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The Actuary The magazine of the Institute & Faculty of Actuaries

Businesses warned over natural capital risks

Oil, gas, mining, food and beverage and transportation companies have the highest exposures to risks from depletion of ‘natural capital’, a survey by insurer Allianz Global Corporate & Specialty has found. Risks include higher costs from resource scarcity, regulatory action and pressure from public opinion. 

Sustainable use of natural resources is critical ©Shutterstock
Sustainable use of natural resources is critical ©Shutterstock

In an analysis of more than 2,500 companies, Allianz found growing stakeholder pressure around sustainability. Failure to manage the earth’s natural resources – such as clean air and fresh water – would have consequences beyond direct effects on the environment, with businesses facing interruptions and liabilities from resource scarcity and regulatory actions, Allianz warned in its report Measuring And Managing Environmental Exposure: A Business Sector Analysis of Natural Capital Risk.

Chris Bonnet, the company’s manager for environmental, social and governance business services, said: “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.”

Allianz said the oil, gas, mining, food and beverage and transportation sectors had the greatest risk exposure, based on the impacts of biodiversity, greenhouse gas emissions, emissions of other gases, water and waste. In the mining sector, for example, more than 90% of global iron ore production is derived from areas with high risk of water stress and biodiversity impact.

Transportation-related carbon emissions have increased by 250% since 1970, and now account for 23% of all global emissions.

The food and beverage sector was assessed as being at risk because of its high dependency on natural capital in its supply chains, and because flora and fauna are often damaged by excessive use of pesticides, reducing fertility and increasing vulnerability to weather events.

A further seven industry sectors were assessed as being in the ‘middle zone’ of risk: construction, utilities, clothing, chemical, manufacturing, pharmaceutical and automotive. Only telecommunications was classified as ‘safe’.

Bonnet said: “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.”

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