Nature-Related Financial Risks Assessments framework for Company and Industry Archetype: Metrics Review

Nature degradation directly impacts company portfolio performance by disrupting ecosystem services critical to operations (such as water availability, pollination, etc.), while on the other hand company activities (such as deforestation, pollution, and resource extraction) significantly contribute to nature's degradation. This reciprocal relationship has intensified the need for robust methodologies to assess the underling nature-related financial risks as a pathway to allow companies to engage in mitigation and adaptation activities. While various approaches are currently in use, both business-focused (e.g nature value at risk) and nature-centered (e.g earth system index), significant gaps remain in harmonised methodologies that are comprehensive, user-friendly, and replicable, especially within biodiversity and ecosystems services at company level. An examination of existing approaches and contextual applications to company or industry archetype reveals both advantages and limitations in representing the double-materiality of risk associated with businesses. Here, we explore a potential framework for companies at the sector archetype that can assist in assessing current and potential nature-related financial risks. This is done by integrating NRFR metrics multidimensionally from the perspective of nature-related dependencies, exposures, and pressures across high climate impact industry archetypes, including agriculture, energy, and the built environment. However, the inherent challenges in representing complex and adaptive systems like nature through a metric approach should be held with caution. Regardless, this approach offers optimal direction on which companies can adopt for their individual NRFR assessments.

Keywords: Risk Assessment, Nature degradation, nature-related financial risks, business