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When executives at a mining company wanted to re-evaluate risks to their business, they came to the process armed with an abundance of data on their operations and their value chain. A preliminary review exposed an important gap in their risk awareness: nature. They’d spent years tracking the company’s effects on natural resources, which stem from activities such as water treatment and landscape management, but they hadn’t considered how much their bottom line depended on those resources. How much value did the company stand to gain or lose because of its interactions with nature? Drawing on the expertise of their finance and operations teams, including skills developed while managing climate-related business issues, they explicitly identified where and how their operations depended on natural ecosystems—and what financial risks the company faced as a result.
In one region, for example, a lack of water had begun to affect the company’s operations. Executives had accepted a US$2 billion to US$4 billion desalination plant as an inevitable cost of doing business. But further analysis suggested they could maintain uninterrupted operations at a fraction of the cost by utilising other, natural means, such as restoring local catchment areas, improving water efficiency and strengthening nearby ecosystems.
Likewise, clearing vegetation around mine sites seemed like a sensible way to improve access. But the native trees, shrubs and grasses had been serving an overlooked purpose: providing a natural buffer against frequent dust storms. After executives calculated that repeated dust-related shutdowns and poor air quality cost the company US$100 million per year, they found that it stood to save a great deal by preserving that vegetation. Collaborating with local communities, the company set a goal of adopting regenerative practices to protect, restore and manage more of their land and water.
This business-minded approach to nature speaks to a widespread challenge facing senior executives. In our work across industries, we often find that even those businesses that track their impact on natural resources often underestimate how much their financial performance depends on specific aspects of the environment. Our analysis in 2023 found that 55% of the world’s GDP—equivalent to US$58 trillion—is exposed to material nature-related risk. Further analysis found that all industries have financially material dependencies on nature in their value chains, even if some are more exposed than others. That means nature isn’t just an interest of environmentally minded stakeholders—it’s integral to a company’s business model and its ability to create value. As such, its measurement and management are, like most risks, a logical extension to the roles of a company’s CFO, CRO and COO.
A business perspective on nature
In our experience, companies that study their own influence and dependence on nature usually uncover substantial links to financial performance. That’s largely because the natural world furnishes companies with essential goods, such as wood and water. Nature’s services include protection, as when a wetland mitigates floods, and purification, as when trees remove pollutants from the air. When businesses better understand how they rely on nature, they gain insights on financial risks and opportunities, as well as develop environmental stewardship.
The risks facing companies from the ways they use or impact natural resources become material when those risks weigh on financial performance, operations or the brand. In one instance, a major agricultural firm found its production directly affected and its pasture growth and irrigation compromised when regulatory monitoring found rising levels of nitrogen, phosphorous and pesticides in the local water supply. Managers had installed expensive filtration systems, but those systems couldn’t keep up with the company’s growth plans. Without a change in approach, local water quality would start to decline—raising treatment costs, eating into profit margins and putting pressure on product prices. In a second instance, an organisation in the US paid almost US$1 million over two months to remove excess nitrates from the local water supply. A third organisation faces charges of illegally releasing contaminants into a river that could result in fines exceeding US$300 million.
Even if implications aren’t apparent in the near term, regulations can amplify mid- or long-term risks or opportunities, expressing them as short-term issues for companies. Introducing taxes or directives that prohibit use of specific resources, for example, creates scarcity on one hand, while tax grants and incentives create opportunities to invest in new business models or production methods on the other.
Growth opportunities can also come to light through analysis of nature issues. Analysis at one international fertiliser company, for example, identified geographic areas where farmers could lower their impact by using a specialty fertiliser that required less application to improve soil health while lowering the risk of nutrient pollution. The fertiliser company realised higher margins on these products, despite lower volumes of fertiliser use. Other companies have found they could improve agricultural yields by enhancing habitats for natural pollinators, reducing maintenance and repair or replacement costs for critical infrastructure by restoring forests and wetlands (and decreasing risk of landslides/flooding/fires), or increasing fish stocks by protecting sensitive marine areas.
It’s worth noting that the business rationale for managing nature-related risks and opportunities appears to be developing along the same lines as the rationale for climate action. Investors, regulators, policymakers and other stakeholders increasingly expect businesses to prioritise efforts that benefit nature—but that also offer meaningful financial benefits. Many of our clients expect that, in time, they will need to develop a fuller sense of their impact on nature and the associated risks and opportunities—as they have with climate. The following steps outline a way for companies to begin protecting and building value by recognising how and where their business model depends on the resources nature provides.
Assembling data
Understanding a company’s links with nature across its value chain requires managers to connect, analyse and work with siloed datasets. A multinational company might face water and land use challenges in one location, biodiversity loss in another and ecosystem degradation in yet a third—issues that will become apparent only when it examines data on all these risks for all its locations. The good news is that companies often already have many of the necessary capabilities in place. Their task is joining those capabilities in ways that lead to business insights and inform strategic decisions.
For example, the COO of a construction company likely knows what kinds of timber it uses to build prefabricated houses, but not the ecological impact of cutting trees from particular forests. The COO of a consumer products company might measure the company’s use of water without assessing its availability or quality. And CFOs typically manage the systems that track costs, monitor performance, assess risk and measure profit margins. Given the inextricable relationship between nature’s impact and business results, these executives—if supported by sustainability-focused colleagues and championed by the CEO—can help deliver better financial performance by integrating their new knowledge with their existing skills, relationships, processes and data.
One common challenge that managers face is establishing baseline levels of environmental impact and understanding the maximum sustainable use of natural resources. Without these data points, organisations struggle to set the targets for environmental stewardship, such as pollution control or resource restoration, that will help them improve business outcomes. In the absence of site-specific data—often hard to come by—many companies rely on third-party tools and global databases to complete the picture. Tools like Exiobase, Recipe and ENCORE can help assess sector-wide impacts and dependencies on nature. Platforms like Earth Blox, NatCap and IBAT offer geospatial analysis and overlays with biodiversity data, helping companies link environmental exposure with financial materiality. For many firms, these tools provide a vital starting point—enabling more informed decisions while internal systems and data mature.
Analysing dependencies
With so many variables at play across any number of locations, executives will need to work through a structured process to reveal material risks, rather than trying to handle everything at once. If, for example, a company has a footprint in myriad locations around the globe, it will want to home in on the handful with the greatest impact and dependence on nature. By extension, managers will want to identify the risks that are most critical to the company’s financial health—whether that means managing all the risks of a given asset or product in a single location, for example, or managing a single risk across all of them. Typically, this involves quantifying high-level risks and opportunities and focusing on the most critical value chains, suppliers, assets and operations.
One client in the agricultural sector sought to develop an objective and quantitative framework to pinpoint, assess and prioritise locations with nature-related business issues, as well as decide where actions could have the greatest effect in reducing the costs and risks associated with its environmental impacts and dependencies. Given its geographical locations, analysis began with a country-level evaluation, using the geospatial assessment capabilities of a third-party vendor to map the geographic distribution of its product use at a national level.
This allowed the client to figure out how product use areas overlapped with ecologically sensitive areas defined by the Taskforce on Nature-Related Financial Disclosures (TNFD). From there, the company found key nature-related issues affecting the use of its products and mapped out qualitative impact on natural resources. Further geospatial assessments at regional and sub-regional levels allowed the client to focus on certain areas based on the magnitude of environmental effects occurring there.
In many cases, a company’s employees are sensitive to its impact on nature. Executives at the mining company, for example, were surprised to learn how committed workers were to managing nature risks. But without an organisation-wide approach to risk management, the result would be a siloed and ineffective patchwork of efforts. Whether they were in procurement, community relations or working with local authorities, employees needed a unified approach that could draw on the insight and experiences of different parts of the business to identify risks and opportunities and set targets tied to commercial strategy and the financial health of the business.
Taking action
Once companies have assessed their impact and dependencies on nature, they can typically move quickly to lower their risk and pursue opportunities. Following a sequence of three steps can help managers work towards meaningful business results.
Commit. Setting specific, transparent, time-bound, science-based targets will put your company on a track to better financial outcomes. Ikea, for example, recognised early on that deforestation threatened both its wood supply and its access to key markets under the EU Deforestation Regulation (EUDR). By committing to enhanced traceability of wood products through geolocation, implementing rigorous regulatory audits and building a robust due‑diligence system, Ikea insulated itself from export bans on non‑compliant timber and expected fines of up to 4% of the company’s EU turnover. As a result, the company secured long‑term access to responsibly managed wood, avoided costly regulatory disruption and preserved trust in its brand.
In making nature commitments that support their business objectives, companies sometimes struggle to secure internal buy-in—especially when making the commercial, financial and operational case for action. Successful companies have overcome these obstacles by using guidance from the Science Based Targets Network (SBTN) to set credible targets, piloting commitments in one geography or business unit before extending to others, and ensuring accountability is shared across both sustainability and core operational teams. Transparency can help, establishing credibility with employees, customers and suppliers—and also with investors.
Transform. Once targets are in place, companies can adjust their operations and strategy to reduce or eliminate nature-related costs and build competitive advantage. At Procter & Gamble (P&G), for example, managers sought to avoid the impact that a shortage of water would have on the company’s highly water-dependent activities, both upstream in its value chain and downstream. Having determined water to be a key dependency, P&G now follows a three-tier risk assessment process to identify the facilities exposed to high water risk and make plans to manage those risks.
The transformation steps that challenge companies most often are those requiring changes to core operational practices, shifts in procurement norms or engagement with external stakeholders (e.g., landscape-level restoration). In our experience, resistance tends to come from operational teams facing competing priorities or suppliers unfamiliar with nature-aligned sourcing. These barriers are typically overcome through demonstration pilots, cost-benefit analysis (e.g., the value of avoiding water shutoffs) and cross-functional working groups that link nature targets to operational value.
Report. As companies implement plans for managing nature-related risks and opportunities, they’ll want to align disclosures on their activities, objectives, and performance with standards and regulations, as well as with the expectations of investors interested in how action on nature contributes to financial performance. Reporting frameworks like the TNFD and the EU’s Corporate Sustainability Reporting Directive (CSRD) give companies a basis for reporting on dependencies and impacts across locations and value chains, and on the connections between risk and opportunity assessments, and material financial outcomes. The strongest disclosures go beyond storytelling—they quantify the links between ecosystem health and business continuity, cost or brand value.
Given that natural resources are essential to every company, CFOs and COOs can only fully understand their company’s financial risks and opportunities if they assess those that interface with nature. This relationship is a complex one, requiring careful analysis. Savvy companies draw on the existing capabilities of their senior executives and the relationships, processes, and data already being managed by core business functions. In this way, they find the most significant business issues in which nature is a factor, make plans to manage them and achieve sustained improvements in performance.
The authors thank Camden Howitt, Dan O’Brien and Laura Menguy for their contributions to this article.
Authors
Creating a nature positive future
The natural world provides the essential resources that enable our societies and economies to thrive. So when nature is under threat, it has an impact on all of us.
Managing nature risks: From understanding to action
Business relies on nature to supply goods and services. Recognizing those dependencies is the first step toward managing the risks and opportunities they create.
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