Understanding Nature Risk Dependencies

The world is getting hotter by the year. With climate change comes unprecedented degradation of the planet’s ecosystems and the destruction of our soil, water, trees, and more.

These problems don’t have easy solutions. So why should a business care? In short, a planet in crisis will affect us all. According to the 2023 S&P Global Sustainable report, 85% of companies in the S&P Global 1200 “have a significant dependency on nature across their direct operations.”

In other words, many companies worldwide depend on, or need, these natural resources to make a profit. The future of your business hinges on understanding the risk that arises from this dependency and knowing what to do about it moving forward.

By recognizing what nature-related dependencies your company relies on and then addressing their level of risk, you are preparing your company for the future.

What Does Nature Risk Dependency Look Like?

Nature-risk dependency seems complicated in the abstract but makes sense once we ground the terminology with real-world examples.

For clothing companies that sell cotton shirts, natural resources like soil and water are a dependency. If the land enters a prolonged drought and the ground is too degraded to provide a good yield cotton harvest, fewer shirts can be made, and the company will likely make less money.

Furthermore, changes to the ecosystem physically surrounding your company can have an impact. The recent wildfires in Maui reveal how human intervention can threaten businesses.

Wildfires ravaged the town of Lahaina because they were fueled by non-native grass species that had replaced more resilient native species. These invasive grasses grow rapidly and burn fast, making the fire far bigger and more tenacious than it would have been if the region had been covered with native plants.

Many businesses in the area lost everything to the fire, a risk they were unprepared for. Hawaii’s tropical climate means it rarely faces wildfires. However, unexpected natural disasters may become a frequent reality moving forward due to factors like climate change and the proliferation of invasive species.

Water Filtration: Taking Ecosystem Services for Granted

Not only are the planet’s physical resources a vital tool for many businesses, but so are the ecosystem services that occur naturally in the background. These services include water filtration, climate regulation, pollination, pollution dilution, and more.

Think of ecosystem services like human breathing. They occur without our conscious awareness but are vital for existence.

Ecosystem services help us in innumerable ways, but let's take a closer look at one in particular—natural water filtration.

After a rain, water slowly seeps into the ground. In the process, it passes through soil that acts like a strainer to remove heavy particles. Furthermore, chemical compounds within the soil will react with contaminants in the water and strip it of pollutants.

While there are limitations to natural water filtration, it’s a highly efficient purification process that minimizes costs on the human end. Loss of this essential ecosystem service could increase the expense of running your company if you have to pay for water purification.

**Think of ecosystem services like human breathing. They occur without our conscious awareness but are vital for existence.**

From Beverages to Medicine: Nature is a Key Factor

Losing access to fresh water might feel hypothetical, or at the very least, far off into the future. Unfortunately, this is already a reality. Companies worldwide have experienced financial difficulties for decades due to their dependency on increasingly unreliable natural resources.

For example, a Coca-Cola factory was shut down in India due to water scarcity. Local authorities shuttered the plant in 2014 due to a lack of groundwater in Uttar Pradesh. The Coca-Cola facility used so much water that it limited water accessibility for citizens and other businesses in the area. After a fifteen-year battle between the brand and locals, the soda company was forced to walk away from its $25 million factory.

While we think of water as a renewable resource, it only remains so if we manage it appropriately. Even the largest companies in the world can’t escape the pressure of a diminishing supply.

The pharmaceutical field will be another victim of its dependence on natural resources. An estimated 80% of registered medicines are derived from plants or are inspired by natural products. Morphine comes from the opium poppy plant, and aspirin’s active ingredient was first found in willow bark.

Habitat fragmentation, extinction, and lack of protection for wild spaces threaten our future medicine supply and slow down opportunities for innovation.

The Proof is in the Coffee

If you need more convincing that nature is crucial for the human experience, let’s look at coffee.

A report on “peak coffee” by the Financial Times argues that, by 2050, “up to half of the land used to grow coffee could become unusable” due to increased droughts, pest and disease pressure, and extreme weather conditions brought on by climate change. This will upend numerous global coffee companies and the businesses that depend on them.

Soon, your daily coffee habit might become as threatened as the Cavendish banana.

Remember: Your Business Is Not Immune!

Changes to our planet can and will affect your company in the future—even if it’s not immediately obvious how today. The dependencies on nature are varied and often hidden deep in supply chains. This means that identifying and managing their risks will be critical to business success and resilience in the future.

The problem may feel far removed, but the pressure of limited natural resources is being felt globally today. By recognizing what nature-related dependencies your company relies on and then addressing the level of risk those dependencies hold, you’re taking the first step toward minimizing the risk to your business.