Companies With $2.1 Trillion of Debt Face Natural Capital Risks

Companies with $2.1 trillion of debt are heavily dependent on nature for resources and materials, even as many of them contribute to its destruction, according to Moody’s Investors Service.

Moody’s said in a report Wednesday that companies in 12 sectors, including mining, oil and gas, and shipping, have “high” or “very high” exposure to natural capital risks. The ratings company said its assessment includes both companies’ impacts and dependencies on the assets provided by nature.

The natural world is in crisis: Over-consumption, pollution and deforestation have destroyed vibrant ecosystems, caused sharp declines in wildlife populations and left as many as 1 million species of plants and animals facing extinction. Businesses and investors are now beginning to pay greater attention to their impacts on nature and consider how they can support efforts to restore the earth’s biodiversity. Axa SA’s investment management unit announced Wednesday that it will stop investing in companies that contribute to deforestation or the loss of biodiversity

“The potential risks for companies and investors derived from natural capital considerations can be significant and multifaceted,” said Lucia Lopez, senior credit officer at Moody’s. “The push from society and regulators toward a more sustainable economy will result in heightened reputational risks, as companies that are perceived to contribute to biodiversity loss could face societal backlash.”

Additionally, Moody’s identified 16 other sectors, including homebuilding and retail and apparel, with $8.3 trillion of debt outstanding that currently face moderate exposure to natural capital risks. The risks to these businesses could increase with the introduction of new regulations, according to the report.

Natural capital risks could include natural resources becoming increasingly scarce, and thus more expensive to source, and potential fines for industries that have high potential to damage natural environments, Moody’s said. There also are increased reputational risks for companies perceived to contribute to biodiversity loss, and investors and regulators are now paying closer attention to companies’ impacts on nature.

Earlier this month, the Taskforce on Nature-related Financial Disclosures was launched to assist companies in assessing nature-related risks and opportunities. Meanwhile, governments gathering in Kunming, China, for the United Nations Convention on Biological Diversity in October are likely to agree on a framework to support nature.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.