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i4n The Earthshot Prize 2023

Risks linked with nature

We previously saw that businesses both impact and depend on nature. This stems both risks and opportunities related to nature that need to be included in their risk assessment and strategic planning. Research showed that under the current climatic and biodiversity loss scenarios, more than half of the world’s GDP is at risk. Thus identifying nature-related risks is not just good for the planet, it makes business sense too!

In your process of managing nature-related risks, the first step is to identify and characterise these risks. See below the main categories of nature-related risks.

DEFINITIONS
Physical risks: the direct result of an organisation’s dependency on nature. These are risks arising when natural systems are compromised, due to the impact of climatic events (e.g. extreme weather such as a drought), geologic events (e.g. earthquakes) or changes in ecosystem equilibrium (e.g. changes in soil quality or ocean chemistry). Transition risks: result from a misalignment between an organisation’s or an investor’s strategy and management and the changing landscape in which it operates. Developments aimed at halting or reversing the damage to nature, such as government regulations or policy, technological developments, market changes, litigation and changing consumer preferences, can all result in transition risks. Systemic risks: arising from the breakdown of the entire system, rather than the failure of individual parts. They are characterised by modest tipping points combining indirectly to produce large failures with a cascading of interactions of physical and transition risks, as one loss triggers a chain of others, and with systems unable to recover equilibrium after a shock (see planetary boundaries for more).

Tools exist to help companies identify their nature-related risks, such as the WWF Risk Filter or the WBCSD sectorial guidance. Once identified, companies need to assess nature-related risks according to likelihood, magnitude and any other relevant criteria, just like they do with general risks. The financial impact of nature-related risks on the business is quantified in order to prioritise material risks.

Further Reading

  • Opportunities linked with nature
  • Nature-positive solutions: How to take action for biodiversity

Relevant I4N Ventures

Explore innovative ventures committed to combatting biodiversity loss and promoting a nature-positive world. Ventures such as INVERTO, and InvestConservation are at the forefront of driving positive change.

Author:
Coralie Delacoste