TNFD Scenario Analysis and Nature Resilience: A Practical First-Year Approach

Technical status. TNFD recommends disclosure of resilience under different scenarios, taking into consideration nature-related risks and opportunities. TNFD’s scenario-analysis guidance is additional supporting guidance. The Recommendations state that additional guidance is suggested and not compulsory for organisations preparing TNFD disclosures. The exercise therefore needs to be useful and transparent, but not necessarily a complex quantitative model in the first reporting year.

Limitation. Scenario analysis is not a forecast or a probability statement. It does not remove the need for ecological, engineering, financial or rights-based assessment, and it does not prove that a strategy is resilient merely because management discussed several narratives.

Nature-related risks involve deep uncertainty. Ecosystem degradation may be gradual until a threshold is crossed; regulation can accelerate after public concern; supply-chain impacts may appear in distant locations; and climate change can amplify water, fire, coastal, soil or species pressures. Conventional forecasts built from recent averages can therefore miss the conditions that matter most.

Scenario analysis deliberately asks what could happen under different plausible futures. Its value lies in exposing assumptions and strategic weakness. A good first-year exercise helps management answer questions such as:

Which sites or supply chains become unviable if ecosystem services deteriorate?

Which investments depend on policy, technology or community acceptance?

Where could nature-related transition pressures arrive faster than expected?

Which climate actions create nature trade-offs?

Which strategic options remain robust across several plausible pathways?

What information would change the decision?

The objective is not to select the “correct” scenario. It is to improve decisions before uncertainty resolves.

TNFD Strategy C asks an organisation to describe the resilience of its strategy to nature-related risks and opportunities, taking into consideration different scenarios. Strategy A and B provide the necessary context: material DIROs, effects on the business model and value chain, strategy and financial planning. Risk and Impact Management disclosures explain the processes supporting the assessment, while Metrics and Targets disclosures show how responses are monitored.

Scenario analysis can therefore support several parts of the TNFD architecture:

identifying and prioritising risks and opportunities;

testing business-model and value-chain resilience;

informing mitigation and adaptation responses;

challenging capital allocation and financial assumptions;

setting targets and trigger points;

developing transition plans; and

explaining uncertainty and strategic response.

TNFD’s guidance builds on climate-scenario practice but adapts it for the broader complexity of nature. Preparers can reuse climate governance and facilitation skills, while adding location, ecosystem-service, impact, rights-holder and value-chain dimensions.

Figure 1. A proportional first-year method moves from decision question and material pathways to qualitative scenarios, strategic testing, actions and evidence.

Step 1 - define the decision question

Do not begin by collecting dozens of global scenarios. Begin with a decision that matters. Examples include:

whether to expand a water-intensive facility;

how to secure a commodity exposed to land conversion and ecosystem decline;

whether a coastal asset requires redesign, relocation or insurance changes;

how a lending portfolio could respond to tighter nature policy;

whether a climate-transition investment remains acceptable after nature screening; or

which transition-plan actions should be accelerated.

A clear decision question sets the scope, participants, time horizons and output.

Step 2 - choose material pathways, locations and boundaries

Use the organisation’s LEAP assessment and DIRO register to select a manageable number of pathways. A first-year exercise might focus on three to five combinations, such as:

water scarcity and declining basin condition affecting production;

land-conversion regulation affecting a key commodity;

pollinator decline affecting agricultural yield and price;

ecosystem degradation increasing flood exposure;

pollution rules and community opposition affecting permits; or

transition demand creating opportunity for low-impact products.

Preserve the geographic context. A nature scenario that says “water risk increases” without identifying the relevant basin, users, ecosystem condition and dependency is unlikely to change a decision.

Step 3 - identify critical uncertainties

Critical uncertainties are factors that are both consequential and genuinely uncertain. They commonly include:

pace and severity of ecosystem decline;

policy ambition and enforcement;

market, lender and customer expectations;

technology availability and adoption;

climate pathway and physical hazards;

community and rights-holder response;

supplier adaptation and traceability;

finance and insurance availability;

ecological restoration effectiveness; and

timing of thresholds or tipping points.

The team should distinguish uncertainty from a simple data gap. Missing supplier coordinates require better data; uncertainty about how quickly regulation or ecosystem decline will change is a scenario variable.

Step 4 - construct a small set of plausible pathways

A proportional method can use two critical uncertainties to create four contrasting narratives. For example:

Nature loss accelerates; policy response remains weak. Physical dependencies deteriorate, but market signals arrive late.

Nature loss accelerates; policy and market response strengthens. Physical and transition pressures reinforce each other.

Nature stabilises gradually; policy response is coordinated. Transition costs arrive earlier, but ecosystem-service decline slows.

Nature outcomes improve unevenly; policy is fragmented. Some locations and supply chains adapt while others remain exposed.

These are not predictions. They are disciplined stories that should be internally coherent, sufficiently challenging and relevant to the decision.

Step 5 - connect climate and nature

Climate and nature pathways should not be run in isolation. Climate change can intensify heat, drought, flood, fire, coastal change, invasive species and ecosystem degradation. Nature loss can remove carbon stocks and reduce physical resilience. Responses can also conflict: land-intensive bioenergy, poorly sited renewables or monoculture planting may reduce emissions while increasing nature and social pressures.

The exercise should therefore identify:

shared drivers and hazards;

reinforcing feedback loops;

nature-related consequences of climate actions;

climate consequences of nature actions;

common locations and value-chain nodes; and

where separate metrics and expertise remain necessary.

Step 6 - use consistent time horizons

The organisation should define short, medium and long term in a way that reflects decision cycles and ecological processes. The same horizon may not work for all issues.

Short term - budget, procurement, insurance and annual controls. Focus on immediate incidents, permits, acute hazards and supplier interruption.

Medium term - capital planning, contracts, product redesign and strategy. Focus on policy change, ecosystem degradation, sourcing shifts and restoration delivery.

Long term - business-model resilience and asset life. Focus on climate-nature feedbacks, ecosystem thresholds, irreversible loss and structural transition.

Long-term analysis should not become vague. It should identify the assets, products, resources or relationships that could become constrained and the decisions that must be taken earlier because of lead times.

Figure 2. Nature resilience should be tested across linked time horizons, recognising climate-nature feedbacks, threshold effects and the timing of strategic responses.

Step 7 - examine thresholds, tipping points and non-linearity

Nature does not always decline in smooth increments. A basin, fishery, soil system, forest or coastal ecosystem can cross a threshold after which services fall rapidly or recovery becomes much harder. Corporate impacts can also accumulate with those of other users.

A first-year assessment does not need to calculate every ecological tipping point. It should identify where threshold behaviour is plausible, seek specialist evidence and avoid assuming that recent trends remain linear. Useful questions include:

Is the dependency already under stress?

Could multiple users create cumulative pressure?

Is the impact reversible within the asset or contract life?

Would late mitigation still work?

What early-warning indicator should trigger action?

Is the scenario severe enough to challenge the current strategy?

Step 8 - test strategic responses

For each scenario, assess effects on operations, supply chains, customers, finance and stakeholders. Then test strategic options rather than only describing risk. Options may include:

avoid or relocate an activity;

redesign the process or product;

reduce resource dependency;

diversify suppliers or geographies;

increase traceability and supplier support;

restore ecosystems that underpin resilience;

change contract, credit or insurance terms;

invest in alternative technology;

retain liquidity or contingency capacity; or

exit an exposure that cannot be managed credibly.

The strongest output is a set of robust actions that perform reasonably across multiple scenarios, plus contingent actions linked to clear trigger indicators.

Step 9 - connect results to financial planning

The analysis should identify financial channels even where quantification is preliminary:

revenue volume and price;

input cost and availability;

operating downtime;

capex and maintenance;

asset life, impairment or relocation;

provisions and liabilities;

insurance cost or availability;

financing terms and access; and

opportunity investment and market demand.

The team should document which assumptions are reflected in budgets or valuations and which remain outside current financial planning. That gap can be a key disclosure in the first year.

Step 10 - retain the evidence trail

The scenario file should show the decision question, scope, participants, sources, assumptions, pathways, time horizons, strategic tests, financial channels, conclusions, limitations, actions, owners and approval. It should also explain what changed because of the exercise.

A practical first-year workshop can be completed in three controlled sessions:

Preparation session. Reporting, risk, finance and nature specialists agree the decision question, DIROs, locations and evidence gaps.

Scenario session. A cross-functional group develops and stress-tests two to four plausible pathways, including climate-nature links and stakeholder perspectives.

Decision session. Management selects robust and contingent actions, assigns triggers, and identifies financial-planning and disclosure consequences.

The work should not be delegated entirely to sustainability staff. Operations, procurement, finance, risk, strategy and relevant local teams provide the decision context, while ecological and social expertise prevents false simplification.

A beverage company relies on a river basin where demand is increasing and ecosystem condition is declining. Its base forecast assumes historical water availability. The first scenario considers gradual decline with stronger allocation rules. The second considers prolonged drought, wetland degradation and community conflict. The third considers coordinated restoration, stricter permits and higher near-term costs but improved long-term basin resilience.

Management tests plant expansion, water-efficiency investment, supplier sourcing, basin collaboration, product mix and contingency supply. The expansion performs poorly in the severe-decline scenario unless water dependency is reduced before capacity is added. The company therefore sequences efficiency capex, community engagement, ecological monitoring and a conditional expansion decision linked to basin indicators.

The exercise does not predict drought. It demonstrates why the existing forecast is not resilient and what evidence should govern the decision. This is an illustrative scenario.

Weak: “We considered nature scenarios.” Stronger: State the decision question, scope, scenarios, time horizons, material uncertainties and governance.

Weak: “Our strategy is resilient.” Stronger: Explain which strategic elements were tested, where vulnerabilities remain and what changed.

Weak: “The scenarios were qualitative.” Stronger: Describe the qualitative method, evidence, participants, limitations and reason it was proportionate.

Weak: “Climate and biodiversity were integrated.” Stronger: Show the specific feedbacks, trade-offs, common locations and distinct metrics considered.

Weak: “No material financial impact was identified.” Stronger: Explain the financial channels assessed, assumptions used and why quantification was or was not possible.

Treating a published global pathway as the analysis. Translate external scenarios into organisation-specific decisions and locations.

Using scenarios as forecasts. Preserve uncertainty and compare plausible pathways.

Choosing only comfortable futures. Include a scenario severe enough to test strategic resilience.

Ignoring value chains. Include material suppliers, commodities, customers or portfolio exposures.

Reusing climate scenarios without nature variables. Add ecosystem state, dependencies, impacts, rights-holder response and location context.

Building a complex model before defining the decision. Start qualitatively and add quantification where it changes the choice.

Assuming long-term risks can wait. Identify long lead-time actions and irreversible thresholds.

Declaring resilience without response evidence. Show robust actions, contingent options, triggers and residual vulnerability.

Disconnecting scenarios from finance. Map effects to budgets, assets, liabilities, cash flows, finance and insurance.

Publishing workshop output without review. Challenge assumptions, document limitations and obtain governance approval.

TNFD Recommendations v1.0

TNFD Guidance on scenario analysis v1.0

TNFD scenario-analysis publication page

TNFD Scenario Toolbox

IFRS educational material: Nature and social aspects of climate-related risks and opportunities

IPBES-IPCC co-sponsored workshop report on biodiversity and climate change

Review this article if TNFD revises its scenario guidance; the ISSB issues final nature-related scenario-analysis requirements; a recognised scenario provider releases materially new nature pathways; or the organisation changes its material DIROs, locations, strategy or time horizons.