Allianz: companies face increasing risks related to ‘natural capital’

Companies are increasingly facing new threats from the depletion of natural resources or ‘natural capital’, according to Allianz’s analysis of over 2,500 companies. In a report titled ‘Measuring and managing environmental exposure: A business sector analysis of natural capital risk’, the insurance firm warns companies about the risks to corporate reputation, liability and impact on profit and revenue models as resource scarcity, regulatory action and pressure from communities and wider society continue to increase.

Natural resources such as clean air and fresh water are vital for businesses. The consequences of failing to manage this natural capital extend beyond the environmental impact alone. “The 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,” says Chris Bonnet, Manager Environmental, Social and Governance (ESG) Business Services at Allianz.

In the new report, Allianz analyses data from research provider MSCI ESG Research. The oil & gas, mining, food & beverage and transportation sectors are ranked highest in terms of exposure, putting them in the ‘danger zone’. This is based on five categories: biodiversity, greenhouse gas emissions, non-greenhouse gas emissions, water and waste. The construction, utilities, clothing, chemical, manufacturing, pharmaceutical and automotive sectors are in the ‘middle zone’. According to Allianz’s findings, telecommunications is the only sector in the ‘safe haven zone’, meaning it is exposed to minimal risk.

Three phases of risk emergence

The insurance company explains that natural capital risks rarely appear without warning, and they evolve through three phases before impacting on the bottom line of a business. The first phase is growing awareness of the natural capital risk. In the second phase, the risk will start to affect individual companies in their supply chains or the company’s own operations due to regulatory change and/or societal pressure. In the third and final phase the risk becomes inevitable, leading to damage such as liability costs, higher production costs and/or business interruption.

According to Allianz, a considerable number of companies have already started to address the need to manage natural capital risks. However, balancing risk management focused on today with the management of emerging risks remains challenging. The insurance firm believes that future risks and non-financial risks can easily be overlooked when companies are focusing on short-term targets.