational risks. Companies should also assess how addressing these risks could present new business opportunities, such as through more sustainable practices or innovations.

4. Prepare

Finally, the prepare step of LEAP ensures that organizations are ready to respond to the risks and opportunities identified. This involves creating strategies for managing nature-related risks, setting targets for nature-positive outcomes, and integrating nature into overall business strategies. This LEAP’s step also includes disclosing nature-related financial information, ensuring that stakeholders are aware of the company’s efforts and preparedness.

LEAP Overarching Considerations

The LEAP approach includes four key overarching considerations [2] that organizations should bear in mind while conducting nature-related financial disclosures.

• Firstly, it is essential to scope the assessment before beginning, ensuring alignment on the parameters and resources required. This LEAP’s initial step guarantees a well-defined understanding of the task at hand.
• Next consideration of LEAP, organizations should consult with relevant stakeholders and seek third-party expert advice when necessary. This collaboration ensures that all perspectives are considered, and decisions are well-informed.
• Additionally, organizations should iterate across the LEAP phases, covering various aspects such as business locations, lines of business, investment portfolios, and asset classes. This phase aligns with established risk management processes to ensure a comprehensive approach.
• Finally, the LEAP approach should be applied flexibly, allowing organizations to adapt the components as needed, without a strict order of application. Organizations are encouraged to use their chosen materiality approach, disclosing only what is relevant.

For organizations already assessing nature-related issues, the LEAP framework can serve as a checklist to ensure that their current processes address all necessary factors in line with TNFD’s recommended disclosures.

Why Is LEAP Important?

The LEAP framework is vital for several reasons:

• Transparency and Accountability: By following the LEAP approach, companies can demonstrate accountability in how they interact with nature, providing investors and stakeholders with transparent information on their nature-related risks and strategies.
• Risk Mitigation: Biodiversity loss and ecosystem degradation can result in significant operational and financial risks. LEAP helps companies identify these risks early, allowing them to take preventive measures.
• Opportunities for Growth: The approach doesn’t only focus on risks. LEAP highlights opportunities for companies to innovate and adopt more sustainable practices, creating value for both the environment and the business.

How LEAP Supports the Global Shift Toward Sustainable Finance

LEAP plays a crucial role in the global transition to sustainable finance by embedding nature-related considerations into financial decision-making frameworks. LEAP moves beyond traditional financial disclosures, which often overlook the intricate dependencies between business operations and the natural environment. By mandating a thorough assessment of nature-related risks and opportunities, LEAP ensures that companies align their strategies with broader sustainability goals, ultimately influencing more responsible capital flows.

As investors increasingly demand transparency in environmental impact assessments, frameworks like LEAP facilitate the necessary transformation by providing structured methodologies to capture nature-related data. This data can be pivotal for investors looking to mitigate risks associated with environmental degradation and biodiversity loss while identifying prospects for sustainable investment. Organizations utilizing the LEAP framework effectively position themselves as leaders in the financial sector’s shift towards embracing sustainability.

Moreover, LEAP fosters collaboration across industries and sectors by encouraging shared learning and best practices in nature-related risk management. As industries will face different challenges in their interaction with ecosystems, a standardized approach like LEAP offers consistency and comparability, fostering an ecosystem where companies can learn from each other’s approaches. This collective understanding of LEAP amplifies the impact of sustainability initiatives, fostering a unified effort towards maintaining ecological balance and promoting sustainable economic growth.

Conclusion

In conclusion, the integration of nature-related financial disclosures through the LEAP framework represents a pivotal shift in corporate accountability and environmental stewardship. By embedding sustainability considerations into financial decision-making, organizations can not only safeguard their operations but also contribute positively to ecological systems. This forward-thinking LEAP approach not only mitigates risks but also unlocks new avenues for innovation and growth, aligning corporate strategies with long-term environmental and societal well-being. Moving forward, adopting such comprehensive frameworks like LEAP will be instrumental for businesses aiming to thrive in an increasingly sustainability-conscious world.

References:

[1] https://tnfd.global/publication/additional-guidance-on-assessment-of-nature-related-issues-the-leap-approach/

[2] https://tnfd.global/wp-content/uploads/2023/11/TNFD-in-a-Box-Module-4_-The-LEAP-Approach.pdf