The mining sector is most exposed to “natural capital” risks, according to a new report from Moody’s Investors Service.
The rating agency said that 12 sectors, representing US$2.1 trillion in debt, are now facing “high” or “very high” natural capital risk as investors, regulators and policymakers push for greater accountability for corporate impacts on biodiversity.
One of the primary challenges for investors is how to weigh the short-term gains of consuming natural resources against long-term disruptions that are difficult to measure and price, the report said.
As a result, regulators and investors are interested in more information on risks related to supply chain management engagement with local communities. This increased attention could have “significant implications” for companies, affecting consumer habits, investment decisions regulation, the report said.
The responsible use of natural capital resources takes supply chain management and impact on local communities into account. “The loss of natural resources can impact health outcomes, or in a more extreme scenario, fuel socioeconomic instability in countries or regions where natural capital is a significant source of income,” it said.
The mining sector is particularly exposed to these kinds of risks due to its “heavy dependence on obtaining and maintaining the right to access and exploit natural resources, the physical degradation associated with mining operations and risks related to reclamation efforts following the completion of mining-related activities,” the report said.
In addition to mining, the sectors with elevated risks include all extractive industries, which “may cause damage to natural systems that can lead to material financial costs,” it said.
Similarly, sectors such as agriculture that are dependent on ecosystem services “are also vulnerable,” it noted.
The report also found that another 16 sectors, representing US$8.3 trillion in debt, also currently face “moderate” exposure to natural capital risks. These sectors include homebuilding, retail and apparel.
“However, some of these sectors could face high exposure in the future as new regulations arrive,” Moody’s said.