We've said it before: every company has nature embedded at some point in its value chain. As a result, all businesses, directly or indirectly, depend on nature and the existence of healthy ecosystems. Whether in their supply chain for raw materials, production processes, or the distribution of their products and services, the natural world plays a fundamental role in ensuring the proper functioning of businesses across all industries.
Examples can be found everywhere you look. Agriculture, food, beverage, cosmetics, pharmaceutical, and textile companies depend on fertile soils and pollinators for the crops that provide their products and raw materials. Mining, construction, and technology companies rely on water availability for mineral extraction, materials transformation, and cooling processes. And transportation, real estate, energy, and tourism companies depend on functional ecosystems that regulate natural phenomena and protect them from disruptive events.
As you might already infer from the examples, these dependencies lead to an unavoidable reality: by relying on nature, companies are exposed to natural risks that can affect their value chain, operations, and relationships with customers, communities, and shareholders.
Understanding and taking measures to address these risks can make the difference between ensuring long-term business stability and viability or facing critical disruptions, reputational damage, and irreparable financial losses.
In this article, we will explore how nature risks can impact businesses and how companies can anticipate disruptive scenarios, protect their assets, comply with emerging regulations, maintain the trust of customers and investors, and, most importantly, build more resilient business models that are better suited to today's context.
What Are Nature Risks and How Can They Impact Businesses?
Nature risks are threats arising from environmental phenomena such as droughts, floods, wildfires, landslides, pollinator loss, or ecosystem degradation, all of which can impact a company's operations and viability.
Exacerbated in recent years by the climate and biodiversity loss crises, these risks are not only linked to extreme events, but also to gradual changes in the environmental conditions that sustain business operations, such as water availability, soil health, or local climate stability. The impacts on businesses manifest in different ways:
1. Economic and Operational Impacts: Nature risks can disrupt logistics, increase production costs, and affect supply chains, leading to significant financial losses.
For example, Chile's agricultural sector faces growing threats due to prolonged droughts and reduced water availability for irrigation, which lowers crop yields and increases production costs.
In the infrastructure and energy sectors, wildfires can damage critical facilities such as power grids and plants, causing service disruptions and high repair costs.
2. Legal and Regulatory Impacts: With increasingly stringent environmental regulations aligned with demanding international standards, ignoring natural risks can lead to non-compliance, penalties, and loss of access to certain markets.
Global frameworks such as TNFD (Taskforce on Nature-related Financial Disclosures), SASB (Sustainability Accounting Standards Board), and GRI (Global Reporting Initiative) require companies to identify, assess, and report not only their impact on nature but also the risks they face due to their dependencies.
Companies that fail to properly report their exposure to nature risks may face sanctions or be excluded from major international buyers' supply chains that now require compliance with frameworks like TNFD.
3. Reputational Impacts: More than ever, customers, investors, and communities expect companies to act responsibly in addressing environmental challenges. Failure to manage natural risks can erode brand reputation, affect consumer loyalty, and limit access to funding.
For example, a mining company that fails to assess water scarcity risks and impacts local community water resources may face protests, loss of social licenses to operate, and legal disputes.
With increasing social and media scrutiny on environmental issues, poor practices or lack of preventive action on nature risks are quickly exposed, damaging public perception of companies. In an era where competitiveness is linked to sustainability, this can directly affect sales, relationships with strategic clients, and the ability to attract ESG-focused investors.
First Steps for Evaluating and Managing Nature Risks
Effectively managing nature risks begins with understanding a company's direct relationship with nature across its entire value chain. This relationship, known as the company's interface with nature, combines its dependencies on nature's services (such as water, soil, pollinators, and climate regulation) with the impacts it generates on ecosystems (such as pollution, deforestation, or soil degradation).
Without understanding this interface, it is impossible to anticipate, mitigate, and adapt to natural risks that may threaten business stability in the short, medium, and long term. In upcoming blog posts, we will delve deeper into each of the following areas, which we present here as starting points for companies looking to take a step forward in understanding their dependencies, impacts, risks, and opportunities related to the natural world.
1. Identify Nature Dependencies in the Value Chain
This means determining which natural elements and services the company depends on for its operations. These dependencies can exist at various stages of the value chain, from raw material extraction to final product distribution. In any case, companies should carry out a rigorous inventory of dependencies to understand where they are most exposed and what they can do about it.
For example, a food company reliant on pollinator-dependent crops can design nature-based solutions such as conserving local ecosystems, restoring degraded areas to attract pollinators, or launching a project to increase bee populations that could take over this task.
2. Quantify the Company's Impact on Natural Ecosystems
In addition to dependencies, it is crucial to understand how a company impacts nature. We've explained the main challenges and solutions for measuring environmental impact before. The point is quantifying a company's impact on the natural world is crucial to ensuring the availability of resources and reducing future resource depletion risk.
For example, a textile company reliant on cotton should accurately assess its impact on soil degradation, water use, and biodiversity in its areas of interest. It can then implement technologies for more efficient water use and regenerative agriculture practices to improve soil health and biodiversity.
3. Identify Key Areas Exposed to Nature Risks
Once a company understands its dependencies and impacts, it must map out territories with the highest exposure to nature risks such as wildfires, droughts, floods, or erosion. These areas may include operational sites, supplier territories, or locations that host key business infrastructure.
For example, a real estate company that develops housing or tourism projects needs to map the land where it builds and evaluate risks associated with natural phenomena. By understanding these risks, the company can design more resilient projects, select safer locations, or avoid investments in vulnerable areas.
4. Prioritize Risks Based on Potential Impact
Not all natural risks will affect every company in the same way. Therefore, evaluating which risks are most likely to occur and could have the most significant impact on the company's operation, reputation, and finances is necessary. This analysis helps to prioritize actions, focusing resources where they are most needed.
For example, a telecommunications company with antennas and networks in rural areas should consider thunderstorms, forest fires, and landslides. Suppose it can identify that the greatest risk is fire. In that case, the company can invest in antenna protection, create safety rings, and ensure network redundancy, thus guaranteeing continuity of service and avoiding economic losses due to prolonged interruptions.
5. Establish Key Environmental Monitoring Indicators
Lastly, continuous monitoring of ecosystems, company impact, and natural threats is essential. Companies should track environmental indicators relevant to each business in categories such as vegetation, biodiversity, water, and climate to understand how ecosystems change and evolve.
For example, a forestry company seeking to anticipate problems affecting its production and the long-term viability of its plantations can define indicators of vegetation cover, presence of animal species, presence of invasive plant species, surface temperature, water risk management, and forest fire risk to follow the ecosystems trajectory and make decisions to protect them and ensure their stability.
Atlas: Data to Understand Your Company's Interface with Nature
Understanding and managing a company's impact on the natural world—and the risks it faces due to its dependencies—requires access to reliable environmental data to inform and accelerate strategic decision-making.
Atlas, our nature intelligence platform, serves this purpose. Using satellite data, global databases, and AI-powered models, Atlas provides companies with a broad portfolio of carbon, vegetation, biodiversity, water, climate, and risk indicators to quantify their relationship with nature in their areas of interest.
If your company wants to assess its dependencies, impacts, and risks related to nature, get in touch. You can easily book a free Atlas demo. Together, we can build a path for your company to become more resilient to natural phenomena, comply with regulations, report according to global environmental standards, and enhance its reputation as a leader in environmental sustainability.
