Picture a factory that makes everyday goods: packaged snacks, cotton shirts, bottled drinks. Now imagine the local water supply runs short for a few months, or a bad harvest pushes the price of its main raw material up by a third.
No cyber attack. No change in the law. No fall in customer demand. Yet production slows, costs rise and profits shrink.
This is what the business world is starting to call nature risk. It is simpler than it sounds, and it is about to appear in more boardroom conversations, investor questions and customer contracts.
You don’t need an ESG background to follow this piece. If your business uses water, buys crops, timber, cotton, minerals or packaging, or buys from someone who does, it applies to you.
What “nature” means here
This is not about wildlife posters or conservation campaigns. In business terms, nature means the natural resources your operations quietly rely on:
- Water for manufacturing, cooling, cleaning and farming.
- Healthy soil for the crops that become food, fibre and ingredients.
- Forests for timber, paper, packaging and a stable local climate.
- Pollinators such as bees without which many food crops produce much less.
A widely quoted study by the World Economic Forum estimated that more than half of the world’s economic output depends, to a moderate or high degree, on nature. Most companies have never mapped how much of their own output sits inside that figure.
Why this question is being asked now
For the past decade, the main ESG question was about carbon: how much do you emit? Companies built teams, tools and reports to answer it.
The next question is about dependence: what does your business need from nature, and what happens if that supply weakens? It is the mirror image of carbon. Carbon asks what you do to the environment. Nature also asks what the environment does to you.
Three developments are pushing this forward at the same time:
- A global agreement. Countries have signed up to a worldwide biodiversity framework that encourages large companies to assess and disclose how they depend on, and affect, nature. This month, governments are meeting at the UN biodiversity summit (COP17) in Armenia to move that agreement along.
- Reporting standards. The ISSB, the global body that sets sustainability reporting standards, has been preparing a draft standard on nature-related disclosures, planned for release around this time. Once such a standard exists, regulators in many countries tend to adopt it.
- Investor and lender questions. Banks and investors are beginning to ask how exposed a company is to water shortages, crop failures and loss of natural resources, in the same way they now ask about carbon.
Why this matters in India
India’s economy is closely tied to water, agriculture and the supply chains built on them. Several large regions already face serious water stress, and a poor monsoon or heatwave can ripple quickly through food, textile and manufacturing costs.
The reporting groundwork is also being laid. The BRSR, the sustainability report that India’s top listed companies already file, asks about water use. As larger companies begin to ask key suppliers and distributors for data as well, questions about water, land and resources will travel down the supply chain.
If you are a supplier, even an unlisted one, expect these questions to reach you through a customer’s form before they reach you through a regulator’s circular.
Dependence and impact: two different questions
Most early work on nature focuses on impact: are you damaging forests, polluting water, harming ecosystems? That still matters. But the question boards are least prepared for is dependence:
- Dependence: What does our business need from nature to keep running? Where does it come from? What if it becomes scarce or costly?
- Impact: What do our operations and suppliers do to nature, and could that create legal, reputational or cost problems?
A simple first step is to list your five most important raw materials or inputs, and trace where each one comes from. Many companies find that the real exposure sits two or three steps back in the supply chain, with a supplier they have never met.
Three questions for leadership
- Which natural resources does our business depend on most? Can we name them, and name the regions they come from?
- Which of our sites or suppliers sit in water-stressed or high-risk areas? Has anyone checked?
- Who owns this question internally? Sustainability, procurement, operations, finance, or nobody?
The bigger point
In your business, nature has always been on the balance sheet. It just wasn’t labelled. It showed up as the cost of water, the price of cotton, the reliability of a harvest.
What is changing is that investors, regulators and customers are asking companies to name that dependence, measure it and explain how they will manage it. The companies that start mapping now will answer calmly. Those that wait will answer in a hurry, with a form to fill and a deadline attached.
What comes next: COP31
The world’s attention now turns to COP31, the UN climate summit in Antalya, Türkiye, from 9 to 20 November. India has called for flexibility, pragmatism and a focus on delivery over rhetoric. Whatever is agreed, the direction for businesses is clear: less promising, more evidence. The same data, supplier and board-ownership questions we have raised in recent months apply to climate and nature alike.
Wondering how nature-related risk could affect your business, and what investors and customers may soon ask you to report?
Avtar can help in multiple ways – Research and white papers on how companies are approaching ESG disclosure, or Capability building – tailored sessions to get your leadership and sustainability teams ready for these questionsor let us start with a first conversation on where your business is exposed and how to start.
Write to us at bhanukumar@avtarcc.com to initiate the discussion.
