Managing nature risks: From understanding to action

By Will Evison, Lit Ping Low, and Daniel O’Brien

Business relies heavily on nature to supply much-needed goods and services. Recognizing those dependencies is the first step toward managing the risks and opportunities they create.

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To one degree or another, every company depends on nature. Nature provides business with valuable resources, 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. And nature supports production by various means, such as providing fertile soils for planting crops and insects for pollinating their flowers. In fact, when we examined the links between economic activities and natural ecosystems, we found that 55% of global GDP—equivalent to about US$58 trillion—is moderately or highly dependent on nature.(1)

At a time of great concern about climate change, you might already be thinking of what comes next. Dependencies on nature, like any other dependencies, expose companies to risk: forests can burn, just as factories can. Moreover, as consumers and investors grow more worried about harm to the natural world, companies will face increased scrutiny of whether they are managing their impacts and dependencies on nature so as to lessen any related risks that threaten their business.

Businesses’ exposure to nature risk can be surprisingly extensive. In five industries, we found that all the economic value from companies’ own operations—accounting for some 12% of global GDP—exhibits high dependence on nature, which means the value could be wiped out by disruptions to natural ecosystems. In 11 other industries, at least 35% of the economic value from company operations and supply chains exhibits high or moderate dependence on nature, which means ecosystem disruptions could materially reduce financial returns. Even industries with lower levels of dependence in their own operations still have some risk exposure because of high and moderate dependencies in their value chains.

Widespread nature dependencies translate into risk exposure for investors too. Our analysis of 19 large stock exchanges shows that more than half the market value of listed companies is subject to nature-related risk, due to the listed companies’ moderate and high dependence on nature.

Scientific evidence of nature’s decline points to an increasing likelihood that nature risks will materialize for companies. Given these dynamics, we believe business leaders would do well to take certain actions. One is to measure their company’s baseline of nature dependencies and impacts and to quantify any associated risks and opportunities. Another action is to improve mechanisms for collecting and managing nature-related data, which will help with making business decisions and meeting disclosure requirements; this is likely to involve greater engagement along the value chain. And a third action is to set goals for neutralizing nature risks and impacts and working toward a nature-positive business model, which is one that enhances natural capital and conserves ecosystem services. Together, these moves can help leaders manage their company’s interactions with nature in ways that benefit their many stakeholders and the world we all share.

Source: ENCORE database, EXIOBASE, S&P Capital iQ, PwC analysis

Businesses depend on nature to create value

Most businesses depend on materials and services from natural ecosystems (including working ecosystems such as farms and managed forests). But the dependencies can sometimes be hard to spot. Finding them involves taking stock of the goods used along a company’s value chain and tracing those goods back to their biological sources, as well as mapping out the ecosystem functions that aid business activity.

Examples from two industries, automotive and construction, illustrate some of the many ways that companies depend on nature (see chart below). Automakers fit cars and trucks with tires, hoses, and other parts made from natural rubber. To make electric vehicles, they procure batteries containing lithium, a mineral that may require substantial water to extract and process. In the construction industry, lumber suppliers rely on forests to produce wood—and forests cannot thrive without healthy soil. Likewise, clients of construction firms, such as real estate developers, may rely on intact natural landscapes to increase property values and raise demand for new housing.

In these examples, the wood, water, and rubber that companies use represent environmental goods, and they result from ecosystem functions known as provisioning services. No less important are “regulating services,” such as water flow regulation, which irrigates forests. The natural landscapes that feature in real estate projects count as “cultural services,” and soil formation, which enables forests to grow, is a type of “supporting service.” The upshot, of course, is that companies depend on these environmental goods and ecosystem services, and many more, to do business.

But what happens to businesses when ecosystems deteriorate? The short answer is that they face the risk of costly disruptions. And that risk is building up. A 2019 report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), a UN-appointed body, said that 14 of 18 categories of ecosystem services have been in decline since 1970, and 1 million species are at risk of extinction because of human activity. Recent research by the WWF shows that wildlife populations, which serve as indicators of ecosystem health, have decreased nearly 70% over the past 50 years. As it is, many businesses may be bringing physical nature risks upon themselves by degrading the ecosystems they rely on.

Another form of nature-related risk, known as transition risk, occurs when regulators, standard-setters, investors, and other stakeholders push businesses to account for their impacts on nature and to adopt nature-friendly practices. Representatives of nearly 200 governments agreed in December 2022 to adopt the Kunming-Montreal Global Biodiversity Framework (GBF), which calls on nations to establish disclosure requirements for companies, to set targets for protecting nature, to remove incentives that harm nature, and to increase funding for conservation, among other steps.

The accelerating pace of ecosystem decline and societal response makes nature loss as urgent a problem as climate change.

Disclosure requirements and reporting standards are already taking shape. For example, reporting on nature is specified in the European Union’s Corporate Sustainability Reporting Directive (CSRD), which will eventually apply to an estimated 50,000 companies. In parallel, the market-led Taskforce on Nature-related Financial Disclosures (TNFD) has created a framework for nature reporting, with support from industry and numerous governments. These developments should bring consistency to the way that companies measure and report on nature-related issues.

The accelerating pace of ecosystem decline and societal response makes nature loss as urgent a problem as climate change. To manage the risks that nature loss can cause, businesses must first determine where such risks might arise—starting with an assessment of their own nature dependencies.

Nature dependencies span industries and capital markets

In looking at their company’s nature dependencies, executives might be guided by a general understanding of where dependencies exist for their industry. Each of the 20 industries we studied is exposed to risk because of high or moderate dependencies on nature somewhere in its value chain. Investors, too, will want to scan widely for potential risks: on ten of 19 major stock exchanges, more than half the value of the listed companies exhibits high or moderate nature dependence.

All industries have exposures to nature risk in their value chains

We estimated industries’ dependence on nature using information from the ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) database, which records nature dependence at the sector level, and the EXIOBASE database, which records supply, use, input, and output of products at the country level (for more information, see the Methodology section in the downloadable PDF for this article). This analysis showed that most industries have high or moderate nature dependencies in their direct operations. High and moderate dependencies also occur in industries’ supply chains or customer bases, even in industries with minimal dependencies in their own operations. To simplify matters, we grouped the 20 industries into three categories according to their levels of dependence.

Highly nature-dependent industries. In five industries, including agriculture and forestry, 100% of the economic value generated by direct operations exhibits high dependence on nature (see chart below). In addition, at least 50% of the economic value produced by the industries’ supply chains is highly nature-dependent. Construction is the largest industry in this category, with direct operations that account for US$6.5 trillion of economic value. Together, the five industries in this group produce more than US$13 trillion of economic value—12% of global GDP.

Moderately nature-dependent industries. Another 11 industries—including automotive, retail, and consumer goods; real estate; and mining—have moderate or high dependence on nature for at least 35% of the economic value generated by their supply chains and their direct operations (see chart below). For example, chemicals companies may depend on natural and seminatural habitats, vegetation, and soil quality to provide flood and storm defense and to treat effluents, enabling business continuity at their plants.

Slightly nature-dependent industries. For the four industries in this group, less than 35% of the economic value generated by their supply chains and direct operations is highly or moderately dependent on nature (see chart below). An example is the healthcare delivery industry, which has dependence upstream in its supply chain, due to nature’s role in the production of medicines. Although nature dependence is generally less significant in these industries, there will be some exceptions. Executives can help identify and manage risks by talking with customers about their own risk exposures or by taking action to conserve or restore the ecosystems on which their suppliers depend.

Investors face nature risk exposure as well

Because companies depend on nature, shareholders do too. We estimated shareholders’ nature dependencies for each of 19 major stock exchanges by calculating the dependence of the market value of listed companies (based on the ENCORE database’s sector-level dependence ratings). The overall nature dependence of these listings is close to that of the global economy, with just over half the company value—nearly US$45 trillion—exposed to financial risk through high or moderate nature dependence. Variations appear from one stock exchange to another, due to the mix of companies on each one (see chart below). Some noteworthy examples follow:

New York Stock Exchange (NYSE). The value of NYSE listings has a below-average level of high or moderate dependence (40%), as much of the company value on this stock exchange belongs to low-dependence industries such as banking and information technology. Nevertheless, the NYSE’s sheer scale gives it an outsized share—more than 20%—of all the market value that is highly or moderately nature-dependent across the 19 exchanges.

London Stock Exchange (LSE). Nearly half (47%) of the company value traded on the LSE is highly or moderately dependent on nature, which is in line with the global average. Much of that value comes from companies in the food, beverages, and tobacco industry (10% of the value of listings) and the mining and metals industry (10%).

Euronext. Listings in Euronext, the world’s fourth-largest stock exchange by market capitalization of listed companies, have an above-average level (60%) of high or moderate dependence on nature. Much of that dependence occurs in large industries with high nature dependence, including retail and consumer goods, and food, beverages, and tobacco.

Taiwan Stock Exchange (TWSE). Listings on Taiwan’s stock exchange are the most dependent on nature of the 19 stock exchanges that we studied; more than 70% of the market value of these listings show high or moderate dependence. This is largely because energy companies, representing a moderately nature-dependent industry, account for 40% of the market capitalization of TWSE-listed companies.

Three things to do now

It may not be long before nature-related issues affect your company’s bottom line. For that reason, we recommend that executives place nature on a par with climate change in their risk assessments. Forward-thinking leaders will look for possibilities to create nature-positive business models that don’t just mitigate risks but also strengthen financial returns and benefit society. They might also find opportunities to deal with climate priorities and nature priorities at once. For example, many nature-based solutions to climate change, such as reforestation, help capture emissions while also enhancing biodiversity, directing capital to developing economies, and supporting indigenous peoples and local communities.

Regardless of whether they prioritize risk mitigation, value creation, or both, all executives stand to gain from taking three actions to manage their company’s nature dependence:

Measure your nature baseline. As in other realms, a good step toward effective management of nature is assessing baseline performance, or the extent of a company’s nature dependence and impacts. Various resources can help you set a nature baseline at multiple levels of detail. For instance, the Integrated Biodiversity Assessment Tool (IBAT), the ENCORE database, and the Aqueduct water-risk tools can help identify potential impacts and dependencies at the regional level; and new technologies such as low-cost environmental DNA (eDNA) sampling can enable accurate site-level monitoring of changes in biodiversity. Then, executives can translate material dependencies and impacts into risks and opportunities. Risks can be inferred by playing out scenarios in which an ecosystem failure disrupts business operations. One apparel company we know applied a combination of qualitative and quantitative measures to gauge nature dependencies and impacts throughout its value chain. That information helped the company find opportunities to reduce nature impacts, along with operating costs, by increasing its use of recycled materials.

Improve decision-making and transparency with better data. To manage nature dependencies and impacts well, you will need highly reliable data sources, systems, and controls. These resources will also help with meeting disclosure requirements and explaining to investors and other stakeholders why you’re choosing to pay attention to nature issues. That said, the same resources could take some time to put in place, so leaders should plan accordingly. CDP, an organization that benchmarks corporate sustainability reports, estimates that companies need 12 to 18 months to prepare for partial nature-related disclosures, and two to three years to get ready for full disclosure. The process might involve accounting for site-specific requirements, given that nature-related risks and opportunities can be highly localized.

Set ambitions to manage risk and capture opportunity. Once you know your company’s baseline levels of nature dependence and impact, you can set goals for mitigating risk and creating value by better managing interactions with nature. The Science Based Targets Network (SBTN) provides one framework for companies to formalize their nature ambitions using scientific measures of various outcomes. In more general terms, levels of ambition range from “do less harm” to “cause no net biodiversity loss within own operations” to “achieve a net positive impact on biodiversity along the value chain.” An example of how companies progress from assessing dependencies to setting ambitions can be found in Kering, a luxury goods group. When Kering conducted a land-use valuation exercise, it found that conventional agricultural practices in its supply chain were degrading ecosystem services on which the company depended. In June 2020, Kering published its biodiversity strategy, committed to have a net positive impact on biodiversity by 2025 and launched a fund to pay for implementing regenerative agriculture (a practice that seeks to make working farms into healthy ecosystems) on 1 million hectares by the same year.

Nature’s rapid decline means that executives can no longer ignore either the risks stemming from ecosystem failures and biodiversity losses or the emerging regulatory requirements and stakeholder demands which relate to nature. The starting point for building resilience is understanding your company’s dependencies on nature. From there, you can determine what threats your company may face, as well as the value it can create, for itself and for society, by working toward a nature-positive future.


  • This percentage of GDP with moderate or high dependence on nature is higher than the equivalent percentage given in Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy, a report published by the World Economic Forum in collaboration with PwC in 2020. The change results partly from updates to some dependence ratings and partly from increases in certain sectors’ shares of global gross value added (GVA).

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Creating a nature-positive future

Businesses face new risks from nature loss, and will need to address the regulatory, consumer, and investor response. By putting in place nature-positive strategies, business leaders can harness new opportunities that create sustainable outcomes for all.

Will Evison

Will Evison

Global Sustainability, Climate, and Nature Strategy, Director, PwC United Kingdom

Lit Ping Low

Lit Ping Low

Asia-Pacific Climate Change Lead, Partner, PwC Hong Kong

Daniel O’Brien

Daniel O’Brien

Sustainability and Climate Change, Partner, PwC Canada

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