Nature-Related Risks on Corporate Transition and Adaptability

2022-08-16

As stated by the World Economic Forum, over half of the global economy output, resulting in USD44 Trillion, is "moderately" or "highly" impacted by nature. As a result, the notion of nature-related risks has received a lot of attention recently as organizations all over the world continue to be negatively impacted by environmental degradation.

 

As stated by the World Economic Forum, over half of the global economy output, resulting in USD44 Trillion, is "moderately" or "highly" impacted by nature. As a result, the notion of nature-related risks has received a lot of attention recently as organizations all over the world continue to be negatively impacted by environmental degradation.

 

Recent times have seen the emergence of nature- predicated dangers as the following frontier in environmental, social, and governance issues. Dutch Financial Institutions alone legislate EUR 510 billion in terms of exposure to risks, or 55 of the GDP of the entire nation, to lay the size of this issue in context. The Taskforce on Nature- Related Financial Disclosure (TNFD) was formed in June 2021 as a resultant of added attention being directed to how businesses interact with nature. The TNFD was established with the aspiration of helping organizations in valuating and transparent divulgence of nature- based risk. This is a nonprofit organization supported by governments, the United Nations, and individual philanthropists Companies right now have an urgent need for change and to adjust according to these risks as they become more conscious of the impact of their operations on the environment. This blog will explain the creation of a nature risk action plan using key tools by focusing on the impact and dependencies of nature degradation on various ecosystems.

 

Let's Uncover what is Nature's Degradation. How it has an impact on the corporate world and its dependencies of it.

We all are aware of Deforestation, climate change, biodiversity loss, water scarcity, and other environmental problems. All these environmental risks are capped under the category of “Nature Degradation”. These problems are not only linked, but they also have a big reliance on one another. For instance, deforestation increases carbon emissions, which in turn contributes to climate change and exacerbates biodiversity loss. This leads to common problems such as the degradation of natural resources and degradation of natural ecosystems which leads to natural capital degradation for the corporate world.

So, the impact on businesses due to nature degradation is a major concern. Significant risks include extreme weather, water scarcity, and disruptions in supply networks as a result of climatically related calamities. Changes in weather patterns may have an impact on agricultural outputs and food supply chains, while the loss of biodiversity may result in a shortage of vital resources needed in the industry. These hazards could impede a company's performance and expansion because they not only have negative environmental effects but also serious social and economic ones.

 

Nature-Related Risks to the Business:

Natural disasters pose dangers to businesses across industries and geographies. The greatest risk is the possibility of regulatory change. Governments all across the world are enforcing stronger environmental laws, such as carbon pricing, emissions reduction goals, and criteria for sustainable sourcing. Companies that disregard these rules may be subject to fines, legal issues, and reputational harm.

Also, risks associated with nature lead to financial risks. Some of the financial risks businesses might encounter are higher insurance prices as a result of climate-related disasters, asset devaluation, and abandoned assets such as fossil fuel reserves. Additionally, customers have grown environmentally conscious, so companies that do not adopt sustainable practices face falling demand and losing market share.

 

How to Develop a Nature Risk Action Plan:

Businesses have to develop an exhaustive Nature Risk Action Plan in order to address risks related to nature and enhance adaptation mechanisms. The essential elements that follow have to be included as part of this action plan:


Risk Assessment and Identification: In order to identify the potential risk that might encounter, Businesses are very in need to conduct a thorough review of their operations. This involves taking a look at the business's physical sites, supply chain, and potential impacts on the environment.

Setting Goals and Targets: Organizations should establish specific, tangible goals for minimizing their environmental impacts, such as targets for cutting carbon emissions, commitments for sustainable sourcing, and initiatives for biodiversity preservation.

Integration into Business Strategy: The management of nature risks should be easily included in the entire business plan, demonstrating the significance of taking the environment into account when making decisions.

Investing in Resilience: For businesses to resist interruptions caused by nature, building resilience must be a priority. Diversifying supply chains, taking climate risk into account when making investment decisions, and encouraging innovation to create sustainable alternatives could all be necessary to achieve this.

Tools, Metrics, and Data Sets

 

As we are aware that Nature related risks are a major concern for corporates. They are very much needed to make changes to prevent their business from falling apart. So, in order to monitor progress and guide decision-making during the implementation of a nature risk action plan, a variety of instruments, metrics, and data sets are used. Some of them are;

 

Carbon Footprint Calculators: These tools make it possible for businesses to identify emission hotspots and prioritize reduction efforts by measuring greenhouse gas emissions throughout the supply chain.

 

Water Risk Assessment Tools: Companies can evaluate their exposure to water scarcity and prioritize water conservation measures by assessing the water risk in the operational zones.

 

Biodiversity Impact Metrics: Businesses can examine their reliance on natural resources and identify potential risks associated with biodiversity loss using metrics that measure the impact of biodiversity.

 

Environmental, Social, and Governance (ESG) Reporting Standards: Companies can publicly reveal their environmental performance by adopting accepted ESG reporting standards.

 

Climate Data Sets: Businesses can better prepare for and adjust to changing climatic circumstances by having access to climate data, such as historical weather trends and future climate projections.

 

So Finally let me conclude by stating that Businesses need to accept the responsibility of transforming and adapting to a more sustainable future as the world struggles with the effects of environmental degradation. Companies can lead this revolutionary path toward a greener and more resilient future by comprehending nature-related risks, creating strong action plans, and using the right tools and KPIs.

 


Join our upcoming Masterclass on Nature-Related Risks conducted by industry expert.

 

 

By Nafhan Naseem, Jr. Social Media Executive & IT Support, GLC Europe, Colombo Office, Sri Lanka. 

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