RISK MANAGEMENT & SUSTAINABILITY
Climate and Nature-Related Risk
According to the World Economic Forum, over half the world’s economic output—US$ 44tn of economic value generation—is moderately or highly dependent on nature. The three industries most likely to be impacted negatively are construction ($4 trillion), agriculture ($2.5 trillion) and food and beverage ($1.4 trillion). Moreover, CDP data suggests some of the largest global companies have over $1tn at risk due to climate change.
So how does a company include the climate and nature in its risk management process?
Two emerging global frameworks are making climate and nature-related risk assessment and disclosure data-driven, comparable, credible and mainstream.
The Task Force on Climate-related Financial Disclosures (TCFD) and the Task Force for Nature-related Financial Disclosures (TNFD).
Today’s enterprise risk managers understand these frameworks and how to apply the principles of climate and nature-related risk assessment.
Pitch for Nature
by World Business Council for Sustainable Development
Calculating Climate Risk: The Task Force on Climate-related Financial Disclosures (TCFD)
As the global atmosphere absorbs more greenhouse gas emissions, the planet is warming. The basic science of climate change has been known since the 1800s but it has taken until now for business leaders and economists to recognize the profound impact a changing climate can have (risk managers know climate science basics).
A changing climate puts capital at risk. Whether it’s hazard risks from natural disasters or financial risks from stranded assets, climate change is not only a moral crisis but a financial one as well. Just the 10 largest natural disaster events in 2021 cost over $170 billion with Hurricane Ida (U.S.), European Floods, Henan Floods (China) being among the most costly (Axios). This counts only insured risks so the total financial cost is likely much higher.
The graphic below from TCFD illustrates the relationship between climate change, business and financial markets. Notice there are risks (such as regulatory and reputational risk) and opportunities (such as in high efficiency and clean technology).
Understand Climate-Related Risks and Opportunities


Climate Risk Disclosures in Four Categories: Governance, Strategy, Risk Management,
Metrics and Targets
Investors and asset managers want to know about the “climate risk” of their portfolios so they can allocate capital accordingly. Today, TCFD recommend the four reporting dimensions on the left. But the Task Force on Climate-related Financial Disclosures (TCFD) emerged many years ago from a G20 meeting in order to provide direction to climate risk disclosures.
In April 2015 the G20 Finance Ministers and Central Bank Governors requested that the Financial Stability Board (FSB) identify how the financial sector can account for climate-related issues. The FSB established TCFD and an initial membership of 29 representatives of large banks, insurance companies, asset managers, pension funds, and credit rating agencies (more on the history of TCFD).
In TCFD’s most recent report, 2,600 companies, asset managers adn owners, from 89 countries with $194t in assets reported through TCFD.
Calculating Nature-Based Risks: The Task Force on Nature-related Financial Disclosures (TFND)
Wisconsin Senator Gaylord Nelson who founded Earth Day in the United States famously said, “The economy is a wholly owned subsidiary of the environment, not the other way around.” In other words, all business relies on nature and owes its existence to the natural environment. This is not a statement of ethics or politics. It is a simple fact and is the start of understanding nature-based financial risks and opportunities.
We have talked about climate risk, but there are other critical impacts and dependencies business has with ecosystems and other species–the so-called “natural capital” (World Bank) of the planet. In fact, there is mounting evidence that the biodiversity crisis is a business crisis (Boston Consulting Group) and that “ecosystem services” (World Resource Institute)–those precious services valued in the trillions that nature provides humans for free–are degrading due to unsustainable development and creating operational, legal and market risks.
To help companies, asset managers and owners better understand and measure nature-based risks, the Task Force for Nature-related Financial Disclosures (TNFD) was establish in June 2021. Similar to what TCFD has done for climate, TNFD seeks to do for nature more broadly.
Understand Nature-Related Risks and Opportunities

Four Steps to Identifying
Nature-Based Risks
To simplify the process for nature-related risk and opportunity management, TNFD created an integrated assessment methodology called LEAP (see figure).
Locate your interface with nature;
Evaluate your dependencies and impacts;
Assess your risks and opportunities; and
Prepare to respond to nature-related risks and opportunities and report
The LEAP approach is “voluntary guidance intended to support internal, nature-related risk and opportunity assessments within corporates and financial institutions to inform strategy, governance, capital allocation and risk management decisions, including disclosure decisions consistent with the TNFD’s draft disclosure recommendations” (TNFD LEAP Approach).

Learn about more sustainability concepts within this major.