As I previously discussed in my introduction to Natural Capital, the natural capital dependencies of your business can create risk across a variety of areas, including:
- Financing: Increased lending requirements for firms with unstable flows of natural capital
- Regulatory: Fines or lawsuits from degradation of shared natural capital
- Customer: Customers switching to products with less natural capital impacts
- Operational: Higher costs for obtaining natural capital
- Reputational: Brand degradation from negative impacts to shared natural capital
Now, identifying the risks is the easy part; the difficulty comes in assessing the importance of those risks to the long-term health of your business.
In the sustainability field this is a common difficulty. When thinking rigorously about the sustainability of your business you will often be faced with the “kitchen sink” challenge; everything your business does falls under the large umbrella of sustainability. When faced with everything it is often easiest to do nothing; in other words, when everything is important, nothing is important. In sustainability planning this problem is commonly addressed through the idea of materiality.
For natural capital, materiality is vital to developing an actionable plan around mitigating risk and, more importantly, identifying business opportunities. Materiality is the idea of identifying the risks that are important to your business and where you have the ability to affect the change needed to turn those risks into opportunities. The first component of materiality can be addressed through a rigorous analysis of business processes but the second component of materiality, identifying where change can be affected, is key to the success of any treatment of natural capital. Without focusing on where risk can actually be minimized, sustainability professionals could be paralyzed by choice.
There will undoubtedly be natural capital resources that your business depends upon greatly but that you have little true impact upon. A farmer depends on rain but probably won’t find much value in exploring the opportunities in ensuring a reliable hydrological cycle. But that same farmer may find great value in exploring the crop varieties they grow under uncertain water availability. It is through this understanding of your natural capital dependencies, the risks they pose, and the ability you have to affect those risks that the true benefits of understanding your natural capital dependencies shine through.