Battling the risk of natural resource depletion

Battling the risk of natural resource depletion | Insurance Business

Battling the risk of natural resource depletion

Many post-apocalyptic movies force audiences to envision a world without natural resources or imagine what significantly depleting them could do to our ecosystems as well as our ability to survive as a species.

The fear isn’t based on fiction – natural capital, or the global stock of resources that includes soil, groundwater and clean air, is disappearing at a faster rate than it can be replenished, according to a recent report from Allianz Global Corporate & Specialty (AGCS). “Measuring and Managing Environmental Exposure: A Business Sector Analysis of Natural Capital Risk” analyses the natural capital risks facing over 2,500 companies in 12 selected sectors to help insurance and risk management professionals understand how to manage natural capital risks (NCR) going forward.

While there are sectors that are better prepared to mitigate natural capital risks, the report finds that most are exposed on some levels to business interruption and liability issues as a result of these risks.

Take the chemical sector, which falls into the middle zone (or a high level) of risk, but, at the same time, is also no stranger to government oversight and implementing well-rounded environmental management systems.

“It’s an industry used to compliance [and] proactive mitigation,” said Chris Bonnet, manager of environmental, social and governance business services at AGCS, adding that while not every company in the sector is good at this and there are black sheep in every part of the market, “overall, the sector is very much used to the concept of risk and the concept of risk mitigation.”

Outside influence can play a large part in encouraging companies to manage their natural capital risk exposures. The clothing sector is very focused on sourcing raw materials and supply chain management, so companies in that field are keenly aware of how they could be affected if that capital suddenly was at threat of vanishing completely. But it’s also demands from other parties that promote risk management among clothing companies.

“The sector has been seen as very critical, had a lot of political pressure already, social pressure, to really act so they are also used to managing their supply chains and to doing something about it,” said Bonnet.

By contrast, the transportation sector hasn’t seen that kind of pressure, outside of a focus on car emissions. Cities and countries promote their airlines, which are often partly subsidised, said Bonnet, and the shipping industry has been insulated from the same pressure put on auto transport, even though their emissions are far worse than what is allowed for others transportation businesses.

Surprisingly, investments in risk management vary somewhat, but not wildly from one sector to another, according to Bonnet, even if their natural capital risk exposures are different.

“The chemical sector spends some efforts on proper risk management, and you see that in the NCR profile, but, for example, for oil and gas companies, we would’ve expected more. They’re very much under public scrutiny and very much used to proper risk management,” said Bonnet, adding that these companies nonetheless still experience events like the Deepwater Horizon oil spill in 2010. “The sectors are relatively comparable when it comes to risk management.”


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