Quantifying firm-level risks from nature deterioration

TL;DR

This paper develops a framework to quantify firm-level risks from environmental degradation, estimating potential value losses and introducing metrics to assess risks from biodiversity loss, land degradation, climate change, and other hazards.

Contribution

It introduces a comprehensive risk framework and two novel metrics, the Country Degradation Index and Nature Risk Score, to evaluate environmental risks impacting companies.

Findings

Global equities could lose 26.8% in value from unabated nature decline.

Worst-performing firms may lose up to 75% of their value.

The proposed metrics effectively capture nature-related risks at country and firm levels.

Abstract

We estimate the loss of value that companies might suffer from nature overexploitation. We find that global equities shed 26.8% in a scenario of unabated nature decline, while the worst-performing firms lose ~75% of their value. Our risk framework considers five environmental hazards: biodiversity loss, land degradation, climate change, human population and nature capital. We also introduce two metrics to assess nature-related risks: a Country Degradation Index that tracks the damage caused by environmental hazards in specific territories, including nonlinear dynamics and tipping points; and a Nature Risk Score that summarizes the risk that companies face due to the decline of nature and its services.