The food and drink industry is in a “danger zone” comparable to the oil and gas sector for natural resources risk because of its reliance on natural capital in supply chains.
Food and beverage companies are especially vulnerable to water scarcity and biodiversity loss according to a report by the insurer Allianz, which ranked the sector alongside the oil and gas, mining and transportation sectors as having the highest natural capital risk exposure.
The food industry is classified as being in the “danger zone” based on five factors – biodiversity, greenhouse gas (GHG) and non-GHG emissions, water and waste, meaning the natural capital risks businesses face are, on average, greater than the mitigation options currently employed.
The report noted that, despite the significant risk of supply disruption as a result of water stress, only 20% of companies have begun to address this in their agricultural supply chains.
It stated that flora and fauna are often damaged by excessive use of pesticides, reducing fertility and increasing vulnerability to weather events, causing crop failure for suppliers of food companies.
The report analysed data covering more than 2,500 companies in order to assess the natural capital risk exposure in 12 industries.
It noted that a significant number of companies have started to address natural capital risk in their environmental risk management and said that by factoring natural capital costs into business decision-making companies can anticipate potential threats.
“With threats to the environment coming from many different areas, there will be no such thing as business as usual in the future,” said Chris Bonnet, manager, ESG business services at Allianz Global Corporate & Specialty. “Companies need to understand, quantify and even monetise their dependence on natural capital and the impacts their operations have on it to ensure their organisations are resilient and future-proof.”