Natural resources emerge as new business threat warns AGCS

Threats to the world’s natural resources have been identified as a key emerging risk to businesses with the potential to disrupt operations, dent profits and create new liabilities, according to analysis of 2,500 companies across 12 industries by Allianz Global Corporate & Specialty (AGCS). As natural resources come under pressure, AGCS said businesses will feel the impact of the loss of “natural capital” on profits and existing business models. “Failure to manage the earth’s natural resources or ‘natural capital’ has consequences that extend beyond direct effects on the environment,” Allianz said, adding that businesses will be impacted by fewer natural resources, regulatory action and pressure from communities to be more sustainable. In a report on managing environmental exposure, AGCS found the oil and gas, mining, food and beverage, and transportation sectors are most at risk of exposure to natural capital threats. Based on five measures – including biodiversity, greenhouse gas emissions, non-greenhouse gas emissions and water – AGCS said these four industries are all in the “danger zone”, where natural capital risks are greater than mitigation options currently in use. In mining, AGCS said over 90% of global iron ore production is in areas at high risk of water stress and biodiversity impact, while in transport carbon emissions have increased by 250% since 1970 and account for 23% of global emissions. AGCS said the food and beverage sector is highly dependent on natural capital in its supply chains, particularly water availability, but just 20% of food products in the MSCI All Country World Index have started to address the risk of disruption in supply chains. Chris Bonnet, manager of environmental, social and governance business services at AGCS, said: “Companies around the world are increasingly confronted with the negative implications of natural capital depletion. Sustainable use of natural resources is critical for the future success of most businesses. Yet while corporates’ awareness of their natural capital footprint is growing, many still need to gain a better understanding of the specific threats that can impact their industry sector and company in particular, as well as the mitigation options available.” A further seven industries – construction, utilities, clothing, chemical, manufacturing, pharmaceutical and automotive – are ranked as in the ‘middle zone’, where risk and mitigation levels are balanced. Telecommunications is the only sector to be classed as a “safe haven”, with a low level of exposure to natural capital risks. “Sectors with an inherent natural capital footprint often provide the necessary resources for manufacturing or other industries, so it’s obviously harder for companies who operate in them to mitigate their natural capital risks. However, innovative risk solutions to reduce the stress to the environment could be more strenuously applied,” Mr Bonnet said. He added that risks need to be mitigated as early as possible to limit impact on businesses. AGCS said natural capital risks give plenty of warning and evolve in three phases. The phases are awareness of the risk, then effects on individual companies in their operations or supply chains and, finally, risks materialising without mitigation, leading to liability costs, higher production costs and business interruption. AGCS said some companies have begun to manage natural capital risk and identify it in ERM frameworks, allowing firms to anticipate threats to natural capital and make business decisions that consider issues such as water scarcity. AGCS said companies will come under increasing pressure to manage natural resources and their exposure to threats from scarcity of natural resources. “Balancing risk management focused on today with the management of emerging risks is challenging. Future and non-financial risks can easily be overlooked as companies focus on short-term targets,” AGCS said, adding that disclosure of natural capital risk will become the norm in future.

Natural resources emerge as new business threat warns AGCS

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