MEASURING AND MANAGING ENVIRONMENTAL EXPOSURE
ALLIANZ GLOBAL CORPORATE & SPECIALTYMEASURINGAND MANAGINGENVIRONMENTALEXPOSUREA BUSINESS SECTORANALYSIS OF NATURALCAPITAL RISK
Measuring and Managing Environmental ExposureIN FOCUSNatural capital is the global stock of natural resources,including soil, clean air and groundwater, as well asbiodiversity. By many objective scientific and macro-economicindicators it is becoming increasingly clear that natural capitalis being depleted at a far faster rate than the planet canreplenish it – and with consequences that extend well beyondthe direct effects on the environment.There is growing awareness, both in the mediaand public, of how this is affecting the planetand these concerns are increasingly entering thepolitical and economic sphere. The businesscommunity is not only having to confront theseconcerns, but it also faces the directconsequences of natural resource depletion, beit through water shortage or new legislationaround greenhouse gas emissions, for example.Every business impacts, and depends, onnatural capital, so the topic is steadily movingup the agendas of companies worldwide.Allianz Global Corporate & Specialty (AGCS)wants to support businesses on their journey tofinding solutions for these issues. In this report, weanalyze the natural capital risks that businesssectors and companies face. Specifically, theresearch takes a closer look at seven risks (seepage 11) posed by the five natural capital factors– biodiversity, greenhouse gas emissions (GHG),non-GHG emissions, waste and water – for 12selected sectors.Measuring And Managing EnvironmentalExposure: A Business Sector Analysis OfNatural Capital Risk is one of the mostcomprehensive, data-driven reports availableon the topic. The findings are based on anextensive literature review, analysis of datafrom independent research provider, MSCIESG Research, covering natural capital risks inoperations and supply chains of more than2,500 companies, 72 qualitative desktopreviews of companies and in-depth interviewswith insurance, risk management andsustainability professionals. Together, thisprovides a critical appraisal of the naturalcapital risks and levels of mitigation as theyare currently perceived1 .By providing this new risk perspective to awider audience, AGCS intends to stimulatefurther debate among insurancemanagement, risk management andcorporate sustainability professionals to betterunderstand and manage natural capital risksin practice.1 Risks relating to the final products and services of companies have not been included in this report, due to a lack of consistent data2
ContentsCONTENTS04060812252728293031Executive summaryIntroductionSector comparisonSector profiles:natural capital risk analysisHow do natural capital risks materialize?What is next?Research methodologyBibliographyAllianz Global Corporate & Specialtybusiness scopeContact us3
Measuring and Managing Environmental ExposureEXECUTIVE SUMMARYBusinesses are increasingly confronted withthe consequences of natural capitaldepletion, be it through water shortage ornew legislation around greenhouse gasemissions. Yet, while more companies areassessing their natural capital footprint aspart of their growing awareness of theirrole in natural resource depletion, many arefailing to explore the related risks andmitigation options available. 4.7trillionEstimated annualcost of the top 100environmentalimpacts for theglobal economy insocial costs, lostecosystem servicesand pollution 2This report provides a critical appraisal of naturalcapital risk and of the levels of mitigation in12 selected sectors. The research analyzes seventypes of risk (see page 11) that businessesconfront around the five natural capital factors ofbiodiversity, greenhouse gas emissions, nongreenhouse gas emissions, water and waste.widely believed to have high levels of risk, twoother sectors appear in this zone: food andbeverage and transportation. Overall, due totheir inherent natural capital footprint, it isharder for these sectors to mitigate their risks;however, innovative risk solutions could be morestrenuously applied.MOST SECTORS ARE EXPOSEDTO NATURAL CAPITAL RISKSSectors in the middle zone: According to theAGCS risk methodology, seven sectors are in themiddle zone: High levels of risk are evident forthe automotive, chemical, clothing,construction, manufacturing, pharmaceuticaland utilities sectors. Overall, AGCS believes thatcompanies in these sectors need to be aware oftheir risk profile and work actively on mitigationto manage individual natural capital risks intheir operations and supply chains.For comparison and analysis, AGCS classifiedsectors as belonging to one of three categories:– Danger zone: sectors where risks aregenerally greater than mitigation– Middle zone: sectors where risks are roughlymatched to mitigation– Safe haven: sectors that generally do notseem to face high risks and/or are reasonablywell prepared2 Trucost, TEEB for BusinessCoalition, Natural CapitalAt Risk: The Top 100Externalities of Business,April 20134Sectors in the danger zone: According to theanalysis, four sectors find themselves in this zonewhen using the risk methodology from AGCS. Inaddition to oil and gas and mining, which areSectors in the safe haven: Only one sectorcan be found in the safe-haven zone.Telecommunications is a good example of alow risk service-related sector where companiestypically position themselves as solutionproviders for natural capital risks that affecttheir customers – i.e. by providingcommunication to avoid the carbon dioxidegenerated from business travel.
Executive SummaryUNDERSTANDING NATURAL CAPITAL RISKSAGCS research shows that natural capital risksrarely come without warning, but graduallybuild up over time in three subsequent phases,(see page 25).In the first phase a growing awareness can beobserved, generally triggered by changes ineither the physical natural environment, publicopinion or court rulings or legal changes. As amatter of good practice, companies need toproactively investigate potential risks stemmingfrom these trends and assess the extent thatthese risks could affect the company’s operationsor even business model.In the second phase, natural capital risks willstart affecting individual companies in theirsupply chain, their own operations or at sitelevel, either through regulation, growing socialpressure or resource scarcity. For a company, arisk in this phase requires mitigation throughreactive steps in risk management.In the last phase, once the risk cannot bemitigated, it materializes. Companies can sufferfrom material and immaterial damage such asliability costs, increased production costs, lostprofit or business interruption. Depending on thescenario, the impact of these damages can besignificant and long-lasting. In this third phase,efforts to handle the risks should be directed tominimizing their impact through crisismanagement.HOW CAN COMPANIES PREPARE?Most companies have effective risk managementand insurance systems in place that can be usedto address natural capital risks. Rather thanreinventing the wheel, companies can broadenthe scope of these systems beyond financial andoperational risk management – for example,when opening a new plant, natural capital riskssuch as future water availability and theemerging emissions regime should also be takeninto account. One of the challenges is balancingtraditional risk management focused on thepresent with the management of emerging risksarising in the mid- to long-term. Future and nonfinancial risks are often overlooked as companiesare expected to deliver short-term performancetargets. It can be difficult to quantify these typesof risks to shareholders.What does natural capital mean?The concept of natural capital defines the global stock ofnatural resources, which includes soils, air, water and allliving organisms. Natural capital assets provide companieswith a wide range of resources and services that are, inmost cases, free or underpriced. Natural capital can beseen as an extension of the economic notion of capital,(resources which enable value creation) to goods andservices provided by the natural environment. 3 Naturalcapital often also provides services like erosion control,water catchment and pollination by insects, which in turnensure the long-term viability of other natural resources. 4Although this review is primarily focused on thebusiness risks of natural capital, it is alsoimportant to acknowledge the opportunitiescompanies can seize. Companies that respondbest to natural capital risks are also likely to bethose that can most readily grasp theopportunities.At the same time, companies must accountincreasingly for natural capital risks and disclosethem to governmental agencies, investors andother stakeholders. This may prove to be achallenge as generally accepted reporting anddisclosure requirements are yet to be developed.AGCS believes companies that are willing toinvest in natural capital risk management will bebest-equipped to keep damages under controland seize opportunities in an increasinglyresource-constrained world.3 It should be mentionedthat this concept is alsosubject to a moral/ethicaldiscussion aroundmonetization and therelated assumptions (forexample: what is theintrinsic value of humanhealth or animalspecies?). Please notethat this debate will notbe reflected in moredetail in this document.However, it should bementioned that animportant thought behindquantification/monetization is the ideathat it has the potential tostrengthen and supportthe understanding ofcompanies to actresponsibly and in asustainable manner. Thenatural capital conceptand relatedmethodologies are at thesame time not intended toreplace ethical or moralreflection or actions fromindividuals ororganizations4 Definition based on theNatural Capital Protocol5
Measuring and Managing Environmental ExposureINTRODUCTIONThis review addresses natural capital risk and levels ofmitigation at a sector level to focus more attention frombusiness leaders and other decision-makers on the subject.The key messages from science and macroeconomics are becoming increasingly clear andcommonly accepted. We know that we aredepleting our natural capital faster than theearth can replenish it with consequences thatextend far beyond the direct effects on theenvironment. As a result, our economies are atsubstantial risk from the effects of climatechange, pollution, water shortage and loss ofbiodiversity.Businesses around the world are increasinglyconfronted with the implications, be it directlythrough local water shortage and extremeweather conditions, or indirectly by resourcescarcity, regulatory action, liabilities or supplychain disruptions. Every business impacts anddepends on natural capital to some degreeand AGCS research shows that the topic issteadily moving up corporate agendas.However, the nature and extent of theassociated risks for sectors and individualcompanies are far from clear.ECONOMIC IMPACT INCREASINGLY CLEARScientific and economic analysis offers anincreasingly clearer picture of the economicbenefits of natural capital and the related costsin case of loss or damage.5 Trucost News, “Putting aprice on globalenvironmental damage”October 20106 Trucost, TEEB for BusinessCoalition, Natural CapitalAt Risk: The Top 100Externalities Of Business,April 20137 The Stern Review on theEconomics of ClimateChange, 20068 MIT Technology Review,May 15, 20149 Energy TechnologyPerspectives, May 20146In 2007, the German government proposed at theG8 5 countries meeting in Potsdam to analyzethe global economic benefit of biologicaldiversity. The subsequent ground-breaking study,The Economics of Ecosystems and Biodiversity(TEEB), estimated the global problem ofbiodiversity loss and ecosystem degradation ineconomic terms. The TEEB study focused largelyon deforestation and calculated the cost atUS 2 trillion to 4.5 trillion per year.According to the United Nations-backedPrinciples of Responsible Investment (PRI) andcorporate environmental research group Trucost,the cost of environmental damage caused by theworld’s largest 3,000 companies was estimatedat 2.15 trillion (2010). Another study by the PRIand Trucost found that biodiversity andecosystem damage could cost the world 28.6 trillion ( 18.2 trillion), or 18% of globaleconomic output, by 2050.5 These damages areoften called “externalities” and are not accountedfor in the bottom line. The 2013 Natural Capitalat Risk report estimated the cost of the top 100environmental impacts for the global economy at 4.7 trillion per year in social costs, lost ecosystemservices and pollution. The most significantimpacts are greenhouse gas emissions (36%),water use (26%) and land use (25%).6Predictions of annual losses due to climatechange range from 1% of global GDP a year ifstrong and early action is undertaken to at least5% if economies fail to act.7 According to theIntergovernmental Panel on Climate Changereport, Climate Change 2014: Mitigation ofClimate Change, efforts to stabilize levels ofgreenhouse gas emissions would requireinvestments of about 13 trillion through 2030.8According to the International Energy Agency,switching from fossil fuels to low-carbon sourcesof energy will cost 44 trillion by 2050.9GROWING AWARENESS AMONGCOMPANIES AND INVESTORSAs a result, the business community isexperiencing increasing public and regulatorypressures from governments and nongovernmental organizations. For example, due totighter regulations and social and politicalpressures, certain sectors face greenhouse gasregulation and pricing.In the last couple of years, companies havebecome more aware and active in the discussionaround natural capital, for example, through theNatural Capital Coalition (NCC). The coalition is aglobal multi-stakeholder collaboration that brings
A timeline of selected key milestones in the evolution of natural capital valuationThe TEEB Interim Reportwas released. It providedevidence for significantglobal and local economiclosses and human welfareimpacts due to the ongoinglosses of biodiversity andecosystems degradation.The report focused largelyon forests and looked atthe extent of losses ofnatural capital taking placeas a result of deforestationand degradation.2007Puma reportedthe firstenvironmentalprofit and lossaccount on its2010 data.At the Rio 20 summitheld in Brazil a‘national capitaldeclaration’ waslaunched as well asUINEP FI Principlesfor Sustainablelnsurance – a globalframework for theinsurance industry toaddressenvironmental, socialand governance risksand opportunities.2010The Natural CapitalCoalition (NCC)announced theselection of twoconsortia, managed bythe World BusinessThe Dow JonesCouncil forSustainabilitySustainableIndex added aDevelopment and thenumber ofInternational Union for natural capitalConservation ofrelatedNature, to develop the questions to itsNatural 1The TEEB study waslaunched by Germanyand the EuropeanCommission inresponse to a proposalby the G8 5Environment Ministersin Potsdam, to developa global study on theeconomics ofbiodiversity loss.Trucost together withthe Principles forResponsibleInvestment released areport that estimatedthe cost ofenvironmentaldamage caused by theworld’s largest 3,000companies in 2008.201220152014WorldThe Natural Capitalpopulation Coalition (formerlyreachedthe TEEB for7 billion.Business Coalition)announced a projectto develop aharmonized protocolfor valuing naturalcapital – the NaturalCapital Protocol.Governments reach theuniversal agreement toreduce carbon emissionsat the COP 21 UNClimate ChangeConference in Paris.According toRobecoSAM, out ofaround 200 sampledcompanies, 35%already developed orcompleted impactvaluation. Another53% self-declaredtheir work on or withimpact valuation. Only12% of companies didnot indicate work on orwith impact valuation.The 2018 Global RisksPerception Surveyfrom the WorldEconomic Forumranked highly thefollowing environmentalrisk factors: biodiversityloss, ecosystem collapseand the failure ofclimate changemitigation andadaption.20172016The NCC released theNatural CapitalProtocol. The protocolprovides a standardizedframework fororganizations toidentify, measure andvalue their direct andindirect impacts anddependencies onnatural capital.2018The World Forum onNational Capital was heldin Scotland, wheregovernmentrepresentatives,environmental experts andbusiness leaders discussedhow natural capitalprinciples can informdecisions for a betterworld.Source: Allianz Global Corporate & Specialtytogether leading initiatives and organizations toharmonize approaches to natural capital. In 2016,the NCC released the Natural Capital Protocol, aframework to help business to generate trustedinformation to aid managers in making betterinformed decisions around natural capital.Since its publication, hundreds of companies acrosssectors and geographies have started applying theprotocol to their business with many also makingthis known publicly. Some frontrunners havestarted quantifying and monetizing their impact onthe environment and wider society and linking it totheir financial performance.The capital markets – investors, analysts, ratingagencies – are increasingly factoring naturalcapital considerations into their investmentdecisions. In 2016, the Dow Jones SustainabilityIndex added natural capital-related questions toits corporate questionnaire.Moreover, investors and portfolio managers arelooking for ways to align their portfolios with theUnited Nations’ 17 Sustainable DevelopmentGoals (SDGs), which include global aspirationsaround water, waste and climate change. InDecember 2017, more than 200 institutionalinvestors committed to increase the pressure onthe world’s 100 biggest corporate greenhousegas emitters to combat climate change.While the macro-economic impact isincreasingly clear and awareness amongcompanies and investors is growing, relativelylittle is known about which parts of theeconomies are exposed to risk. Therefore, thereis a need for further analysis at a sector level.To share AGCS’ unique risk managementperspective on natural capital risks and to raiseawareness among businesses for a betterunderstanding of the risk dimension, AGCSconducted an in-depth study to identify keynatural capital risks for 12 selected, exposedsectors. In this report, AGCS analyzes the risks offive natural capital factors: biodiversity,greenhouse gas emissions (GHG), nongreenhouse gas emissions (non-GHG), waterand waste in these sectors. AGCS seeks to simplifythe concept of natural capital risk by distinguishingbetween dependencies and impact on naturalcapital – the related risks for the companytranslating into business interruption and liabilities.This is one of the first global data-driven reportson natural capital risks, featuring in-depth desktopreviews and interviews with sustainability and riskmanagement professionals.After this introduction to natural capital and therelated risk concept, the study elaborates on theresearch scope and structure regarding the 12sectors, as well as their overall comparativescoring on risk exposure and mitigation relatedto natural capital risks. Detailed sector profilesallow for a more granular view. Finally, theresearch dives into the risk materializationfactors for natural capital risks and the possiblesolutions a company could consider to reducethese risks. AGCS’ aim is to explore the riskdimension of natural capital and put it on theagenda for further discussion.7
Measuring and Managing Environmental ExposureSECTORCOMPARISONNATURAL CAPITAL RISK EXPOSUREThe graph below shows the allocation of 12 sectors regarding their overall risk (related toimpact and dependencies) and mitigation (awareness and preparedness of the sector) onseven researched risks (see page 11) relating to five natural capital factors. The higher thesector is ranked on the y-axis, the greater the average perceived natural capital risk forcompanies in the sector. The more to the right a secto
Measuring and Managing Environmental Exposure IN FOCUS Natural capital is the global stock of natural resources, including soil, clean air and groundwater, as well as biodiversity. By many objective scientific and macro-economic indicators it is becoming increasingly clear that natural capital
The Global Credit Exposure Management Policy 2019 of the Bank defines the exposure management measures. Exposure includes credit exposure (funded and non-funded credit limits), investment exposure (including underwriting and similar commitments) and derivatives exposure which includes MTM and Potential Future exposure as per current exposure method
For the exposure calculator, the longer term exposure was only considered The main routes of exposure during post-application activities are dermal and inhalation, and the sources of exposure are contact with foliage, soil and possibly dust. Oral exposure may occur secondarily to dermal exposure, through hand to mouth transfer.
Exposure Triangle Relationships for F-Stop: 136 5. Determine Shutter Speed Settings 138 6. ISO & Final Adjustments 140 Understanding Exposure - Technical Details 145 What is Exposure in Photography? 145 Pixels, Color & the Exposure Triangle 146 Technical Examples of Exposure 148 Example 1 - Correct Photography Exposure 149
October 2016 4 GUIDE TO MEASURING AND ASSESSING WORKPLACE EXPOSURE TO WHOLE-BODY VIBRATION The overall daily vibration exposure A(8) can be calculated from the partial vibration exposure values using the equation: where A 1 (8), A 2 (8), etc. are the partial vibra
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Cheng, Chris James and Vivek Moorthy. U.S. banks' total LDC loan exposure and exposure relative to assets and capital have declined since theLDC debt crisis began in 1982. The authors find, however, that exposure to troubled LDCs has not fallen as much as exposure to more creditworthy borrowers, and that exposure has become increasingly .
Introduction to Exposure Assessment Strategies and Statistics (Part 2 Deeper Dive) Exposure Assessment Strategies Committee. OVERVIEW OF EXPOSURE ASSESSMENT STRATEGIES –7 STEPS 1. Start: Establish the exposure assessment strategy Role of the industrial hygienist, exposur
ARCHAEOLOGICAL ILLUSTRATION 8 IMAGE GALLERY - SCRAN images to draw IMAGE GALLERY - illustrations from the 19 th century to the present day IMAGE GALLERY - illustrations from 19th century to the present day STONE WORK Stones with incised crosses, St N inian’s Cave, Wigtownshire. Illustration from Proceedings of the Society of Antiquaries of Scotland (1884-85), Figs. 2 and 3, p84 .
