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World Wildlife Fund Sustainability Works

Doe in front of the Golden Gate Bridge, San Francisco, California USA.

The Nature of Risk

  • Date: 08 November 2019
  • Author: Christa Anderson, Global Science Research Fellow, WWF

I got ready for work this morning in the dark, and before the sun came up here in California, I went outside to position my two portable solar panels in the direction of sunrise. Recently, this has been my morning routine. The power has been out at my house as part of widespread shutoffs initiated by my electric company, Pacific Gas & Electric (PCG), as a safety measure to prevent the company’s power lines from causing fires during a string of exceptionally windy days. Large fires in recent years have led to bankruptcy for PCG and financial mayhem as fires burn anew. In the many news reports covering the power shutoffs, some say the primary cause is poor management by PCG, while others point to climate change as a source of more dangerous fire conditions.

People throughout California are on high alert about the risks of climate change impacts as they watch the fires and blackouts. But are people and businesses as alert to other nature-related risks that may impact their livelihoods and businesses? In our recent review, we find that businesses and communities are not adequately accounting for the risks of the loss and degradation of nature which are often exacerbated by climate change. We surveyed a large stack of recent reports on the topic, summarized here, and in doing so we developed a framework for understanding nature-related risk. We also compiled a reference list of case studies, examples of when businesses faced a nature-related risk that had significant business impacts when it was realized.

Businesses face nature-related risks in two ways. First, they face risks from the loss of nature they rely on for operations. For example, many agricultural businesses rely on bees to pollinate their crops. The nature-related risk to these businesses is bee population decline, and, as a result crops that do not bear fruit, such as almonds, apples, and avocados. Recent research indicates a quarter of the production gap—the difference between high and low producing farms—may be due to insufficient pollinator populations.

The second way businesses face nature-related risks is when they have major and disruptive impacts on nature that result in financial losses, sanctions, or other legal action. These aren’t theoretical risks; they are present and demonstrably growing. For example, think of the significant environmental impacts of the BP Deepwater Horizon oil spill. BP paid $60-140 billion in legal costs; experienced a financial loss of $3.7 billion due to a drop in market cap and share prices; and stewarded an increase in insurance rates across the industry due to its negligence of attending to the impacts of its operation on nature. Nature-related risks often have multiple, difficult to disentangle causes, but one thing is clear from our review: many businesses are not adequately accounting for the risk of loss of nature due to their standard operations. 

Whether it’s climate change threatening fires, pollution threatening our clean water supply, or contaminants threatening the health of the bees that pollinate our crops, many businesses face risks related to the ways they depend on nature, like crop pollination, and related to the ways they can impact nature, like oil spills. And the businesses that need to think about nature-related risks aren’t only those very obviously and closely tied to nature, like farms that rely on bee pollinators or beverage companies that rely on clean water. They also include banks, who need to understand nature-related risks for the businesses they may lend to.

With 24 hours’ notice, I knew that my power might go out, but I was still left in the dark; I should have an array of solar panels instead of two portable panels that I ferry around to chase the sun. Just as I am, businesses are becoming more attuned to the risks of climate change in the wake of blackouts, wildfires, and other climate impacts. They must also become more attentive to the broader array of nature-based risks, so they aren’t caught off guard.

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