How financial institutions can use Forest IQ to implement the TNFD LEAP approach

A study published today by the Zoological Society of London, in collaboration with Frontierra, highlights how Forest IQ can help financial institutions to implement the LEAP (Locate, Evaluate, Assess and Prepare) approach, which is central to the Taskforce on Nature-related Financial Disclosures (TNFD) Recommendations for nature-related risk management and disclosure.

Increased pressure on financial institutions

With record numbers of private-sector executives in attendance, COP16 was the largest nature protection conference to date. Despite a lack of consensus at the governmental level, this increase in attendance signals strong appetite from the private sector to better understand how to act on nature risk and reporting.

Deforestation is an ideal entry point for navigating wider climate and nature transition plans, as it has a more mature landscape of data and tools than other areas in the nature space. Although the majority of financial institutions are still at the start of their journey, progress can be made quickly.

To help companies and financial institutions identify and assess their nature-related issues, the TNFD has published the LEAP approach as part of its guidance. Through nature-related risk assessments, the framework encourages financial institutions to address deforestation as a driver of nature and biodiversity loss.

129 financial institutions have now signed up as TNFD Adopters – signalling their commitment to getting started with voluntary reporting – representing USD 17.7 trillion in assets under management.

“Protecting forests isn’t just about the planet; it’s smart business.”

– Federated Hermes

Data on deforestation from platforms like Forest IQ can help financial institutions assess their nature-related dependencies, impacts, risks and opportunities, and ultimately report against the TNFD.

Forest IQ – a key tool for LEAP

Forest IQ – a platform that provides actionable data on how more than 2,000 major companies are addressing their links to deforestation – helps financial institutions to implement each phase of the LEAP approach.

LEAP is a voluntary assessment approach that enables financial institutions to effectively integrate nature into their decision-making and risk-management processes. As part of the LEAP approach, institutions are expected to:

1. Locate the interface with nature.

Financial institutions should identify the location of their assets, which includes sectors or companies that have operations or supply chains that interact with nature.

Forest IQ helps financial institutions to screen their portfolios for exposure to companies and sectors linked to key forest-risk commodities, such as beef, leather, rubber, paper and pulp, timber, palm oil and soy. The platform can also identify the countries where commodities are sourced, helping to provide an indication of the potential impacts associated with that commodity.

2. Evaluate dependencies and impacts on nature.

Financial institutions should then identify and assess the scale and scope of their nature-related dependencies, and impacts of their activities and value chains.

Forest IQ’s metrics on exposure, materiality and reported performance help institutions to evaluate the scale, scope, severity and materiality of a company’s impacts and dependencies, and the effectiveness of its sustainability measures.

3. Assess nature-related risks and opportunities.

Having identified their nature-related dependencies and impacts, institutions should evaluate the associated risks and opportunities and how these can be mitigated, managed and disclosed.

Forest IQ allows financial institutions to assess companies’ risk-management strategies and identify any gaps, such as a lack of reporting on actions taken following policy-setting, in turn helping to inform their engagement strategies.

4. Prepare to respond and report.

The final phase focuses on identifying the resources, strategies and mechanisms required to implement the identified action, monitor implementation and disclose in line with the TNFD.

The insights provided by Forest IQ help financial institutions to develop strategies that effectively manage their risks and opportunities through transparent annual public disclosures on deforestation exposure.

Case studies

Four financial institutions (Robeco, Schroders, Federated Hermes and Storebrand) were interviewed as part of the study about their experiences of using Forest IQ to help implement each phase of the LEAP approach.

“Deforestation poses a significant financial risk to investors. Forest IQ contributed to consolidate and strengthen deforestation-related data available to investors. Robeco actively uses these insights in its stewardship activities, nudging companies to improve how they manage and disclose deforestation-related risks.”

– Robeco

Start today

Financial institutions can start using Forest IQ today to help implement the TNFD LEAP approach.

Sign up to Forest IQ

Read the study