World’s Largest Natural Capital Risks Identified

The world’s largest natural capital risks and opportunities for business and their investors have been identified in the latest TEEB study  entitled “Natural Capital at Risk: The Top 100 Externalities of Business”. The study was commissioned by the TEEB for Business Coalition and authored by Trucost, and makes the business case for natural capital accounting – putting a price tag on environmental externalities such as damages from climate change, pollution, land conversion and depletion of natural resources, across business sectors and at a regional level. The report finds that these global top 100 environmental externalities are costing the global economy around US$ 4.7 trillion each year.
natural capital at risk

Photo: K. Berrisford

 

For businesses to be viable in the long term, the ecosystems and resources they depend on must be maintained. However a rapid degredation and depletion of the natural environment is taking place which has implications for a sustainable future and well-being of all people, but also for businesses which rely on ecosystems for the important services they provide like water and food, climate regulation, flood management and waste treatment. Businesses that fail to adapt to increasingly scarce resources will loose competitiveness and the opportunity to manage looming risks.

The report shows that the profits of high impact business sectors would be obliterated if the costs of environmental damage and unsustainable natural resource use were accounted for. It also highlights the urgent need for businesses to manage natural capital assets and reduce liabilities. Businesses that do take account of natural capital impacts in decision making may be able to better manage risk and gain a competitive advantage.

Achim Steiner, UN Under-Secretary General and Executive Director, UN Environment Programme (UNEP) states, “Forward-looking companies are already recognizing that the key to competitiveness in an increasingly resource-constrained world will hinge in large part on escalating natural resource efficiencies and cutting pollution footprints-the numbers in this report underline the urgency but also the opportunities for of all economies in transitioning to a Green Economy in the context of sustainable development and poverty eradication.”

Companies and their investors face both an opportunity and a significant problem. Consumer demand is set to grow significantly over the next few years with the increase in middle class consumers, especially in emerging markets. However, resources are also becoming more scarce and the natural ecosystems are being degraded. One of the challenges will be to understand the value of the natural systems we rely on – commonly referred to as natural capital – and how these systems can be managed.

environmental externalities

 

The report assessed more than 100 environmental impacts using the Trucost environmental model which condenses them into six eKPIs to cover the major categories of natural capital consumption: water use, greenhouse gas (GHG) emissions, waste, air pollution, water and land pollution, and land use. These eKPIs were then quantified by region across over 500 business sectors. The method used has limitations and is only designed to give a high-level indication of the priority sectors and regions where natural capital risk lies.

The study ranks the top 100 impacts in each sector, broken down by region to provide a platform for companies and investors to assess exposure to unpriced natural capital, both directly and through supply chains and holdings. It also highlights sector-level variation in regional exposure to impacts to identify opportunities to enhance competitive advantage. Impacts across all six eKPIs were combined by region and sector to create a ranking of the top region-sectors globally.

The report shows that the scale and variation in impacts provide opportunities for companies and their investors to differentiate themselves by optimizing their supply chains and investment strategies.  Some recommendations for companies include implementing processes to measure and manage natural capital used; strengthening business models to mitigate exposure to global risks such as water scarcity, volatile energy and agricultural prices, rising GHG emissions and climate change impacts.

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