NatureAlpha, which helps businesses analyze and prepare for their impact and exposure to nature-related risks, has developed a new framework to help businesses address financial materiality. Nature Value at Risk (NVaR) directly links nature-related risks to financial outcomes, enabling organizations to build resilience and minimize their nature risk while protecting against future associated financial losses.
As climate impacts threaten the health of ecosystems, both on land and sea, the nature businesses depend on including sea life, agriculture and clean water, face serious depletion. The World Economic Forum estimates $44 trillion of economic value generation–over half the world’s total GDP–is potentially at risk as a result of the dependence of business on nature and its services. Ascertaining what those risks are and making decisions for mitigating them is essential for businesses.
NVaR has three core pillars that provide companies and investors with a forward-looking, quantifiable view of their financial exposure to nature.
- Operational deficits, capturing both direct and indirect chronic physical nature risks.
- Transition-related risks, modelling the financial impacts of regulatory and market shifts tied to nature.
- Value at Risk methodology, assigning probabilities and financial values to nature-related risks over time.
NatureAlpha has already advanced its NVaR framework through the creation of operational deficit metrics, which assess how an asset’s dependence on ecosystem services influences its ability to function over time:
- Identify the degree of ecosystem service dependency using geospatial data.
- Model how service provision will evolve under different policy and climate scenarios.
- Quantify impacts on asset performance by linking to financial metrics such as revenue, EBITDA and cash flow.
The company noted that tighter regulations, in particular, Switzerland’s FINMA 2028 circular, will require financial institutions to quantify the financial materiality of nature-related risks and integrate them into risk management processes.
“As the accessibility of nature data accelerates with pace, the finance industry is crying out for solutions which help to meaningfully translate natural world risk and dependencies into quantifiable financial exposure,” said Nick Hough-Robbins, CEO at NatureAlpha
