Nature risk – bigger than climate risk?

Nature looks set to become the next climate risk, especially with the arrival of the disclosure recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD). There is also expected to be a rise in nature-related litigation aimed at corporates. But when it comes to awareness of nature risk, it is lagging someway behind climate risk, and directors and risk managers need to be aware of how nature risk is coming to prominence. In a panel session at the Commercial Risk/ESG Risk Review ESG Insight and Intelligence 2024 conference, part of London Climate Week, Geoff Summerhayes from Pollination noted: “Over the last two decades, world economic prosperity, measured by GDP, has doubled yet natural capital has reduced by 40%. We have operated on a paradigm where we extract from nature, and we haven’t valued nature, and we’ve assumed that nature was abundant and endless, and it’s not.” He said sectors like food and agriculture, as well as construction and the built environment, are heavily dependent on nature, as well as supply chains and transport and virtually every other sector of the economy. “Every sector of the economy, if not primarily, is actually in some way dependent on nature. We’re only just waking up to the significance of nature. We’ve tended to treat climate and nature as somewhat separate, but nature will follow the climate playbook on fast forward,” he said. Jo Paisley, president of GARP Risk Institute, Global Association of Risk Professionals, said GARP did a benchmarking study looking across 48 big companies around the world and found that nearly half of the boards had oversight of nature risk. “If you compare it with the first benchmarking survey we did on climate back in 2019 where 80% had oversight, you can see nature is lagging quite a bit, probably about six to seven years behind climate, although I suspect it will accelerate in terms of the progress it makes,” she said. The study also revealed that a quarter of the firms have identified risks or opportunities on nature compared with two-thirds of firms that had identified risks or opportunities on climate. As to what is what is holding firms back, the typical answer is “we don't have the right data or the right models”, she explained. She added that it is not just about animals and species, it is also about the availability of water, of clear air, of pollution. “We are a part of nature,” she said. As to liability, Chandler Morris, Allianz Commercial, said that the courts in the UK have taken a stance that fines need to send an appropriate message to the directors and shareholders of the company. She noted that as of last year, the previous £250,000 cap on fines and penalties for environmental related issues has been removed and the range of offences that they cover has expanded. “So the firms now face an unlimited financial penalty for breach, with the move designed to offer a more rapid form of punishment compared to prosecution or longer litigation, but they still reserve the right for criminal prosecution,” she said. Justin Mundy, senior advisor strategy, Howden, didn’t mince his words when asked whether he foresees an increase in litigation: “There is a curious, idiosyncratic, wilful blindness by so many people that we are able to delude ourselves that everything going on outside of our companies and ourselves is somehow somebody else’s problem without taking responsibility.” He went on: “Do I hope there is going to be liability for companies? Absolutely. I don’t think anybody should be providing insurance for any company that does not have a net transition plan because that is just escapism. If you’ve got it and you fail, then let’s see why you failed. But if you haven’t got it, and you are pretending to have it, then you should be liable.” Mundy said: “As directors of companies, if you are aware of a problem and then you deliberately do not take action to mitigate that problem, you are then completely culpable for the problems for that company. What happens is that everyone assumes it is someone else’s problem so we don’t have to worry about it. They also say ‘we don’t have enough data’. How much more data do you need?” And in a separate session on climate adaptation and resilience, Andrew Forsyth from Zurich Resilience Solutions addressed the data issue. “Just because you have the data, doesn’t mean you are managing the risk. If that data just stays in one part of the business, you can have a quite nice echo chamber of being pretty comfortable and happy, and there is no challenge to that data. We need to think about data and how we apply that. And how we do that is to look at criticalities. So across your own business or supply chain, what is that data telling you?” He added that climate data is there to help guide, to help make decisions and take action. “Don’t just stay in that safe zone of having the data but not really doing anything with it or really interrogating it,” said Forsyth.

Nature risk – bigger than climate risk?

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