Switched On

Beyond Climate: The Rise of Nature Risk

44 min

This podcast episode of Switched On discusses the emerging and complex challenge of nature risk for businesses, distinguishing it from climate risk as a broader, more localized issue encompassing water, biodiversity, waste, and pollution. Bloomberg's new Nature Risk Management scores assess companies based on their exposure and mitigation efforts, revealing that firms with high exposure are not necessarily doing the most to address it, with significant gaps in water and biodiversity management.

Summarized by Podsumo

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✨ Key Takeaways

1

Nature Risk Definition: It's broader than climate risk, encompassing all non-artificial elements (living and non-living) and manifesting as both physical risk (dependency on natural assets) and transition risk (changes in regulations/market expectations due to environmental impact). Climate risk is a subset.
2

Scoring Methodology: Bloomberg's scores allocate 30% to revenue exposure and 70% to company performance and interventions across water, climate, waste & pollution, and biodiversity, plus reporting. Scores range from 0 to 10, but no company scored above 6 due to inherent industry exposure.
3

Sector Performance Disconnect: Automakers performed slightly better on average, while Power Utilities and Metals & Mining lagged. Surprisingly, Oil & Gas companies scored better than power utilities, attributed to greater investor and brand pressure on the former.
4

Lagging Areas: While progress on climate and waste is relatively advanced, engagement on water and biodiversity still lags, particularly in disclosure from companies in East and South Asia.
5

Measurement Complexity: Unlike climate risk with its universal CO2e metric, nature risk is highly localized and multifaceted, making it significantly more challenging to measure and manage effectively, requiring vast amounts of granular data.

💬 Notable Quotes

"Climate risk is a subset of broader nature risk."
"Firms with the highest exposure are not necessarily those doing the most to mitigate it."
"If you're a regulated monopoly, what's your incentive to do better? Your pursuit of capital is far less dependent on showing what good you do versus how entrenched you are in the market."