
Guidance on scenario analysis
This document provides guidance for organisations who choose to use scenario analysis 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. It includes a collection of practical tools, templates and techniques, in addition to general guidance. This guidance supports organisations in conducting a qualitative scenario workshop, focusing the exercise on testing, refining and stretching their thinking, planning and decision-making.
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OVERVIEW
Introduction to the TNFD’s approach to scenario analysis
Context
Scenario analysis supports strategic planning by addressing uncertainties, assessing nature-related risks and dependencies, and informing resilience strategies. The TNFD builds on the TCFD’s framework to incorporate nature alongside climate in scenario analysis.
Primary objectives of scenario analysis
Key goals include evaluating the impact of nature loss on dependencies and risks, identifying future opportunities, and testing organisational resilience under uncertain conditions.
The TNFD approach to scenarios
TNFD scenarios focus on exploratory, not normative, analysis to assess plausible futures shaped by critical uncertainties: ecosystem service degradation (physical risk) and alignment of market and non-market forces (transition risk). The approach highlights the place-based nature of ecosystem risks and their localised interdependencies.
Implementing the TNFD nature scenario approach – The TNFD scenario toolbox
Where to start
Scenario analysis begins with internal discussions to define scope, relevant driving forces, and desired outcomes, ensuring organisational alignment. Organisations are encouraged to adopt a qualitative, workshop-driven methodology to explore risks and opportunities.
A participatory workshop-driven approach
Workshops are central, engaging cross-functional teams to explore scenarios, generate insights, and identify strategic adjustments. These sessions typically explore plausible futures using TNFD’s structured 2×2 matrix based on critical uncertainties.
Step-by-step guidance
- Identifying driving forces: Factors such as ecosystem changes, consumer demands, and policy shifts are considered. Common frameworks like PESTLE and STEEP may aid in assessing these forces.
- Placing along uncertainty axes: Organisations map their current and potential future states along the axes of ecosystem degradation and market/non-market alignment.
- Using scenario narratives: The four predefined narratives—”Ahead of the Game,” “Go Fast or Go Home,” “Sand in the Gears,” and “Back of the List”—offer distinct insights into plausible futures:
- “Ahead of the game”: Positive progress on carbon policies leads to significant nature-related investments and opportunities.
- “Go fast or go home”: Acute ecosystem service disruptions drive urgent policy, consumer, and financial action.
- “Sand in the gears”: Conflicting market and policy signals inhibit systematic responses despite growing risks.
- “Back of the list”: Carbon takes precedence over nature issues, delaying progress on biodiversity and ecosystem health.
- Identifying business decisions: Workshops yield actionable insights for strategic planning, risk management, and disclosure.
Key considerations
Effective scenario analysis requires alignment with organisational goals, selection of appropriate time horizons, and integration into broader strategies. Outputs include:
- Robust findings: Universally actionable insights across scenarios.
- Contingent findings: Context-specific insights requiring further exploration.
More advanced approaches and tools
Scenarios for financial institutions and multinational corporates
Organisations with complex portfolios may require:
- Quantitative cmodels to assess financial implications.
- Multi-layered uncertainties across geographies and sectors.
- Advanced analytics to evaluate nature-related risks and opportunities over longer time horizons, such as 2030 and 2050.
Other relevant scenario tools
The TNFD highlights tools such as:
- Forecast Policy Scenario (FPS) + Nature: Focuses on the land use sector’s transition risks.
- ENCORE: Provides qualitative assessments of ecosystem service dependencies and risks.
- Exiobase: Offers multi-regional environmental data for modelling impacts.
Strategic links and case studies
Integration with TNFD’s LEAP framework
Scenario analysis informs all phases of the LEAP framework:
- Locate: Identifies sensitive locations with significant dependencies or impacts.
- Evaluate: Assesses the magnitude of risks and dependencies.
- Assess: Highlights systemic risks and prioritises mitigation.
- Prepare: Stress-tests strategic options against plausible futures.
Case studies
Practical applications illustrate the TNFD’s guidance:
- Dow Chemical: Leveraged scenarios to address water scarcity and physical risks from storms, identifying opportunities like investing in wetlands.
- Stockland: Used scenario workshops to test strategic resilience, particularly regarding regulatory and community impacts.
- Reckitt: Focused on supply chain traceability and engagement with small-scale farmers to understand location-specific risks and opportunities.