When the Bee
StingsCounting the Cost of
Nature-Related Risks
December 9, 2023

When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

Contents
Section 1.

Executive summary1

Section 2.

A framework for nature-related risk

2

Section 3.

Exposing the financial costs of nature-related risk

5

Section4.
Casestudies:

3M Incurs $10.5 Billion Liability for Polluting Waterways with ‘Forever Chemicals’

9Section 5.

Deforestation Allegations Trigger Share Selloff of Swedish Oils and Fats Firm AAK

13

Section 6.

Bernard Matthews’ Balance Sheet and Reputation Struck by Bird Flu

17

Section 7.

Chevron's Gulf of Mexico Plans Caught in Legal Battle Over Protecting Rare Whale

21

Section 8.

CMA CGM Penalized for Nature Threats Posed by Untreated Ballast Water

25

Section 9.

Formosa Penalized Over Plastic Pellets, But Real Risk Is in Shift to New Materials

29

Section 10.

Freeport’s Share Price and Divestment Deal Spoiled by Tighter Tailings Rules

33

Section 11.

JBS Links to Amazon Deforestation Imperil US IPO as Banks and Customers Cut Ties

37

Section 12.

PG&E Liabilities for California Wildfires Led to Bankruptcy

41

Section 13.

Tesla’s Reliance on Groundwater Hinders Brandenburg Gigafactory Development

45

Appendix A.

Glossary of terms

49

Appendix B.

Ecosystem services

50

Appendix C.

Further information on the types of nature risk

51

About us

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55

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When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

Section 1.
10
Number of case studies
accompanying this researchnote$83.2 billion
Total financial impact on the
10 firms profiled, excluding
strategic delays

Executive summary
Mismanaging nature risk has burned billion-dollar holes in many corporate
balance sheets. In collaboration with the Taskforce on Nature-related Financial
Disclosures (TNFD) and aligned with its newly released recommendations,BloombergNEF has examined 10 instances of companies suffering material
financial losses, the threat of such losses and share price pressure from poorly
handled interactions with nature. The case studies demonstrate the financial
importance of a business understanding and managing its impacts anddependencies on the natural world.
•

All sectors are exposed to nature risk. Even within this small sample, companies include
those operating in materials, consumer staples, transport, energy, industrials and utilities,
with further diversity within sectors.

55%
Share of global GDP
moderately or highly
dependent on nature•

Spanning a range of geographies and company sizes, the organizations each handled theirinteractions with nature differently, creating various forms of nature risk that amounted to atleast $80 billion in financial impacts.

•

The cases of Bernard Matthews and Tesla detail how nature dependency manifested into
physical risk. For the poultry producer, inadequate biosecurity measures enabled avian
influenza to enter and spread throughout its supply chain, costing tens of millions of pounds
in lost sales, hundreds of jobs and tainting its brand. Meanwhile, though Tesla Chief
Executive Officer Elon Musk downplayed the threat of declining groundwater levels, theseconcerns delayed completion of the electric vehicle giant’s $5.7 billion Berlin gigafactory.

•

Transition risk arises through the impacts of a company on nature, manifesting as legal andpolicy risk in five of the cases. Chemicals producer 3M, plastics manufacturer Formosa andcopper and gold miner Freeport-McMoRan each released harmful materials into
watercourses proximate to their operations, resulting in over $10 billion in combined legal
liabilities, revocation of production permits and obstacles to planned equity transfers.

•

Chevron’s expansion plans in the Gulf of Mexico faced uncertainty as environmental groups
mounted a legal challenge to protect an endangered whale in the region. Shipping giant CMA
CGM incurred fines for non-compliance with ballast water treatment rules intended to limit the
spread of invasive species.

•

Specialty oil and fats manufacturer AAK and the world’s largest meat producer, JBS, were
impacted through market and reputational risk – further forms of transition risk – as a result ofpractices linked to deforestation. Despite AAK’s commitment to sustainable sourcing of palmoil, media reports tying its operations to a protected national park in Indonesia hit its shareprice, while ongoing criticism of JBS’ practices in the Amazon has imperiled its long-planned
listing in the US, jeopardizing up to $20 billion in unlocked value.

•

There is clear overlap between nature and climate risk, as highlighted by electric utility PG&E.
After being found liable for a series of California wildfires from 2015-18, the company paid
over $5 billion in settlements and filed for bankruptcy (a state it has since emerged from).

•

As the unprecedented decline in nature continues to accelerate, business models andultimately cash flows, are increasingly vulnerable. Physical and transition risk is becoming
more material to companies across all sectors. Initiatives such as the TNFD provide
resources and guidance to assist companies in managing this risk by identifying andassessing their dependencies, impacts, risks and opportunities associated with nature.

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1When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

Section 2.

A framework for nature-related risk
All economic activity is dependent on nature to some degree. Global GDP growth is underpinned
by a reliance on the stock of natural capital and the ecosystem services that flow from it. At thesame time, business operations, supported by the financial sector, have driven a rapid decline innature and biodiversity. These nature-related dependencies and impacts, alongside long-term
system collapses, create risks to companies that fall into three categories, in line with thecategorization used by the Taskforce on Nature-related Financial Disclosures (TNFD): physicalrisk, transition risk and systemic risk (Figure 1).

Figure 1: Nature impacts and dependencies create nature-related risks

NatureEcosystem
services

Nature dependency
creates
Physical risk

Companies

Nature impact
Direct operations
creates
Supply chain
Transition risk
and collectively
leads toSystemic risk

Insurance

Financial
institutions
Central banks

Finance
Transition risk

Investment andunderwriting

Regulation andsupervision

Source: BloombergNEF, TNFD.
Businesses depend on ecosystem services to operate1. For example, forests provide wood fortimber producers, growers depend upon insects and birds to pollinate crops, and an airport or
nuclear power plant may depend on the erosion control and flood protection offered by mangroveswamps. These dependencies can present physical risk to business operations, manifesting
through degradation of nature and the resulting loss of ecosystem services. Physical nature risks
are either acute or chronic, broadly referring to short- and long-term nature-related events.2
Companies also impact nature through their operations, including the release of pollutants,
extraction of resources and conversion of land. When these production processes are misalignedwith changing regulation, market dynamics or community expectations, the firm becomes
exposed to transition risk that can lead to financial costs3. Impacts and dependencies on nature
can also spread through the entire natural or economic system, hitting tipping points and creating
systemic risk for companies.
Each of these three forms of nature-related risk manifest differently, contingent on the source ofthe risk (Figure 2, additional information contained in Appendix C). It is important to note that risks© Bloomberg Finance L.P.2023

1

Ecosystem services provide a range of tangible and intangible benefits to humans valued at $125 trillion
per year. They are categorized as provisioning, regulating, supporting and cultural services.

2

Acute risks are short-term events that change the state of nature and are typically location-specific, suchas wildfires destroying infrastructure, crop diseases affecting harvest yield, or oil spills reducing ocean fishstocks. Chronic risks are long-term, incremental changes to the state of nature, with consequences thatare not anticipated to recede. Examples include climate change and ocean acidification.

3

This note adapts BNEF’s approach to climate risk when defining nature transition risk: the loss ofrevenues, valuation, access to capital or increased costs to a company because of the shift to a naturepositive economy. See: Climate Risk Sector Homepage (web).

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2When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

do not exist in isolation: Companies with significant dependencies on nature will also impact its
condition, while each risk type can contribute to systemic effects. This report is primarily
concerned with physical and transition risk.
Figure 2: Nature-related risks manifest in a variety of ways
Physical risks
AcuteTransition risk
Legal andpolicyChronic

Short-termLong-term
events that
incremental
change the changes to thestate of nature state of nature

Changes inpolicy or
regulation
impact thecompany

MarketTechnlogy

Systemic risk
Reputational

Movement in New technology Consumers
market prices
financiallymove away
creates losses
affects thefrom brand tied
for thecompany
to harmfulcompany
practices

Ecosystemstability

Financialstability

Collapse of
Collapse ofentire natural financial systemsystemSource: BloombergNEF, TNFD. Note: Further detail in Appendix C.

Nature risk presents financial threats to companies and the economy
The continuing decline in the state of nature affects the global economy. According to the WorldBank’s 2021 report The Economic Case for Nature, global GDP could fall by 2.3% – equivalent to$2.7 trillion – in 2030 under a partial ecosystem collapse scenario, relative to a baseline scenario
with no change in the state of nature (Figure 3). Such a collapse would slow the rate of GDP
growth by 9.5% relative to the baseline4. The impacts are not felt equally across regions – areas
with lower incomes are significantly more affected than their wealthier counterparts. Theseestimates are somewhat limited as they do not account for transition risk, merely the decline invalue generated from the disrupted ecosystem services.
Fewer studies have considered the financial cost incurred by individual companies due to themishandling of nature risks. The remainder of this report details nature-related risks through theexperiences of 10 impacted companies.

Figure 3: The financial impact of a partial ecosystem collapse would be unevenly distributed

Source: BloombergNEF, World Bank (2021). Note: GDP impact relative to a baseline scenario with no change in the state of nature4© Bloomberg Finance L.P.2023

GDP, or gross domestic product, is a measure of the total monetary value of all goods and services
produced in a year. A change in GDP refers to an increase or decrease in this total, while a change in
GDP growth is an increase or decrease in the rate of change in GDP.

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3When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

Nature risks are transposed on the financial sector
Central banks have already started to follow climate stress testing with an equivalent for nature.
The Dutch central bank was the first to do so. The European Central Bank published a paper on
physical nature risk in November 2023. The Network for Greening the Financial System (NGFS),
a group of central banks and financial supervisors, has also started to consider the implications of
nature loss for the global financial system.
The UK and French central banks have also released statements on the need for more research
into nature risk, which will likely happen apace as investors, regulators and banks begin to pricethe risk from nature loss into their calculations.
Nature loss and climate change are inextricably linked
Nature and climate are interlinked, as represented by Figure 4. Increasing temperatures
hasten the decline in the state of nature. Land and ocean use change, the primary driver ofnature loss, also contributes significantly to climate change, reducing the resiliency of thebiosphere and exacerbating further impacts. Likewise, deforestation and habitat loss releasestored carbon that amplifies temperature increases.
All natural systems play a regulating or supporting role in the global climate to some extent, be
it in terms of mitigation or adaptation.
Figure 4: Relationship between natural systems and climate change

Source: BloombergNEF, United Nations Environment Programme.
This report does not attempt to draw a separation between nature and climate risks due to theclose relationship between the two. While some events, such as heatwaves, may appear to be
climate-related phenomena, they can also be seen as part of a larger breakdown in theoperation of the biosphere. Temperature extremes precipitate droughts, floods, storms andvarious other meteorological phenomena, which in turn hinder ecosystem services.

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4When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

Section 3.

Exposing the financial costs ofnature-related risk
Following the nature-related assessment approach outlined by the TNFD, BNEF has profiled 10companies that incurred financial losses as a result of poorly handled interactions with nature.
The cases span a variety of sectors and geographies and demonstrate how various types ofnature-related risks manifest. Each case study follows a similar structure to enable comparison.
The cases are diverse, covering a wide range of industries, geographies, risks and financial
impacts – Table 1 provides a high-level overview. Each of the companies profiled is a major
player in its respective sector. Excluding container shipping company CMA CGM and poultry
producer Bernard Matthews – which are privately held – the total market capitalization of thesefirms amounts to over $1.1 trillion (though a substantial share of this comprises Tesla).

Table 1: Case studies included in this reportCompany

Sub-sector

Event

Costs

Risks exposed
PhysicalSpecialty
chemicals

Since 2016, its US facilities have released
toxic per- and polyfluorinated substances, or‘forever chemicals’, into watercourses*

At least $10.5 billion in legal
liabilities, layoffs

Grain andoilseed milling

Reported** to have sourced palm fruit fromprotected plantations in Indonesia, contrary
to its sustainability claims

5.5% fall in share price in the
24 hours after the newspaper
investigation was published

Packaged food

Inadequate biosecurity measures enabled the £20 million ($25 million) loss ofavian influenza virus to enter its UK facilities brand value, layoffs
in 2007 according to DEFRA***Oil and gas
exploration andproduction

Faced legal challenges to protect anendangered whale threatened by oil and gas
activities in the Gulf of Mexico****Legal costs and development
delays, which threatened up to$49.6 million in revenue

Container
shipping

Discharge of untreated ballast water withoutauthority or adequate reporting spreadinvasive alien species$165,000 in fines

Basic anddiversified
chemicals

Discharged billions of plastic pellets from thewastepipes of its Texas facilities into
waterways$50 million settlement, $9.4
billion plant constructionsuspended

Metals andmining – basemetalsPolluted water and forests in Indonesia
through its disposal of vast quantities ofmining waste

18% share price fall in twodays after CEO reacted totighter environmental laws

Packaged food – Repeatedly sourced cattle raised on illegally
deforested land in the Brazilian Amazon*****
meat products

Transition$7.7 million in fines, potential
loss of $20 billion valuation
gain if US listing blocked

Sparking transmission lines ignited untrimmed 91% share price fall from
Electric
September 2017 to Januarytransmission and tree branches, leading to a series of deadly
wildfires in California
2019, $5.36 billion settlement
distribution

Automotive

Planned Berlin gigafactory’s extraction of
declining groundwater led to court complaint

3.1% share price fall in 24
hours after court complaint,$5.7 billion facility delayed

Source: BloombergNEF. Note: *3M did not admit liability in the settlement. **AAK investigation reported by newspaper Sveriges
Natur. Company noted that sustainable sourcing is important but did not deny allegations. ***UK’s Department for Environment,
Food and Rural Affairs. Bernard Matthews disputed these allegations in 2007. ****A November 2023 hearing ruled that the leasesale could proceed without further protections for the endangered whale. *****According to a Bloomberg investigation.

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5When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

Transition risk features more prominently than physical risk, with policy and legal risk manifestingin five of the 10 cases, though there is significant variability. The examples of chemical giant 3M
and CMA CGM are the simplest – the companies violated environmental regulation and weredeemed liable by authorities, incurring penalties and fines, or agreeing to settlements, though 3M
did not admit liability. Court documentation and extensive media reporting ensured that the key
events in these stories are well-documented. However, policy and legal risk is not always thisapparent.
The cases of AAK, Chevron, Formosa and Freeport-McMoRan each saw the protagonist’s
impacts on nature translate into share price falls or hurdles for major strategic projects, such as
multi-billion-dollar factories or expansion into new territories. JBS, the world’s largest meatproducer, saw its impacts on nature lead to efforts to block its listing in the US, potentially costingbillions of dollars in enterprise value that it expected to unlock. Bernard Matthews and Tesla bore
losses in brand value and a decline in share price, respectively, as a result of their dependencies
on nature and the manifestation of acute physical risk. In each of these cases, the impact of thefirm’s operations also played a role, reflecting the difficulties of entirely separating dependency
from impact. PG&E, a California power utility, was impacted by a combination of acute physicalrisk, legal and reputational risk.
The cases are also geographically diverse. The profiled companies are headquartered in six
countries across four continents. Their impacts and dependencies materialize as risk in the same
number of continents – though often not the companies’ domicile. This demonstrates that naturerisk is not constrained by national boundaries. Rather, location-specific risk can transcend
jurisdictions, and strategies designed for one market may not be appropriate for another.
Figure 5: Company’s origins do not necessarily align with the location of risk

Source: BloombergNEF

The cases exhibit both commonalities and differences in the type of natural impact ordependency. Eight of the 10 case studies detail instances of companies incurring loss fromtransition risk. Half relate to water, although in different ways. Formosa, 3M and Freeport each

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When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

released some form of chemical contaminant into watercourses proximate to their facilities, while
untreated ballast water unloaded by CMA CGM vessels could have potentially released invasive
species to vulnerable marine ecosystems. Tesla’s vast water requirements challenge the planned
expansion of its European “gigafactory”, while simultaneously contributing to local water stress,
according to local environmental groups. Three cases – JBS, AAK and Freeport – featured
deforestation as an impact that led to financial repercussions for the firm. The remainder relate todisease transmission and biosecurity (Bernard Matthews), wildfires (PG&E) and endangered
species (Chevron).
The predominance of water is no surprise. Surface and groundwater are two of the most salient
natural assets that companies rely on or impact through their operations. Likewise, deforestation
features prominently throughout nature-risk mitigation efforts across various sectors of theeconomy. Despite each case being location-specific, their findings can be applied across sectors
and geographies.
The size of financial impact incurred in each case likewise shows significant variation, highlighting
how risk can manifest relatively trivially, such as through CMA CGM’s six-figure fines and public
rebuke from the US Environmental Protection Agency, to the more substantive $10 billion
settlement agreed by 3M for its dumping of toxic chemicals into local water systems. Several of
the cases saw risk manifest through share price declines, ranging from 3% intraday for Tesla, to
91% over 16 months for PG&E. Figure 6 shows the magnitude of the financial impact and eachfirm’s revenue in the year that nature risk materialized.
Figure 6: Magnitude of financial impact and company revenue in year of loss●

Source: BloombergNEF. Note: Logarithmic x-axis.

There appears little evidence of correlation between the sector and type of nature-related risk
faced. This is due to the wide range of interactions that global firms have with the natural world.
Shifting regulation can bring exposure to any firm, as every form of economic value generation is
to some extent dependent on nature. This highlights the need for both vigilance in overseeing thefirm’s operations and in the design of its strategy. Companies that have operated without regard
for environmental regulations may find those freedoms swiftly curtailed, while unexpected
technological shifts, resource scarcity, or shifting climate can induce physical and transition risk.

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When the Bee Stings: Counting the Cost of Nature-Related Risks
December 9, 2023

The role of reporting and disclosure in managing nature risk
The case studies together highlight the importance of managing nature-related dependencies, impacts, risks and opportunities(DIROs) to minimize financial impact on the company. The first step in doing so is building awareness of the organization’s
interface with nature. The recommendations of the TNFD, released in September 2023, enable companies to better identify,
assess and disclose DIROs. Consisting of a four-pillar approach to disclosure first recommended by the Taskforce on Climaterelated Financial Disclosures (TCFD) and now incorporated into the global baseline sustainability standards of the International
Sustainability Standards Board (ISSB) and the European Union’s sustainability reporting regulation (CSRD), therecommendations require companies to describe and report how they consider nature in terms of governance, strategy, risk andimpact management, and metrics and targets.
Figure 7: Recommendations of the TNFD
Organizations are encouraged to describe and report how they consider nature-related dependencies, impacts, risks andopportunities along the following four pillars:
Governance

The organization’s governance of DIROs•

Board oversight•Management’s role in assessing and managing DIROs•

Organization’s human rights policies and engagement activities, with respect to indigenous peoples and local
communities
Strategy

Effects of DIROs on business model, strategy and financial planning•

Short-, medium- and long-term DIROs that the organization has identified•

Effect of these DIROs on strategy and business model•

Resilience of the organization to different scenarios•

Identify priority locations in operations or value chain
Risk and impact management

Processes used to identify, assess, prioritize and monitor DIROs•

Process for identifying and assessing DIROs in its direct operations•

Process for identifying and assessing DIROs in value chain•

Process for managing these DIROs•

Processes for identifying, assessing, prioritizing and monitoring are integrated into risk management
Metrics and targets

Metrics and targets used to assess and manage material DIROs•

Metrics used to assess and manage risks and opportunities to the organization•

Metrics used to assess and manage dependencies and impacts on nature•

Targets and goals used to manage DIROs and organization’s performance against them

Source: BloombergNEF, TNFD. Note: DIROs are nature-related dependencies, impacts, risks and opportunities.
Beyond the recommended disclosures, the TNFD has also published additional guidance to help organizations identify andassess their nature-related DIROs. This assessment methodology is called the LEAP approach – locate, evaluate, assess andprepare – and has been aligned to help organizations assess and identify their impact materiality aligned with the EU’s CSRD
requirements, as well as their financial materiality aligned to the IFRS ISSB requirements. Specific guidance for financial
institutions encourages firms to examine portfolio risk exposure. While the TNFD is a market-led voluntary initiative, its work will
inform future nature-related regulation and bring together various other standard setters, metrics and targets providers, andgovernments.
Further details on the TNFD, including its recommended disclosures and LEAP assessment approach and other guidance canbe found here: www.tnfd.global Bloomberg clients can access further research on nature reporting here: web | terminal.

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8.

3M Co | Specialty chemicals
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

3M Incurs $10.5 Billion Liability for Polluting
Waterways with ‘Forever Chemicals’
3M’s liability in the US for damages caused by “forever

Manifestation of nature risk

chemicals” serves as a prime example of the financial
risk facing a company improperly managing its impacts

3M Co. (NYSE: MMM) is a US-headquarteredon nature. The multinational conglomerate, while notadmitting liability, reached a tentative $10.5 billion
settlement with US municipal water authorities in June
2023 to resolve water pollution claims resulting from its

diversified technology company operating across 70
countries that derives 40% of its revenue from
specialty chemicals. These include PFAS, a group ofsynthetic chemicals used to make coatings and items

introduction of harmful substances, also known asthat resist heat, water and oils, and feature in a myriad
products from adhesives to cookware and firefighting

PFAS, into watercourses to the detriment of humanand environmental health. Liability for remediations

foams. Dubbed “forever chemicals” as they do notand other solutions could total $25 billion.

easily break down, PFAS manufactured by 3M and its
peers have contaminated the natural environment,

53% Share of gross value added in the direct operations

particularly soils and groundwater, since the 1950s.

of chemical companies that is moderately or highly
dependent on nature

The EPA describes these per- and polyfluoroalkyl

66% Decline in 3M’s share price from high in January
2018 to October 2023, in part due to liability concerns$10.5 billion Settlement by 3M to resolve claimsof water pollution, possibly rising to $12.5 billion

substances as persistent, bio-accumulative and toxic,
with pollutants linked to environmental damage andnegative human health impacts, such as cancer andinfertility. Chemical waste has been found in highconcentrations around multiple 3M facilities in the US,
including its 1,750-acre factory in Minnesota, where
the state claims there is a 100-square-mile
underground plume of leaked PFAS.

Drivers of nature loss
Five drivers account for over 90% of nature’s

3M’s Minnesota headquarters

decline relative to pre-industrial levels:
Invasive alien
species11%

Other

Pollution
14%
Climate change
14%

Changes in landand sea use
30%

Resource
exploitation
23%
Source: IPBES

Companies with exposure to these drivers havehigher nature-related transition risks, as they are
the most vulnerable to shifting regulation andcustomer preferences.

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Source: Bloomberg

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93M Co | Specialty chemicals
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

According to retired 3M toxicologist John Butenhoff, in

PFOA and PFOS – with Congress later introducing

a pre-trial video deposition taken in 2023, 3M is morethan likely the source of PFAS contamination around

dozens of bills to monitor the scope of contamination,
ban non-essential uses of the substances, address

the globe, including in air, water, soil, humans, andvarious animals. The Minnesota plant is the largest

ongoing contamination, and clean up legacy pollution.
After intensive lobbying from the chemicals industry,

point source of this pollution, though the company
operates 70 chemical facilities throughout the US,

only three of the 50 bills have passed the Senate.

according to Bloomberg asset mapping data. The US
Environmental Protection Agency (EPA) has called
PFAS an “urgent public health and environmental

Three categories of PFAS chemicals
Category

Definition

PFAS example

Non-essential

Uses that are notessential for healthand safety

Consumer
textiles,cosmetics, skiwaxes

Substitutable

Regarded essential,
but alternatives
have beendeveloped

Firefighting
foams, floor
coverings

Essential

Uses consideredessential because
they are necessary
for health or safety

Medical devices,protective
clothing

issue”. The company admits no wrongdoing and says
the chemicals pose no significant threat to publichealth and welfare, according to Bloomberg News.
In addition to environmental damage in the US, theemission of PFAS into ambient air surrounding
production facilities led Belgian authorities torepeatedly halt 3M’s operations in the country through2021 to 2023, asserting that the airborne particles
eventually enter groundwater, negatively impacting

Source: Global PFAS Science Panel, BloombergNEF.

ecosystem health.

Managing nature risk

Despite some categories of the chemicals being
deemed essential, 3M has pledged to exit PFAS

Cumulative number of PFAS chemicals listed with
the US EPA

manufacturing by the end of 2025, acknowledging in apress release the shifting regulatory landscape andchanging stakeholder expectations.

Financial and reputational impacts on 3M
In June 2023, 3M settled lawsuits brought by US waterauthorities in 2018 for an estimated $10.5 billion to$12.5 billion, to be paid to various municipalities over
13 years. According to Bloomberg Intelligence, 3M’s
liability risk could total $25 billion, the lion’s share ofwhich will contribute to the restoration of natural
resources and water treatment.
Source: US Environmental Protection Agency,
BloombergNEF.

The US Chamber of Commerce estimates that aComprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) designation

Recognizing the harmful environmental impacts of
PFAS, the EPA formulated an action plan to tackle thecrisis, creating new rules to enhance measurement,
reporting and enforcement. In March 2021, the agency
announced it would more stringently regulate the twomost harmful PFAS chemicals in watercourses – called© Bloomberg Finance L.P.2023– which provides a federal “Superfund” to clean up
uncontrolled environmental pollution – could create
costs of $17 billion for non-water authority sites for 3M.
This supports the prediction that $10 billion is unlikely
to be the final remediation tally. As part of the claim,
the state of Minnesota settled its lawsuit against 3M for

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103M Co | Specialty chemicals
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

$850 million for damaging natural and ecologicalproduction, 3M will be hard pushed to escape further

resources, and contaminating drinking water.

PFAS liabilities, as the chemical does not degrade andhas complex interactions with the environment that are

Prior to US authorities bringing the claim for damages,
3M shares had peaked at $258 in January 2018,
before dropping to $178 later that year, though it isdifficult to separate demand-side impacts from thefallout of the settlement. However, the company’s
shares fell further as more lawsuits emerged and, atthe time of writing, were priced at around $88 – a 66%
decline from five years ago. 3M later accepted achange in the 2023 settlement that removed anindemnity clause following pushback from attorneys
general from 22 states, who urged the trial’s judge toreject the deal for its perceived leniency.
Even with annual revenue surpassing $30 billion and amarket capitalization of $57 billion in 2023, 3M is
cutting costs, faced with multi-billion dollar settlements,
against a background of macroeconomic headwinds
stymying demand and a concurrent mass tort litigation
over its manufacture of allegedly defective earplugs.
Since January 2023, the firm has announced a 10%

still being uncovered. In 2022, the EPA warned that
forever chemicals could be dangerous even atundetectable levels. As a result, 3M will continue toface thousands of lawsuits over PFAS contamination,with over 4,000 lawsuits filed between January 2020
and October 2023 that mention 3M as a defendant.

Nature risk across chemical industry
The chemical sector’s production operations expose
companies to significant natural risks. These range
from physical (for example, loss of natural inputs as
ingredients in the manufacturing process) to transition(such as the tightening of environmental protectionlaws) and systemic (macroeconomic changes shifting
consumer demand).
Nature dependency of gross value added acrosschemical companies’ direct operations and supply
chain

cut to its workforce and plans to spin off its healthcare
business by 2024. Buyside analysts on Wall Street
note that 3M’s generous 6.1% dividend is also at risk.
In addition to financial losses, 3M incurred reputational
damage. According to Minnesota’s attorney general,
despite possessing knowledge about the harmful
impacts of PFAS, the company kept this informationfrom regulators, local residents, and its client DuPont.
The attorney general released a trove of documents
online to back up the allegations, though a 3M
spokesperson later called them misleading.

Source: World Economic Forum, BloombergNEF. Note: 3M
is categorized as a chemical company in the report as it
obtains over 40% of its revenue from the manufacture of

As local communities became aware of thespecialty chemicals.

environmental impacts, those surrounding theMinnesota facility switched to bottled water, whileothers threw away products containing PFAS, such as

While all of the direct and supply chain value
generation of chemical companies is to some extent

Scotchgard stain and water repellants, and Teflonpans.

dependent on nature, only 11% is classified as highly
dependent, with over one-third being moderately

3M remains exposed to risks from ongoingenvironmental damage, as it continues to manufacture
various types of PFAS until 2025. Even if it does halt

© Bloomberg Finance L.P.2023

reliant, according to the World Economic Forum. The
ENCORE materiality matrix offers detail specific tospecialty chemical companies such as 3M, identifying
10 ecosystem services that production processes

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113M Co | Specialty chemicals
Acute

Chronic

Legal andpolicyMarketPhysical risk

depend on, though only two of these are given a highmateriality rating.

5

Technology Reputational

Transition risk

Similar risks and opportunities for chemicalcompanies

The nature impacts of the sector are much larger. For

Company

Risk typeseven out of 11 impact drivers, which assess theimpacts of production processes on ecosystem

Bayer AG

Legal andBayer finalized a $698 million
reputational settlement with the US state ofOregon to resolve claims over
PCBs’ environmental pollution.
The company did not admit
liability.

DuPont,Chemours,
Corteva

Legal and
Total costs for PFAS-related
reputational liabilities for DuPont, Chemours
and Corteva estimated at $3.5
billion to $5.5 billion. Currently$110 million has been settled.

KiddeFenwal Inc

Legal

services and natural capital, chemical companies’
operations are deemed highly material, covering water,
greenhouse emissions, pollutants and waste.
The interactions that chemical companies have withnature mean that the case of 3M is not an exception.
Even as awareness of the environmental effects of
PFAS has increased, many companies continue tomanufacture the harmful substances at scale.
In early June 2023, days before 3M’s $10.5 billion
settlement, DuPont, Chemours Co. and Corteva Inc.
together agreed to pay $1.185 billion to resolve
hundreds of municipal water pollution claims. Under acost-sharing agreement, Chemours will cover
approximately half of the settlement, DuPont one-third,
and Corteva the remainder. Total costs for these
PFAS-related liabilities are estimated at $3 billion to

Description

A subsidiary of Carrier Global
Corp, it filed for bankruptcy afterlawsuits alleged that forever
chemicals in its firefighting foam
products contaminated water
sources around US airports andmilitary bases.

Source: BloombergNEF

Pollution of watercourses and farmland will continue,
and with it the associated legal and reputational risks
for companies. As of August 2023, some 3,186 sites$5.5 billion.

across locations in all 50 US states are known to becontaminated with PFAS, according to a report by theBayer, which acquired Monsanto in 2018, provides
another example of legal risk manifesting through poor

Environmental Working Group, a non-profit
organization. Regulation is shifting rapidly – chemical

management of nature impacts. The company reached
a $650 million settlement with the state of Oregon tocompanies that learn from the 70-year history of PFAS
will be better placed to mitigate the risks resulting fromresolve claims over environmental damage resulting
from its PCBs production.6

their own impacts and dependencies on nature.
More from BNEF:In May 2023, fire protection company Kidde-Fenwal
filed for Chapter 11 bankruptcy protection in a New
York court, unable to bear the weight of lawsuits

Corporate Net-Zero Assessment Tool (web |alleging that its firefighting foam products
contaminated water sources around US airports andTechnology Radar: Advanced Conductors (web |terminal)

terminal)

military bases, claiming that its total liability was highly
likely to “substantially exceed” its ability to pay.

5

ENCORE is an ongoing collaboration between Global Canopy
and UNEP to help companies understand potential naturerelated risk exposure through sector-level generalizations. It
collates information on the production processes of 177 subsectors, enabling sector- and industry-level comparison. Moredetail can be found on the tool’s methodology page.

© Bloomberg Finance L.P.2023

What Policy Levers Get the World to 1.5C and Net
Zero? (web | terminal)

6

PCBs, or polychlorinated biphenyls, are classed as persistentorganic pollutants. Their history – innovative chemicals with amyriad of applications across many sectors, followed by growing
awareness of environmental harm and a subsequent productionban – appears to be a precursor to the story of PFAS.

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12.

AAK AB | Grain and oilseed milling
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

Deforestation Allegations Trigger Share Selloff ofSwedish Oils and Fats Firm AAK
Swedish specialty oils and fats manufacturer AAK AB

Manifestation of nature risk

is highly exposed to nature-related risk through theimport and use of plant-based oils in many of its

Founded in 2005 as the result of a merger and later

products. Despite its claims to source palm fruit only
from sustainable sources, in June 2023, a news report
emerged alleging that the company knowingly
engaged with mills supplied by Indonesian palm
plantations that had been illegally cleared.
AAK experienced a 5% decline in its share price the
day after the news broke, reflecting investor concern
over the credibility of sustainable palm oil initiatives in
the industry.

100% Share of gross value added by the food andbeverage sector that is moderately or highly dependent on
naturebecoming the eighth-largest palm oil company globally,
AAK (STO: AAK) and its antecedents have more than
150 years of experience processing and manufacturing
plant-based oils. The company now sells chocolate
and confectionary fats, food ingredients, feed andother products globally. It imports raw shea, soybean
and palm oils from Southeast Asia and West Africa,
refining them at facilities around the world andexporting to food manufacturers globally. Its revenue
and market cap are each around $5 billion.
AAK’s revenue is derived from three productgroups linked to food and agriculture

5.5% Decline in AAK’s share price across June 13-14,2023, following the publication of an article alleging exposure
to illegal palm oil

23% Potential downside for AAK shares in the monthfollowing the news, according to buy-side analysts

Materiality of nature impacts and dependencies‘Materiality’ refers to the influence some factor,
event or information has on a company’s valuation,
the omission of which in a financial statement could
mislead investors or other stakeholders.

Source: BloombergNEF, Bloomberg Terminal. Note:
Technical products include fatty acids and glycerine.

‘Single materiality’ is conventionally used inaccounting. For nature, it captures only how a firm’svaluation can be affected by changes in theIndonesia’s rainforests are among the most biodiverse

ecosystem services that production depends on.

mammal species, including orangutans, tigers andrhinos, and identified by BNEF as a priority region for‘Double materiality’ also considers the impacts ofthe firm on nature, capturing how production
processes change the state of nature.

© Bloomberg Finance L.P.2023

areas on the planet, home to 10% of the world’s

biodiversity finance. The World Resources Instituteplaces palm oil second on a list of commodities that

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13

AAK AB | Grain and oilseed milling
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

drive deforestation, behind beef. AAK has striven torisks. News of practices seemingly in violation of its

build a sustainable palm sourcing practice, co-founding
a voluntary industry standards initiative in 2003 andzero-deforestation ambitions spooked equity investors,
sending daily trading volumes to over five times theirimplementing a suite of initiatives to improve
traceability and transparency.

usual average and precipitating a 5.5% fall in thecompany’s share price over June 13-14, 2023.

Against this backdrop, on June 12, 2023, Swedish
newspaper Sveriges Natur published the results of its

The article, which received media coverage outside of
Sweden, quickly attracted attention from buy-side

investigation into 20 mills that extract oil from illegallyresearch analysts, who estimated a potential 23%

grown palm fruit in Tesso Nilo, a national park in
Sumatra, Indonesia, in which land clearance anddownside to the company’s share price for the month.
AAK published a press release in response to thedeforestation are explicitly prohibited. Citing plantation
owners and local workers, it reported that AAK

allegations, emphasizing the importance of palm oiland the company’s commitment to its sustainableknowingly purchased from all 20 mills. The
investigation followed a similar story by anothersourcing policy, though not directly addressing thesituation in Tesso Nilo or admitting wrongdoing.

Swedish newspaper three years earlier.

AAK’s share price took four months to recover,Oil sourced from palm fruit illegally grown within theprotected Tesso Nilo is extracted by nearby mills,

returning to its early-June level in the second week ofOctober, when third-quarter results showed operating

mixed with oil from legitimate palm plantations, andsold into a complex global supply chain, making it

profit exceeded analysts’ estimates. This suggests that
there has not been a long-lasting reputational impact

difficult for downstream manufacturers and retailers totrace its origin.

for the company. Nor have there been significant
changes in management. Swedish asset managers
saw the need to react to the news investigation,

The allegations triggered a selloff of AAK’s shares,
with five times usual trading volumes and a 5.5%
price decline over June 13-14, 2023

affirming their backing of AAK, while noting that they
were continuing to monitor the situation.
Despite the short-lived impact, the incident heightens
AAK’s future risk exposure, as the increasing
prevalence of deforestation and sustainable soft
commodities in the climate dialogue is fueled by
growing global demand for palm oil. In this context, a
repeat of June’s allegations and a failure to establish
fully traceable and deforestation-free palm oil sourcing
by its 2025 target may have lasting financial andreputational impacts, while also exposing its investors
to similar risks.

Source: BloombergNEF, Bloomberg Terminal. Note: X-axis
spacing due to trading data.

Nature risk across the food and beverage
sector
The food and beverage sector is highly exposed tonature risk. The World Economic Forum estimates that

Financial and reputational impact on AAK
For a sustainability-focused oils and fats company, the

100% of the industry’s direct economic value
generation is moderately or highly dependent on

palm oil supply chain brings inextricable reputational

nature, as is 76% of the value generated by the food

© Bloomberg Finance L.P.2023

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14

AAK AB | Grain and oilseed milling
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

and beverage supply chain. This risk manifests in asimilar manner to AAK. Three further examples relating

myriad of ways: physical dependencies on ecosystemservices such as pollination are foremost, though

to deforestation are presented below.

transition risk is already emerging as policy andinvestor expectations begin to shift; systemic risk is

Similar risks and opportunities for adjacent firms

likewise becoming more material as the possibility oflarge-scale ecosystem collapse increases.

Company Risk typeCadbury

Nature dependency of gross value added acrossthe food and beverage sector’s direct operations
and supply chain

Description

Reputational Cadbury New Zealand andand market Cadbury Australia were forced
into an about-turn on theirdecision to substitute palm oil forcocoa butter in pursuit of costsavings, after consumer outcry in
2009.

PT Kallista Legal andAlam
reputational

In 2014, the Indonesian palm oilcompany was ordered to pay$30 million in fines andreparations for its illegal
clearance and burning ofprotected forest, a violation of a
newly enacted moratorium onplantation concessions.

BNP
ParibasThe bank was sued in February
2023 by a Brazilian nongovernmental organization,
which claimed the bank did notconduct sufficient due diligenceon the companies to which it
provides financial services,
despite BNP Paribas’commitment to cease financing
activities associated with
deforestation.

Legal andreputational

Source: World Economic Forum, BloombergNEF. Note:
AAK is classed as a food and beverages company as it
derives most of its revenue from such products.

The sector also has considerable impacts on nature.
According to the ENCORE nature tool’s impact drivers,
which assess the impacts of production processes on

Source: BloombergNEF

ecosystem services and natural capital, the sector hasa high materiality rating for water use and greenhouserisk for companies operating in the food and beverage
sector. The most prominent example of this is the EU

gas emissions, among others. The Intergovernmental

Deforestation Regulation, which is causing firms that

Science-Policy Platform on Biodiversity andEcosystem Services (IPBES) notes that changes intrade food products within the bloc to consider their
exposure to deforestation.

land and sea use, 80% of which are caused byagriculture, are together the biggest drivers of nature

EU Deforestation Regulation

and biodiversity loss. The next-largest driver isresource exploitation, with agriculture again being theindustry most responsible.
Due to the scale of nature impacts and dependencies
across the sector, examples of nature-related risks areplentiful. The newspaper investigation that alleged
AAK’s connection to mills processing palm oil also
cited Mondelez International, Unilever and ColgatePalmolive, alleging that they all source palm oil in a

© Bloomberg Finance L.P.2023

Regulatory shifts present a new frontier of transition

The EU Deforestation Regulation on Deforestation-free
Products, also known as the EUDR, came into force onJune 29, 2023, and requires companies trading inseven at-risk soft commodities to conduct extensive
due diligence in their supply chains. This is to ensurethat their production does not result from recent
deforestation, forest degradation or other breaches ofenvironmental laws. The seven commodities are beef,
cocoa, coffee, palm oil, rubber, soya and wood. FromNo portion of this document may be reproduced, scanned into an electronic system, distributed, publicly
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15

AAK AB | Grain and oilseed milling
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

December 30, 2024, it will be illegal to trade these

Understanding nature-related impacts andproducts in the EU market or to export them from theEU if they are tied to deforestation, punishable by fines

dependencies can be enhanced by using the existing
reporting and disclosure architecture and its supporting

proportionate to the environmental damage caused,though limited to 4% of the firm’s EU turnover. For

suite of relevant metrics and targets. These
commitments are not enough, however, as

more, see: Supply Chains Will Be Challenged By EU
Deforestation Rules (web | terminal)

demonstrated by the ongoing destruction of the Tesso
Nilo rainforests over the past two years.

Managing nature risks in the food and beverage
sectorTesso Nilo continues to experience deforestation
despite its protected area status

AAK is well placed to mitigate similar risks in the future
as an early pioneer of deforestation-related
commitments – a point that its management appears toappreciate, touting zero-deforestation and fulltraceability pledges for palm oil by 2025. Its biggest
challenge is ensuring that these commitments translate
into timely execution. It is making significant progress:
in 2022, some 71% of its palm supply was verified to
be deforestation-free and 87% was traceable toplantation, representing respective gains of 4% and
7% from the previous year. Its 3Q 2023 earnings report
saw these figures reach 77% and 91% respectively,
although that still leaves a substantial portion fromindeterminate origins.

■ Industrial palm oil plantation■ Pulpwood plantation■ Clearance 2022-23▬ Tesso Nilo protected area
Source: BloombergNEF, Nusantara Atlas.

Other companies in the sector can learn from theprogress of AAK. Its internal and external verification ofpalm sourcing, including the use of technology, andFinancial institutions also have an opportunity tominimize exposure to potential risks from the sector.

membership of industry groupings such as theRoundtable on Sustainable Palm Oil (RSPO), provide

Understanding how recipients of their debt and equity
finance interface with nature, then implementing andexamples of good practice. Making zero-deforestation
pledges remains an important first step for firms

enforcing tighter restrictions, will better insulate themconcerned about their palm sourcing, though as of
October 2023, only 26 out of the 319 packaged foodcompanies tracked by Bloomberg have done so. As
global policies tighten, the risk of financial impacts on
firms exposed to deforestation increases.
To minimize the financial costs stemming from impacts
and dependencies on nature, firms whose supply
chains are exposed to deforestation should actively
target full traceability to legal plantations. This will help

against the market and reputational risks that impacted
companies such as AAK in recent months.
More from BNEF:
Supply Chains Will Be Challenged by EU
Deforestation Rules (web | terminal)
Biodiversity Finance Factbook: COP28 Edition(web | terminal)
Sustainable Agriculture: 10 Things to Watch in 2023
(web | terminal)

them avoid market and legal risk from changing
investor preferences and regulatory pressure.

© Bloomberg Finance L.P.2023

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L.P. For more information on terms of use, please contact sales.bnef@bloomberg.net. Copyright andDisclaimer notice on page 58 applies throughout.

16.

Bernard Matthews Foods | Packaged foodAcute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

Bernard Matthews’ Balance Sheet and Reputation
Struck by Bird Flu
Animal production and processing operate at the

Manifestation of nature riskintersection of the natural and anthropogenic worlds.

Bernard Matthews Foods is a privately held, UK-based

This brings heightened and persistent nature risks, asevidenced by the financial and reputational losses

farming and food company. The vertically integrated

incurred by UK poultry producer Bernard Matthews
due to an avian influenza outbreak in 2007.
Vulnerabilities in the company’s biosecurity enabled
the virus to enter its UK facilities from abroad, resulting
in the mass culling of turkeys. A substantial decline insales and subsequent brand damage demonstrate theimportance of managing meat producer andprocessers’ impacts and dependencies on nature.

100% Share of gross value added in the direct
operations of the food and agriculture sector that ismoderately or highly dependent on nature

producer and processer specializes in turkey products,
which account for 90% of its sales.
On January 30, 2007, an outbreak of the H5N1
subtype of the Influenza A virus was detected at a
Bernard Matthews-owned farm in Suffolk. This avian
influenza – or bird flu – likely originated in partiallyprocessed poultry meat imported from Bernard
Matthews’ Hungarian subsidiary Saga Foods,
according to the UK government’s Department forEnvironment, Food and Rural Affairs (Defra). A thirdparty abattoir in Hungary used by Saga Foods andother meat companies was also suggested as a
candidate for disease transmission. The company£20 million Estimated decline in the brand value of

denied these allegations at the time. Regardless of its

companies owned by Bernard Matthews

precise origin, a strain of H5N1 99.96% geneticallysimilar to that in Hungary reached Bernard Matthews’

165 Number of employees laid off by the company in the

UK facility.

four weeks following the outbreakTransmission pathway of H5N1

Physical risk
Nature dependency exists when the operations ofan organization rely on the presence of an
ecosystem service to function. These dependencies
can present a physical risk to business operations,manifesting through degradation of nature and theresulting loss of ecosystem services.
Acute risks are short-term events that change thestate of nature and are typically location specific.
Chronic risks are long-term, incremental changes

Source: BloombergNEF. Note: H5N1 is an avian disease.
Evidence of human-to-human transmission is limited.

to the state of nature, with consequences that are
not anticipated to recede or revert to their prior

Government investigations were unable tocondition.

unequivocally confirm the path of avian influenza,© Bloomberg Finance L.P.2023

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17Bernard Matthews Foods | Packaged foodAcute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

though familiarity with previous outbreaks of the virus

Sales declined sharply. The company posted losses ofsuggests that the strain originated in Hungarian wild
birds, whose flocks acted as a disease reservoir.

£77 million ($159 million in 2007 nominal terms) in the
2007-08 financial year and was forced to begin laying

Transmission to poultry stocks then occurred throughdirect contact with an infected wild bird, its droppings

off workers – 165 by February 27. Impacts on theprivately held firm’s valuation were not readily

or a contaminated water source. From a single infectedfarm animal, the pathogens spread quickly to others inavailable, though a consultants’ report estimated a £20
million fall in the company’s brand value at the time.

the flock, accelerated by the high density of poultry in
Saga’s farming facilities.

The once iconic brand was unable to recover its

Having entered the processing system, the virus would

reputation after 2007, despite engaging turnaround
specialist Rutland, a private equity house, which

likely have been able to reach Bernard Matthews’ UKfacility through its trade in partially processed animals.

injected £25 million ($40.7 million) into the business in
2013, the first outside investment in the firm’s 60-year

The Observer reported back in 2007 that the virus’
entry may have been associated with a 38-metric-ton

history. Further cash injections did little to stem thefinancial losses.

shipment of chicken breasts received in the days
before the first turkeys exhibited symptoms. Farm
workers claimed that scraps produced in meat
processing were not hygienically disposed of and wereleft uncovered in bins open to rats and wild gulls.
These scavengers could have provided a vector for thevirus to then move into adjacent turkey sheds.
Early tests suggested that avian influenza was
responsible for the deaths of 2,600 turkeys. On
February 3, following official identification of the highly
pathogenic variant, the government imposed a threekilometer exclusion zone and 10-kilometer monitoringzone around the farm to constrain movement of poultry
and wildfowl, and began a cull of all birds on site thesame day. Veterinarians dispatched a total of 159,000
turkeys in a slaughterhouse adjacent to the premises.

Financial and reputational impacts on
Bernard Matthews

In July 2016, Bernard Matthews agreed to sell its
German operations to pork and poultry producer
Sprehe Gruppe, with the proceeds used to reducegroup debt. Two months later, the remainder of thecompany was acquired by the Boparan Private office ina pre-pack administration deal, strengthening theprivate investment vehicle’s position in the UK poultrymarket.

Nature risk across the food andagriculture industry
Food and agriculture companies derive revenue by
extracting value from biotic resources, be it throughcrops, livestock or processing further downstream.
Through this direct interface with the natural world, it is
the industry most exposed to nature-related risks.
These risks can be physical (such as damage tofarmer assets from increased incidence of wildfires),

Consumer perception of Bernard Matthews nosedivedtransition (the introduction of more stringent
environmental regulation), or systemic (global

in the aftermath of the outbreak. A YouGov BrandIndex
survey conducted shortly after the cull deemed

ecosystem collapse, for example).

Bernard Matthews Britain’s least trusted company,
ranking last among 1,150 businesses. Another annual
assessment of top UK grocery brands saw it fall 38
places, to 98 out of 100. Factors beyond the influenza
outbreak, including alleged animal rights violations in2006 and negative media coverage of its processedfood in 2005, also contributed to this perception.

© Bloomberg Finance L.P.2023

Food and agriculture are among the most naturedependent industries, according to the World
Economic Forum. The entirety of the gross value
added in the direct operations of both the food andagriculture industries is highly dependent on nature,
while 83% of value added in the supply chain ismoderately or highly dependent.

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18Bernard Matthews Foods | Packaged foodAcute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

Nature dependency of gross value added in direct

Decline of chicken meat exports in selected Asian

operations and supply chain of food andagriculture

economies following the 2003 H5N1 outbreak

Source: BloombergNEF, FAOSTAT.
Source: World Economic Forum, BloombergNEF. Note:
Food includes beverages and tobacco.

A 2014-15 outbreak in the US was one of the largest in

The ENCORE nature materiality matrix likewise

limit the spread of the disease, costing the sector $3

emphasizes the depth and breadth of the sector’s
reliance on nature. It identifies 19 areas on whichbillion with a further $879 million in public
expenditures.

livestock production depends, covering almost all
aspects of nature. The sector also impacts the natural
world, with operations deemed highly material to waterand terrestrial ecosystem use, greenhouse gas
emissions and water and soil pollutants.

history, with significant financial impacts on poultry andegg producers. A total of 51 million birds were culled toSince 2020, the incidence of avian influenza has
become more frequent. Major cases across Europe,
the US and Africa have all required large-scale cullingof flocks, leading to supply chain issues andsubsequent spikes in the prices of meat, eggs andFor poultry producers, avian influenza continues to bea particularly potent source of risk, with repeatedproducts using them as ingredients. A September 2023
analysis by FAIRR estimated that the most recent

outbreaks in recent decades attributed to the H5N1

outbreak in the US resulted in animal losses of 40
million and an overall economic cost of $2.5 billion tovariant. Before the 1990s, highly pathogenic strainscaused mortality in poultry but were sporadic and wellcontained. In more recent times, increased animal
density and larger trade volumes have enabled the$3 billion.
Number of new avian influenza outbreaks,
September 2022 to May 2023

virus to spread more quickly, making detection andcontainment more challenging.
Consumers are highly sensitive to reports ofoutbreaks. The World Organisation for Animal Health(WOAH) notes that avian influenza engenders
devastating consequences for the poultry industry,
impacting farmers’ livelihoods and international trade.
Following the 2003-04 H5N1 crisis in East Asia,
exports from three major poultry producing economies

Source: BloombergNEF, World Organisation for Animal
Health.

– China, Hong Kong and Thailand – fell to almost zero.

© Bloomberg Finance L.P.2023

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19Bernard Matthews Foods | Packaged foodAcute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

Other forms of disease likewise present a considerable

Managing nature risk in the poultry industry

source of risk to agriculture. Three of the mostprominent outbreaks in recent decades are African

Best practices for managing risks in the livestock

swine fever (ASF), foot and mouth disease (FMD), andbovine tuberculosis (bTB), each attaining household
name status. No single livestock species is immune to
the risk of disease, and new diseases have thepotential to emerge at any time. Human encroachment
on nature and the intensification of agriculture have led
to the increasing incidence of livestock disease.
Other diseases presenting nature risk to livestock
DiseaseDescription Example impact

African
swine
fever
(ASF)

Pig virus
spread byticks

Foot and Viral cattle
mouth
and sheep
disease disease(FMD)

Bovinetuberculosis(bTB)

Bacterial
cattlerespiratory
diseaseA 2009 global ASF outbreakaffected tourism activities.
Research calculated the losses
incurred by companies in the
tourism sector in the UK to beclose to £1 billion ($1.5 billion*).
The disease spread across the
UK in 2001 and remained a threat
for seven months, requiring massculls and enforcement ofcontainment zones. Later
estimates placed the total
financial impact on the private
sector at £5 billion ($7.2 billion*).
Controlling bTB cost British
farmers £50 million ($65 million*)in 2018. Losing bTB-free status
had a median cost per farmer of£6,600.

Source: BloombergNEF. Note: *Exchange rates presented in
2009, 2001 and 2018 nominal terms, respectively.

Avian flu, FMD and bTB all exhibit zoonotic potential –the ability to jump from animal hosts to humans.
Zoonotic diseases can cause loss of human life andcost to the wider economy. Many zoonotic disease
outbreaks originated in the food and agriculture
system. The WHO estimates the global economic cost

sector are well established. Several supranationalgroups and public health agencies, including the World
Health Organization, World Bank, Centers for Disease
Control and Prevention and WOAH have collaborated
to compile disease control guidelines for poultry
producers:
1. Effective vaccine implementation
2. Improved disease monitoring and surveillancemeasures3. Stringent biosecurity procedures
4. Better zoning and compartmentalization
5. Stronger communication mechanisms between
health authorities and industry
Proper implementation of these recommendations firstrequires companies to fully understand and disclose
their interactions and touchpoints with nature.
FAIRR’s Emerging Disease Risk Ranking, published in
2022 with updates in September 2023, benchmarks
protein companies’ exposure to disease risk. Results
show that none of the 60 companies assessed attained
best practice rankings, while 34 were deemed tooperate at high risk. The report analyzed strategies
across six risk indicators, including deforestation andbiodiversity loss, antibiotics, waste and pollution,
working conditions, food safety and animal welfare. It
also finds that across the protein production industry,
the poultry sector is the worst-performing on pollution
and biosecurity. Monitoring and reporting these naturerisks are key steps in limiting further outbreaks of
disease and minimizing financial loss.

More from BNEF:
Climate-Tech Innovations: Building a Net-Zeroof zoonotic disease Covid-19 to be between $8.1
trillion and $15.8 trillion. The bat-borne virus was

Food System (web | terminal)transmitted to humans, likely following evolution innature or an as yet unidentified second animal host.

(web | terminal)© Bloomberg Finance L.P.2023

Meat Producers Contemplate an Alternative Future
Alternative Proteins: Fake It Till You Make It (web |terminal)

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20.

Chevron Corporation | Oil and gas exploration and production
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

Chevron's Gulf of Mexico Plans Caught in Legal
Battle Over Protecting Rare Whale
Legal challenges to oil and gas development in the

Manifestation of nature risk

Gulf of Mexico demonstrate the increasing risks facedby the sector as nature losses mount. A lawsuit filed by

Chevron Corporation (NYSE: CVX), a $270 billion oil

environmental groups to protect a newly discovered,critically endangered species – the Rice’s whale –delayed lease sales that are key to Chevron’s growthplans in the region. While no financial penalties haveand gas company, has global operations across many
major oil producing regions. In October 2023, it
announced the buyout of Hess, an independent energy
company in an all-stock, $53 billion transaction,

been imposed on the supermajor and the lease sales

increasing its footprint in the Gulf of Mexico. Chevronplans to consolidate its operations in the region, having

are now set to proceed, the case highlights the naturerelated uncertainties that could impact future

placed the highest number of bids in the most recent
licensing round, at the end of 1Q 2023.

expansion opportunities.

41% Share of gross value added in the oil and gas
industry’s direct operations that is moderately or highly
dependent on nature

The Gulf of Mexico is also home to the Rice’s whale, acritically endangered species that was only formally
identified as having diverged from other baleen
species through isolation in the Gulf in 2021.

23 Number of environmental lawsuits involving Chevron

Proximity of Chevron and Hess’ upstream assets

and its subsidiaries in the past three years

to Rice’s whale habitat areas in the Gulf of Mexico

300,000 Number of barrels of oil equivalent per day
Chevron is targeting in the Gulf of Mexico, home to thecritically endangered Rice’s whale

Nature risk explained
Nature-related risks are the physical, transitionand systemic threats posed to an organization as aresult of its dependencies and impacts on thenatural world. Each comprises specific risk types:
Physical• Acute, chronic

Transition• Policy, market, technology,
reputational, legal

Systemic• Ecosystem stability, financial
stability

These dependencies and impacts are explored in
depth in the accompanying report (web | terminal).

© Bloomberg Finance L.P.2023

Chevron assets
Hess assets
Extended habitatof Rice’s whale
Core habitat
Source: BloombergNEF, US Bureau of Energy Ocean
Management.

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21

Chevron Corporation | Oil and gas exploration and production
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

The Rice’s whale is one of a growing number of

equivalent per day (boe/d) by 2026 in the Gulf, a 50%

threatened species. As these species’ numbers
dwindle – and awareness of their threatened statusincrease from its current output levels.

grows – projects that interfere with them face
increasing risk. By the end of 2022, over 42,000Managing nature risk
Regulators have long been aware of the environmental

species were listed as threatened, an IUCN categorythat covers critically endangered, endangered or

impacts of oil and gas development. To analyze theimpacts of new activity in the Gulf of Mexico, thevulnerable species.

National Marine Fisheries Service (NMFS), a US
federal agency, released a biological opinion in 2020

Number of threatened species continues to growconcluding that development of new oil rigs would
threaten endangered whales given the risk of collision,and proposed recommendations to mitigate this risk.
Several environmental groups sued NMFS in 2020 asthey deemed the study did not properly assess theenvironmental impact. They reached a settlement withthe agency in August 2023, following which the US
government implemented a variety of measures toprotect the whales, including withdrawing acreage fromthe license area, a vessel speed limit of 10 knots and a

Source: International Union for the Conservation of Nature,
BloombergNEF. Note: Threatened species include thosethat are critically endangered, endangered or vulnerable.

The Rice’s whale is endemic to the Gulf of Mexico;
only 51 individuals are believed to now exist. Oil andgas extraction has a major impact on Rice’s whales,
exemplified by a 20% decline in the population
following the BP Deepwater Horizon spill. Effects of thespill itself on the species include reproductive failureand disease. Vessel collisions also negatively impact
the marine mammals, as they rest at night in theshallowest surface waters, and noise from industry
interferes with their communication.

requirement to maintain a minimum 500 meters
distance from any sighted Rice’s whale.
In response to these changes, Chevron, Shell, thestate of Louisiana and the American Petroleum
Institute (API) sued the Department of the Interior andwere granted an injunction that would allow the leaseauction to take place on November 8. Later, the court
granted an order indefinitely staying the injunction, but
a hearing on November 13 determined that the sale
could proceed without added the protections for the
Rice’s whale, such as vessel traffic restrictions. Lease
Sale 261 is scheduled to take place on December 20.

Financial impacts on Chevron

Some 5% of the wells currently operated by Chevron
fall directly within the whale’s habitat area, while 8%With the sale now set to proceed, Chevron is unlikely
to incur any immediate financial losses aside fromrequire traversal of this area as they are located in the
deep and ultradeep parts of the Gulf. All of the areas

court fees and costs from delays. But the economic
impact of vessel restrictions could have led to a

Chevron is targeting for growing its Gulf portfolio arepotential drop of 620,000 boe/d in the entire region’s
supply on average between now and 2040, according

also in these deep and ultradeep regions – those withwater depths greater than 1,000 feet (305 meters) andto industry analyses. Depending on commodity prices,

5,000 feet, respectively – with associated vessel
movements likely to impact whale habitats. Chevron is

this supply shortage could have translated into
reduced revenue of $31 million to $49.6 million

aiming to reach production of 300,000 barrels of oil(assuming $50 per barrel for the low case and $80 for© Bloomberg Finance L.P.2023

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22

Chevron Corporation | Oil and gas exploration and production
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

the high case) for the oil and gas industry, as those

Nature dependency of gross value added across oilvolumes would have otherwise been produced andsold by operators. Chevron accounts for almost half ofand gas sector’s direct operations and supply chain

this total.
In the long term, Chevron’s assets in the Gulf of
Mexico may be at risk of becoming impaired or
incurring costs if environmental laws to protect thecritically endangered whale are strengthened. This
could be instigated by an increase in litigation aroundclimate change and biodiversity. Gulf of Mexico

Direct41%

59%

Supply
chain

33%

64%

High

MediumLow

Source: World Economic Forum, BloombergNEF.

primary lease terms can range from at least five to 10
years based on water depth, and offshore projects

The legal wrangling Chevron was involved in over oil

usually have lifespans of 20 to 30 years before being
decommissioned. Were Chevron’s project to become

extraction in the Gulf of Mexico is not an anomaly.
Other oil and gas majors have likewise been subject touneconomical due to environmental restrictions, therecent environmental lawsuits, with BP and Shellamong the most frequently involved. Such cases arecompany may decide to relinquish its licenses, leading
to tens of millions of dollars in additional losses.

more likely to occur in offshore licensing instances

Chevron declined to comment on this case study.

rather than onshore exploration – except inenvironmentally sensitive areas such as the Arctic –Nature risk across the oil and gas sector

but are nonetheless highly location-specific. It is likelythat environmental groups will continue pursuing

The extractive operations and global footprint of the oiland gas sector expose companies to significant naturerisks. These risks are physical (such as oil spills),
transition (non-compliance with shifting environmental
regulation) or systemic (macroeconomic changes tied
to nature moving global demand away from fossil

lawsuits against operators in the Gulf, amplifying
litigation risk for the sector.
Environmental lawsuits involving oil majors in thelast three years

fuels). According to the World Economic Forum, 41%of the sector’s gross value added through direct
operations – and 36% through its supply chain – ismoderately or highly dependent on nature.
The ENCORE nature materiality matrix highlights 10
ecosystem services on which production processes
are dependent, with three deemed to be of very highmateriality and covering direct physical inputs, water
quality, and flood and storm protection. ENCORE
further classifies the sector as having one of thelargest impacts on nature – 10 impact drivers are
deemed to be of at least moderate materiality, witheight considered high or very high. Carefulmanagement of these impacts and dependencies isneeded to contain nature risk for the sector.

© Bloomberg Finance L.P.2023

Source: BloombergNEF. Note: Includes subsidiaries.

The US Bureau of Ocean Energy Management has
considered options for 10 further potential lease sales
by 2029 in its proposed program, as well as one in
Alaska’s Cook Inlet region, where compounds fromfossil-fuel production have been found to be anunderlying cause of a decline in the Beluga whale
population. The growing legal risk to the sector is in
spite of regulatory attempts to minimize ecologicalNo portion of this document may be reproduced, scanned into an electronic system, distributed, publicly
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23

Chevron Corporation | Oil and gas exploration and production
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

damage: for decades, the industry has had tometrics. Petrobras discloses metrics of capital

undertake environmental assessments prior to thedevelopment of new projects. The cases of BP, Shell

allocated to biodiversity projects.

and ConocoPhillips demonstrate the legal risks and the
deficiency of these assessments to account for natureloss.
Risks and opportunities for adjacent firms
Company Risk type

Description

BP

BP’s Deepwater Horizon spill
released 3.19 million barrels of oil
into the Gulf of Mexico and was
subject to a Clean Water Act
penalty. The company paid $63.4
billion in clean-up costs and legal
fees linked to the spill.

Shell

ConocoPhillips

Legal,
physical,andreputational

Legal andIn September 2023, the state of
reputational California sued several oil majors,
including Shell, on the grounds of
downplaying fossil-fuel-induced
climate risks and biodiversity loss.
The company said that it does notbelieve the courtroom is the rightvenue to address climate change.
Legal andsystemic

Conoco’s $8 billion oil and gas
Willow Project in Alaska wasimperiled by a lawsuit brought byenvironmental groups over its
potential climate and biodiversity
impact. The company stood to lose
the $100 million it had invested into
project development, before thelawsuit was dismissed by a federal
judge in November 2023.
Environmental groups are
considering a potential appeal,
which could cause further delays.

Source: BloombergNEF.

Biodiversity is starting to be factored into oil and gas
company strategies, though large US players, such as
ExxonMobil, ConocoPhillips and Chevron, lag theirpeers in terms of target-setting, managing oil spills andforgoing footprint expansion.
Colombia’s Ecopetrol, a TNFD Taskforce member,
was the first to indicate it will start disclosing against
the TNFD recommendations.

Major oil companies’ biodiversity strategies andrisk exposure metrics
Year forbiodiversity
targets*

SpillsAssets/area
affected

Miningexpansion

2025

9

114km

2025

49

282

Yes

2025

129

14

No

-

171

30%

Yes

2030

111

27

Yes

2026

280

155

No

2050

24

13

Yes

2025

108

9

Yes

-

178

8

No

-

71

-

Yes

2

No

Source: BloombergNEF, company reports. Note: Colors
represent BNEF assessment of metrics. *Includes watertargets. Assets/area affected refers to number of sites ofarea coverage located in nature-sensitive areas orintersecting conservation units.

Oil majors will likely continue exploring and drilling insensitive environmental areas. As they do, anawareness around integrating biodiversity andecosystem services management to better manage
and mitigate the impacts on biodiversity could prove to
be expedient.

More from BNEF:
BNEF Oil and Gas Transition Scores 2023: Results
and Analysis (web | terminal)
Theme: Decarbonizing Oil Refineries (web)Petrobras, TotalEnergies and Repsol are leading
majors, establishing short- and long-term naturetargets and providing better disclosure of biodiversity© Bloomberg Finance L.P.2023

Theme: Fossil Fuels Flourish Despite Energy
Transition Push (web)No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly
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24

.

`

CMA CGM | Container shipping
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

CMA CGM Penalized for Nature Threats Posed byUntreated Ballast Water
The world’s third-largest container shipping company,

Manifestation of nature risk

CMA CGM, received $165,000 in penalties from the
US Environmental Protection Agency in August 2023

CMA CGM is an industry giant, operating almost 600

over risks its operations presented to local waterways.
Four ships operated by the Marseille-based company
were found to have violated the Clean Water Act bydischarging untreated ballast water without authority or

vessels across 435 ports, in addition to its smaller land
and air logistics services. Like all global shipping
companies, CMA CGM operates in naturalenvironments where conditions are often hostile. Its

adequate reporting, as well as other recordkeeping,vessels expose marine ecosystems to contamination
risks from ballast water discharge, oil or fluid spills, orinspection, monitoring, and reporting infringements.

cargo lost at sea, impacts that can result in costly legal

While the penalty imposed is far smaller than otheraction and remediation, reputational damage, andphysical loss or damage of vessels and cargo.

case studies, the CMA CGM case is indicative oftighter environmental regulation of the shipping
industry and scrutiny of the threats it presents.

Ballast – water that is pumped into the ship’s hull tosteady the vessel in open seas then released at the

100% Share of gross value added in the direct

destination port – is essential to safe navigation, but
can introduce invasive species and may be

operations of the transport sector that is moderately or highly
nature-dependentcontaminated with oil, paint chips, rust, sediment, and$165,000 Penalties for violations involving ballast
water discharge, inspection, monitoring and reporting

toxins that damage marine life.
Ballast water moves marine life and contaminantsfrom one port to another

30% Share of company’s fleet now fitted with a ballast
water treatment system

Drivers of nature loss
Five drivers account for over 90% of nature’s
decline relative to pre-industrial levels:
Invasive alien
species11%

Other

Pollution
14%
Climate change
14%

Changes in landand sea use
30%

Resource
exploitation
23%
Source: IPBES

Companies with exposure to these drivers havehigher nature-related transition risks.

© Bloomberg Finance L.P.2023

Source: BloombergNEF

The movement of contaminated ballast water from one
port to another has been linked to the spread ofinvasive species such as Asian kelp, the European

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25`

CMA CGM | Container shipping
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

green crab, North Pacific seastar and the zebra

untreated ballast discharge and faulty pollutionmussel, a native to the Caspian and Black Seas thathas proliferated across European and US waterways.

prevention equipment.

These mussels accumulate on surfaces such as rocks,
docks and boats, outcompeting native species, otherinvertebrates and young fish until they eventually
overwhelm the water system.

In August 2023, the shipping giant was handed$165,000 of penalties relating to multiple infringements
by four vessels. These infringements included two
untreated ballast water discharge events in the waters
around Los Angeles and Norfolk, Virginia. The two

In addition to the ecological damage, the US

offending vessels were each capable of holding almost

Geological Survey estimates invasive mussels cause$1 billion in damage to infrastructure each year,

33,000 cubic meters of ballast water, enough to fill 13
Olympic swimming pools.

including clogging exhaust pipes and heat exchangersof power plants and industrial facilities. There are nocontrol mechanisms once an outbreak has occurred.
Invasive zebra mussels attached to native mussel

Both ships were required by law to have a ballast
water treatment system fitted from the time of launch in2015, according to a mandatory technology
deployment schedule outlined in the VGP that applied
to all large vessels constructed after December 2013.
Older ships needed to be retrofitted with a treatment
system at the first scheduled drydocking after January
2014 or January 2016, depending on ballast capacity.
It is unclear why these vessels were not fitted with thetechnology. The company also failed to conduct thenecessary calibration of a ballast water treatment
system, adequately monitor and sample ballast
discharges, and properly report the results of annual
vessel inspections. CMA CGM did not respond to
BNEF’s request for comment.
Penalties issued to CMA CGM for Clean Water Act

Source: US National Oceanic and Atmospheric
Administration climate.gov

Managing nature risk

infringements

VesselAlleged violations

Fidelio

Multiple inspection, calibration,$52,197
sampling, and reporting violations
over 2018-2020

A. Lincoln

Untreated ballast water discharge $48,277
near a port in Norfolk, Virginia, in
2021, multiple reporting violations
over 2018-2020

The risk of introducing invasive species through ballast
water is managed through international conventions
and local laws, which like the marine environments,
can vary significantly. Some jurisdictions including the
US have mandated that ship operators install biologicalcontrol devices to treat ballast water and monitor andPenaltyIn the case of CMA CGM, the company was found to

T. Jefferson Untreated ballast water discharge $48,233
near a port in Los Angeles in
2018, and multiple reporting andsampling violations in 2020

be in numerous breaches of the Vessel General Permit(VGP), a key element of the US Clean Water Act which

Columbus Multiple reporting violations over
2017-18

report shipping activities that present risk to nature.

relies on industry self-reporting of potential spills,© Bloomberg Finance L.P.2023$16,293

Source: BloombergNEF, US EPA.

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26

`

CMA CGM | Container shipping
Acute

Chronic

Legal andpolicyPhysical risk

Financial and reputational impacts on
CMA CGM

MarketTechnology Reputational

Transition risk

Principles and was recently certified Green Marine

The dollar value of the penalty imposed on CMA CGM

Europe, a voluntary industry initiative requiring
companies to review their environmental performanceis trivial relative to the industry leader’s $74.5 billion inrevenue and $76 billion in assets in 2022. However, it

annually, submit to external verification and publish theresults, and commit to a process of continual

comes on top of compliance costs to meet conditionsof the Vessel General Permit.

improvement. It also works with IFREMER (French
Research Institute for Exploitation of the Sea) to help
preserve marine ecosystems, three NGOs to support

CMA CGM has been steadily adding ballast water
treatment systems to its ships past the US deadlines.
As of 2022, almost 30% of CMA CGM’s global fleet

coral reef regeneration projects around the world, andwith the WWF to prevent illegal trade of endangered
wildlife.

had been fitted with the technology. The company
chose to use ultraviolet radiation ballast water

The company has also pledged not to facilitate thetreatment systems, instead of chemical options whichhave negative impacts on local biodiversity. Treatment

export of certain products linked to deforestation, suchas timber from Gambia, and has set a target of “zerosystems typically cost $1 million to $5 million per ship,according to the International Chamber of Shipping.
CMA CGM is deploying ballast water treatmentloss” of containers at sea.8
In addition, the privately held firm has set a target toreach net-zero carbon emissions by 2050. It is
investing in bio-methanol-powered ships andinvestigating future fuel options including hydrogen andacross its vessel fleet

ammonia.

Nature risk across the shipping industry
The interaction of global shipping operations withmarine ecosystems exposes companies to significant
risks. These risks can be physical (for example,
stranding a vessel on a coral reef), transition (for noncompliance with environmental protection laws), or
systemic (if trade flows of deforestation-linked
commodities are halted, for example).
The broader supply chain and transport sector is
Source: CMA CGM, BloombergNEF.

among the most nature-dependent sectors according

The US EPA’s practice of publicizing infringements

to the World Economic Forum, with 100% of direct
economic value generation, and 80% of supply chain

and settlements could further impact CMA CGM by
diminishing its reputation as a sustainable shipping

value generation, being moderately or highly
dependent on nature. Likewise, the ENCORE naturecompany.7 The fines and non-compliance underminemateriality matrix identifies five areas where marine
shipping has a high impact: marine ecosystem use,

the shipper’s climate and nature stewardship. It is asignatory of the United Nations Sustainable Ocean

7

Containership companies are under pressure from their customers
to be more sustainable; for example, nine leading multinationals,
including Amazon, Unilever and Ikea, have committed to only
using zero-emission ships to transport their cargo by 2040.

© Bloomberg Finance L.P.2023

greenhouse gas emissions, water pollutants, soil

8

The target was missed in 2022 after the APL Vanda lost 69
containers in heavy weather near the entry to the Gulf of Aden,
off Yemen.

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27

`

CMA CGM | Container shipping
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

pollutants, and disturbances such as noise pollution.

Similar risks and opportunities for adjacent firms

These impacts and dependencies mutate into naturerisks when inadequately managed.

Company

Risk type

Description

Swire
Shipping

Legal$137,000 settlement
relating to multiple ballast
treatment, inspection,
calibration, sampling, andreporting violations relating
to three vessels operatingin American Samoa, thePorts of San Francisco
and Long Beach,
California.

Nature dependency of gross value added across
supply chain and transport sector

Shenzhen Legal andEnergyphysicalTransport

A $39.3 million ($29.6
million) settlement with
operator and insurer ofcoal transport ship which
grounded and caused
damage to the Great
Barrier Reef in April 2010.

Exxon

Legal,
criminal,
reputational
andphysicalTwo decades of litigation
resulting in $507.5 million
in punitive damages, $2.2
billion clean-up costs, and$1 billion to settle civil andcriminal charges following
the Exxon Valdez oil spillin the Prince WilliamSound, Alaska, on March24, 1989.

Steamship Legal,
Mutualreputational
andphysicalAuthorities to recover up to
A$22.5 million ($14.4
million) in fines and cleanup costs from the insurerof APL England, which lost
50 containers overboard in
May 2020.

Source: World Economic Forum, BloombergNEF.

The nature risks associated with shipping areincreasing as enforcement agencies bolster theirefforts to address climate change and nature loss.
The US EPA has ramped up enforcement of theinspection, reporting and technology deployment
requirements of the VGP.9 The agency pursued only ahandful of enforcement actions in the decade after therules were first implemented in 2008, but is now
routinely issuing five-figure penalties. Just five weeks
before the CMA CGM settlement, the EPA issued$137,000 in penalties to Singaporean-headquartered
Swire Shipping for various Clean Water Act violations
relating to three vessels, and $200,000 in penalties
relating to two ships operated by Tokyo-based MMS.
Shipping companies face other nature risks in theirregular operations. Grounding of vessels, loss of cargoand pollution of marine ecosystems have each led tolegal action against vessel operators and insurers, aswell as physical damage to the ships.

Source: BloombergNEF

More from BNEF:
Green Methanol Offers Container Ships a Net-Zero
Lifeline (web | terminal)
Shipping’s Bet on Methanol Raises Supply
Concerns (web | terminal)
Maui Wildfires Expose Tourism’s Nature Risk (web| terminal)

9

The Vessel General Permit was scheduled to expire in 2018 and be
replaced by the Vessel Incidental Discharge Act (VIDA), signed
into law by then-President Donald Trump. Although the© Bloomberg Finance L.P.2023

successor weakens and removes some of the best practicerequirements of the VGP, the specific rules are still being
determined by the EPA. The VGP remains in force until the VIDA
is officially adopted.

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displayed or used as the basis of derivative works without the prior written consent of Bloomberg Finance
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28.

Formosa Plastics | Basic and diversified chemicals
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

Formosa Penalized Over Plastic Pellets, But
Real Risk Is in Shift to New Materials
Formosa Plastics, a vertically-integrated supplier ofManifestation of nature risk

plastic resins and petrochemicals, agreed to a $50

Established in Taiwan in 1954, Formosa Plastics

million settlement with local environmental groups in
October 2019 to redress damage caused by the

Corporation (TPE: 1301) is one of the largest polyvinyl

discharge of plastic pellets from its Texas facility. This
incident, and penalties imposed by the US
Environmental Protection Agency, inspired further
citizen-led lawsuits against the company in Louisiana,
culminating in the court’s suspension of permits for a
proposed $9.4 billion complex in the state.
Formosa’s case is emblematic of the transition risk
facing the materials sector. Regulators are becoming
more attuned to the environmental impacts, andgovernments, consumer packaged goods companies
and supranational organizations are developing plans
to transition away from consumer plastics.

50% Share of gross value added in the direct operationsof the materials sector that is moderately or highly naturedependent$50 million Settlement paid by Formosa Plastics tochloride (PVC) resin manufacturers globally, operatinga large facility in Point Comfort, Texas since 1983. By
2016, residents of the surrounding area had grownconcerned about the number of small plastic resin
pellets in the nearby San Antonio Estuary.
Known as ‘nurdles’, these pellets are the building
blocks of almost all plastic products. They are
produced by refining oil and natural gas, thentransported by truck, rail and ship to plastics
manufacturers who melt and mold them into myriad
consumer items. The pellets are persistent pollutants,
degrading into microplastics. Animals mistake them for
prey, and ingestion can result in stomach ulcerations
and bioaccumulation of the toxic substances andpathogens that can be carried by microplastics.
It takes 600 nurdles to make one small plastic bottle.
Over 11 trillion are estimated to enter oceans eachclean up plastic-pellet pollution

year. In Formosa’s case, from 2016 (or before) until
the time of writing, nurdles have flowed out of the$9.4 billion Value of Formosa manufacturing

wastepipes of its Texas plant, entering adjacent Cox

facility suspended by citizen lawsuit

Creek and Lavaca Bay to the detriment of various
marine and coastal species.

Nature risk explained
Nature-related risks are the physical, transitionand systemic threats posed to an organization as aresult of its dependencies and impacts on thenatural world. Each comprises specific risk types:
Physical• Acute, chronic

Transition• Policy, market, technology, reputational,
legal

Systemic• Ecosystem stability, financial stability© Bloomberg Finance L.P.2023

In April 2017, a group of San Antonio volunteers sued
Formosa under the US Clean Water Act. Evidence inthe 2019 trial included 2,428 samples of over 46 million
nurdles collected from the estuary over a three-year
period and alleged to have originated from theFormosa facility. While the Clean Water Act madeallowances permitting Formosa Plastics to discharge“trace amounts” of plastics into US waterways, thisNo portion of this document may be reproduced, scanned into an electronic system, distributed, publicly
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29Formosa Plastics | Basic and diversified chemicals
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

evidence indicated the company’s impact on the$6.7 billion revenue in 2019, the incident signaled theenvironment was significantly larger. The court foundFormosa guilty of violating its permit conditions, largely

onset of a more difficult period for Formosa.

based on the evidence presented by activists.

Analyses from Bloomberg Intelligence and the Institute

The penalties were not the first time Formosa hadfor Energy Economics and Financial Analysis projectslow growth for Formosa Plastics revenues to 2025.

come under fire for mishandling its environmental
impacts. The company had previously been fined for a

While this is a trend across the broader plastics sector
due to higher input costs squeezing margins, thenumber of infringements including improper disposal of

fallout from Texas has spotlighted the company’s

wastewater, leaks of air pollutants, hazardous waste,
and poor risk management. Other facilities – notably a

exposure to nature-related risks.

comparable plant in Louisiana – similarly failed to
manage their nature impact. The EPA’s Enforcement
and Compliance History database houses details of
past cases - access by searching “Formosa”.
Selected penalties issued to Formosa by the EPA
for violations at its Texas Point Comfort plant

Date

Alleged violations

Penalty

Feb 1991 Land disposal and treatment,
permit violation, container
requirements$3.375
millionJan 2022 Multiple pollution releases andinadequate risk management plan,
discovered in 2015 audit$2.85
millionFeb 2010 Failure to regulate leaks of air
pollutants, hazardous waste, andwastewater discharge$600,000

May 1997 Failure to meet standards forhazardous air pollutants$150,000

A $9.4 billion industrial complex announced in 2018 in
St. Louis Parish, Louisiana, was intended to be a key
part of Formosa’s North America growth plans.
Comprising 14 plastic manufacturing plants over 2,300
acres, it immediately attracted strong local opposition
over potential pollution. Despite these concerns, theLouisiana Department of Environmental Quality(LDEQ) granted the project permits under the Clean
Air Act. Inspired by the lawsuit brought against
Formosa in Texas, local citizen activist groups
appealed the issuance of permits. In 2021, President
Biden cited the area in an executive order directing
federal agencies to prevent disproportionate harm tocommunities resulting from climate change andpollution, leading to the revocation of the permits by aLouisiana district court in September 2022.

Nature risk across the materials industry

Source: BloombergNEF, US EPA. Note: Date refers to the“final order entered” date from EPA records.

The plastics value chain is complex, entailinginteractions with nature at each stage, from extractionof raw materials to processing and waste disposal, andexposing manufacturers to significant risks. These

Financial and reputational impacts on
Formosa Plastics

risks can be physical (such as limited access to water
sources), transitional (regulation that hampers

Formosa agreed to mitigation payments totaling $50

production), or systemic (global trade flows collapsing
due to a breakdown in ecosystem services, formillion over five years to support rehabilitation projects
and undo damage to waterways, public beaches, andexample). These risks stem from companies’ impacts

local marine life. It also committed to reach “zeroand dependencies on nature.

discharge” of plastic pellets from the Point Comfort
facility by 2024, requiring deployment of technology

The ENCORE nature tool describes the production of

costing up to another $50 million, on top of monitoringand other enforcement costs. While the direct impactof the settlement was negligible relative to the firm’s© Bloomberg Finance L.P.2023

specialty chemicals as having significant impacts onnature. It identifies seven impact drivers of nature loss
in the industry, with water use, terrestrial ecosystemuse, emissions, waste, and water and soil pollutants

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30Formosa Plastics | Basic and diversified chemicals
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

classed as highly or very highly material, as evidenced

regulation to prevent plastic pellet losses during

by the Formosa Plastics case.

manufacture, including proposals for mandatory
measurement and reporting. The Plastic Pellet Free

Likewise, the materiality matrix finds seven naturedependencies in the industry, though only groundwaterand surface water are classed as highly material.
Additionally, over 50% of direct and supply chain grossvalue added in the materials industry is moderately or
highly dependent on nature, according to the World
Economic Forum.

Waters Act was introduced in the US Senate for thethird time in July 2023. If passed, this would require the
EPA to prohibit the discharge of plastic pellets into
waterways. The UK, Canada and the EU have all set
minimum targets for post-consumer recycled content
for plastics that will come into force by 2030.
Similar cases of nature risk from nurdle pollution

Nature dependency of gross value added acrossthe chemicals and materials sector

Source: World Economic Forum, BloombergNEF.

Numerous examples of companies impacted by naturerisk exist across the plastics value chain. Staying
within plastic pellet production, the cases of Frontier
Logistics, Ducor, Styropek and ExxonMobil highlightthe legal and reputational risks that companies faceand demonstrate that the challenges faced by
Formosa are not an outlier in the industry.
A study published by the Minderoo Foundation,
supported by the UN Environment Programme’s

Company

Risk type

Description

Frontier
Logistics

Legal and$1.2 million settlement to clear
reputational up plastic pellet pollution from afacility in Charleston, South
Carolina, in 2021. The company
also agreed to allow an
independent auditor to assess
nurdle pollution at the plant andfollow its recommendations.

Ducor

Legal andFound to be contributing to
reputational plastic pellet pollution in
Rotterdam harbor in 2020, Ducor
must now prevent pellet loss orface a €15,000 ($16,000) fine
per infringement.

Styropek

Legal andReceived notice of intent to sue
reputational in October 2023 due toallegations of plastic pellet
pollution violating Pennsylvania's
Clean Water Act. The company
said that it is evaluating theallegations.

ExxonMobil Legal,
Following activist pressure,criminal and ExxonMobil agreed to report on
reputational plastic pellet spills in 2019.
California’s Department ofJustice is taking legal action
against the company, alleging
they deceived the public about
the harmful effects of plastic
pollution.

Finance Initiative, found pollution litigation against
petrochemical companies in the US may cost

Source: BloombergNEF.

petrochemical companies, consumer goods producers,
and their insurers in excess of $20 billion by 2030.

A legally binding agreement on plastic pollution is
expected by 2024, with the backing of 175 UN

Regulation in the plastics sector presents a major

members. In 2022, the UN announced a $2.6 trillion
plastic pollution plan, which laid out a scenario in whichsource of risk to companies as governments andsupranational organizations seek to rein in harmful
practices. The European Commission has proposed© Bloomberg Finance L.P.2023“mismanaged plastic waste” could be reduced by 80%
by 2040. Notably for plastics manufacturers, thissuggests cutting investment in virgin plastic production

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31Formosa Plastics | Basic and diversified chemicals
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

by a total of $2.2 trillion by 2040. The UN claims thisidentification, assessment and disclosure of nature-scenario would avoid $3.3 trillion of externalities suchas ocean clean-up and air pollution, suggesting $1.7

related impacts and dependencies will inform businessand investor understanding of nature-related risks intrillion should be invested in developing sustainable
plastic substitutes. For more information on the UN’s

the industry and increase the likelihood of preventative
actions being taken.

plastic proposal, see UN’s $2.6 Trillion Plastic Pollution
Plan Still Not Enough (web | terminal).
Companies are also facing downstream pressure.
Brand owners such as Nestle, Danone, Mondelez andUnilever have committed to reducing the amount of

Water pollution, waste and nature targets of
selected large plastics manufacturers by revenue
Company

virgin plastic in their supply chain and ensuring that
100% of their packaging will be recyclable, reusable or

Waterpollution
reduction
targetZero plastic Naturepelletprotection
discharge target
targetcompostable by 2025.

Managing nature risk
With growing awareness of the harmful impacts ofplastic production spurring market and regulatorychange, companies are beginning to respond, thoughslowly. BNEF has assessed how 20 of the largest
plastic producers have integrated nature andbiodiversity into their strategies; a sample of thefindings is compiled in the adjacent table. A
comprehensive scoring of plastics manufactures basedon sustainability and emissions indicators can be foundin the Circular Economy Company Ranking Tool (web).
Policies are in their infancy. While Borealis and INEOS
have set ambitious targets for 100% recyclable,
reusable, compostable or recoverable packaging by
2025, only TotalEnergies has set a tangible
biodiversity protection target – net-zero deforestation
at its new sites – and only Lotte Chemical has
committed to zero water pollution. Neither has
provided a date by which these targets will be reached.

Source: BloombergNEF. Note: Blue indicates target in place.
Applies to company-wide commitments, not individual

Lyondell Basell, INEOS, Dow and Borealis haveprojects.

committed to zero plastic pellet discharge targets, but
none have provided a date for achieving this target.
Formosa Plastics did not mention its commitment tozero plastic pellet discharge in Texas in its 2022

More from BNEF:

annual report. It is unclear whether they intend to

Theme: Decarbonizing Petrochemicals (web)achieve this by 2024, as promised in the settlement.

Research Series: Circular Economy (web)The slow progress of companies in the sector suggests

Sustainable Materials Market Outlook 4Q 2023 (web| terminal)that not enough is being done to mitigate risk. Better© Bloomberg Finance L.P.2023

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32

Freeport-McMoRan Inc. | Base metals and mining
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

0. Freeport’s Share Price and Divestment Deal
Spoiled by Tighter Tailings Rules
The case of mining company Freeport-McMoRan

Manifestation of nature risk

demonstrates how abruptly transition risk canmaterialize. Following allegations that that the firm’s

Freeport-McMoRan Inc. (NYSE: FCX) is a major

vast mining and mineral operations – and specificallywaste from copper and gold processing – had resulted
in water pollution and forest degradation in Papua, theIndonesian environment ministry tightened regulations
on tailings disposal.
The company’s initial failure to comply with thesestandards delayed a divestment deal with a stateowned metals producer, hitting Freeport’s share priceand reputation.

100% Share of gross value added in the direct
operations of the mining sector that is moderately dependent
on nature

18% Decline in Freeport’s share price immediately
following the announcement of new mining waste regulations$12.95 billion Estimated cost of environmental
damage caused by Freeport in Indonesia

Materiality of nature impacts and dependencies

producer of copper, gold and molybdenum, a tracemineral used in steel alloys. The Phoenix-based firm
operates Grasberg Mine in Papua, Indonesia, throughPT Freeport Indonesia (PT-FI), a joint venture between
Freeport and the Indonesian government. With someof the world’s largest reserves of gold and copper, the11,100-hectare mine yielded 711,000 tons of copperand 55.9 tons of gold in 2022. Freeport has run
operations at the rainforest-flanked complex since
1988, including a one-mile-wide open pit mine, anunderground mine and four concentrators. Grasberg
accounted for 47% of Freeport’s operating income in
2017.
Extraction at Grasberg is followed by primary crushingon site before delivery to a nearby mill complex forfurther processing. The milling and concentrating
facility is the world’s largest, generating enormousvolumes of tailings – the materials left over in theprocess of separating the valuable fraction of an ore
from the gangue, or uneconomic fraction.
Freeport-McMoRan’s Grasberg copper and gold
mining complex in Papua province, Indonesia

Materiality refers to the influence some factor,
event, or information has on a company’s valuation,
the omission of which in a financial statement could
mislead investors or other stakeholders.
‘Single materiality’ is conventionally used inaccounting. For nature, it captures only how firm
valuation can be affected by changes in theecosystem services that production depends on.
‘Double materiality’ also considers the impacts ofthe firm on nature, capturing how production
processes change the state of nature.

© Bloomberg Finance L.P.2023

Source: Free West Papua.org

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33Freeport-McMoRan Inc. | Base metals and mining
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

In line with a 1990s agreement with the IndonesianSatellite images reveal vegetation disturbance in thegovernment, PT-FI has dumped up to 300,000 tons oftailings per day directly into the nearby river system,

region directly correlated with the rate of Grasberg
tailings production. Between 1987 and 2014, some 138

where it flows downstream to the Ajkwa depositionarea (ADA). A 2018 Bloomberg News article cited datasquare kilometers of rainforest, mangroves, andagricultural land experienced substantial vegetationfrom mining watchdog-group Earthworks, whichsuggested Freeport sent over 76 million tons of tailings

loss, a result of flooding from the aggraded riverbed.

into Indonesian rivers annually, though the company
puts the 2017 figure at 50 million tons.

In 2017, the Indonesian Financial Audit Agency, BPK
RI, published an assessment report on the extent of

According to scientific journal Nature, as discharge

the ecological damage caused by PT-FI, putting thefigure at 185 trillion Indonesian rupiah ($12.95 billion inlevels into the river increased, so did heavy metal-richtailing deposition, dramatically raising the riverbed and2017 real terms). Though it does not represent a
penalty payable by Freeport, future liability could arise,

reducing channel capacity. Sediment buildup restricted
the movement of fish, and chemical particles covered

and the firm asked the government to recalculate its
estimate.

their gills, leading to the suffocation of over 200,000

With growing awareness of the mine’s environmental

fish in April 2016. Tailings not deposited in the ADA
flow onward to the Arafura Sea, increasing suspended

impact, on April 5, 2018, the Indonesian environment
ministry released new standards requiring that overparticulate matter and heavy metal concentrations.
A 2018 water quality survey conducted by Indonesian

90% of tailings deposits must be stored on land, asignificant step up from the previous 50%. The

environmental group Walhi indicated that the rivers into
which PT-FI dumped tailings contained harmful levels

percentage represents the proportion of tailings
recovered from water downstream after dumping intoof toxic chemicals. In all three samples across tworivers to move them to the ADA.

rivers, concentrations of copper, iron, phosphate, zincand cyanide were far in excess of those permitted.

Freeport Chief Executive Officer Richard Adkerson
described the ministry’s demands as “shocking andTwo samples showed elevated levels of nitrate andchlorine solids, while high concentrations of

disappointing”, telling analysts in earnings call several
weeks later in April 2018 that “nobody could mine thismanganese were found in another.

ore body in consistency with these decrees” and that it“is so far out of bounds it cannot be done”. Bloomberg

Water quality survey in the Papua Province in 2018

News reported in June of that year that “[al]most every
other miner in the world has been forced or has
elected to stop discarding tailings in rivers”.

Financial and reputational impacts on
Freeport-McMoRan
In the two days following Adkerson’s response to thetighter regulations, Freeport’s shares dropped by
18.2%, to below $16. It was the company’s largest
share price decline since January 2016, and rendered
Freeport the day’s worst performer in the S&P500
Source: Walhi Papua. Note: Three samples taken from the
Yamaima and Okorpa Rivers. Red denotes concentration
beyond permitted level. DO is dissolved oxygen.

© Bloomberg Finance L.P.2023

index. Investors were concerned that the company’s
inability to meet the new standards would further stallplans to increase government ownership in PT-FI.

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34Freeport-McMoRan Inc. | Base metals and mining
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

As part of a 2009 law, all foreign mining companies in

disposal. The fund also sold $850 million of Rio Tinto

Indonesia were required to divest at least 51% of theirshares to government entities. After years ofshares in 2008, due to an agreement that gave thecompany the rights to 40% of the mine’s output above

disagreement, in December 2018, Inalum, a national
mining holding company and aluminum producer, wasspecific levels.

selected as the new majority stakeholder as part of a
$3.85 billion equity transfer. Disagreement between
Freeport and the government over who should bear
responsibility for ecological damage at Grasberg heldup completion of the deal.
Freeport-McMoRan’s share price fell 18% in 2018
on the CEO’s response to the tailings regulation

To compensate for the impacts of ecological damage
on local economies and community health, Freeport
created the Partnership Fund for Community
Development, committing $55 million in 2018.

Nature risk across the mining value chain
The mining sector operates at the intersection ofdifferent facets of nature risk – particularly geologicaldegradation, water and air pollution, and biodiversity
loss. According to CDP, an environmental non-profit
organization, mining operations and mineral extraction
account for around 7% of tropical deforestation.
The acceleration of the energy transition will spur thebuildout of more physical assets to supply the requiredjoules, increasing the extraction of metals and criticalminerals globally. The energy transition includes power
generation, battery storage, power grids and transport
sectors.

Source: BloombergNEF, Bloomberg Terminal.

Reuters reported in June 2018 that Indonesia’s mining
minister said that his office would need approval from

Demand for energy transition metals in 2022 andoutlook for 2050, covering power generation,battery storage, power grids and transport sectors

the environment ministry before permits could be
issued to extend PT-FI’s operations until 2031.
Inalum’s CEO informed parliament in July that,“regarding the environment, we told Freeport ‘the past
problems are your sins,’” and “the [$13 billion] fromtailings damage still needs to be cleared up”. In
December 2018, the two sides reached a compromise
after Freeport agreed to a roadmap to manage tailings
disposal at Grasberg through 2030. No agreement has
been made public on how the $13 billion historicaldamage is to be redressed.
Institutional investors had earlier taken note of theecological concerns. Norway’s sovereign wealth fund,
GPFG, which controls over $1 trillion in assets,
excluded Freeport from its investment universe in2006, citing Grasberg’s use of rivers for tailings© Bloomberg Finance L.P.2023

Source: BloombergNEF. Note: 2050 NZS and ETS refer to
the Net Zero Scenario and Energy Transition Scenario in
BNEF’s New Energy Outlook report.

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35Freeport-McMoRan Inc. | Base metals and mining
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

Metals required for the transition (and their demandterrestrial ecosystem use are rated very highly material

drivers) include copper (wind, solar, EVs), aluminum(solar, EVs), cobalt (energy storage, EVs), nickel (EVto nature loss, while the rest are deemed highly
material.

batteries, stationary storage, wind) and lithium (EVbatteries). This presents a significant future source ofphysical and transition risk as approximately 350
mines used for energy transition metals are locatedwithin key biodiversity areas – sites contributing
significantly to the global persistence of biodiversity.
For more BNEF analysis on energy transition metals,
see: Transition Metals Outlook 2023 (web | terminal).

There are a myriad of cases of nature risk translating
to financial impacts in mining. The table below
highlights the examples of BHP, Anglo American andVale.
Similar risks faced by other large mining companies
Company Risk type

Description

BHP

Legal andreputational

Fined $8.2 million in 2022 by
Chile’s environmental regulator
for damage from water extractionin the Sakar de Atacama salt flat.

Anglo
Legal andAmerican reputational

The British miner was fined$37.7 million in 2018 for a burst
pipeline in Brazil that spilled 313

The metals and mining sector is moderately dependent
on nature. According to the World Economic Forum,
100% of gross value added in its direct operations isclassified moderately reliant on nature, while 93% of its
supply chain value generation is moderately or highly
dependent.
Nature dependency of gross value added acrossmining and metal companies’ direct operations
and supply chain

metric tons of iron ore slurry intoa nearby river.
Vale

Legal andreputational

Fined $16.8 million in 2022 after
failing to present adequate
information on tailings disposal
at its Brumadinho dam, following
the 2019 collapse of nearby
Corrego do Feijao iron mine.

Source: BloombergNEF

Managing nature risks in the mining sector
Source: World Economic Forum, BloombergNEF.

Several technologies that could help mitigate theindustry’s nature impact have been developed. These

Global Canopy and UNEP’s ENCORE nature tool

include deployment of reclamation, water and oil
treatment, and digital tools in both mining and smelting

provides further detail on these nature interactions.
The precious metals and minerals subsector isoperations to reduce emissions and minimize

dependent on five ecosystem services: groundwater,
surface water, water flow maintenance, climate

production errors. Lower-impact mining techniques andexploring circularity for mining waste can boost

regulation and erosion control. Four of the five aresustainability and reduce nature-related risks for thesector. Over the short term, identifying and disclosing

deemed to be of at least high materiality. The nature
impacts of the subsector are more significant than its

sources of risk remains the most effective approach.

dependencies. The ENCORE materiality matrix
identifies nine impact drivers of nature loss, whichMore from BNEF:
Sector page: Metals and Mining (web)assess the impacts of production processes on
ecosystem services and natural capital that result fromTransition Metals Outlook 2023 (web | terminal)

the operations of the sector. Of these, water use andSeries: Industrial Metals Monthly (web)© Bloomberg Finance L.P.2023

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36

JBS | Packaged food – meat products
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

1. JBS Links to Amazon Deforestation Imperil US IPO
as Banks and Customers Cut Ties
JBS, the world’s largest processor of animal protein,

Manifestation of nature risk

has incurred millions of dollars in penalties forpurchasing cattle from illegally deforested land in the

The Brazilian beef supply chain is among the mostAmazon. The company is attempting to strengthen its
sourcing process, in the face of growing pressure fromits corporate customers, investors and regulators to
expunge illegal land clearance from its supply chain.
While zero-deforestation commitments and traceability
initiatives may appear to address these concerns, aBloomberg News investigation found JBS is only taking
superficial action. NGOs, unsatisfied with JBS’
progress, are attempting to block its long-planned
listing in the US.

100% Share of gross value added in the direct
operations of agriculture that is highly dependent on naturecomplex in the world, beginning with 2.5 million
ranchers and ending with corporate buyers across 80
countries. In the middle sits JBS (BVMF: JBSS3), theworld’s largest meat producer. It operates
slaughterhouses in dozens of locations throughout
Brazil. Estimates suggest that cattle ranching is
responsible for between 70% and 90% of deforestationin the Amazon. An investigation by the Bureau of
Investigative Journalism concluded that about 800
million trees were destroyed across 17,000 square
kilometers of forests near meat processing plants in
the region between 2017 and 2022.
The beef industry is the largest driver of deforestation
globally, responsible for over 40% of tropical rainforest$7.7 million Fine from the environment agency in2017 for buying cattle from illegally deforested land

$20 billion Potential gain in market capitalization ifloss. Operations in Brazil account for more than half of
the industry’s total deforestation impact.
Drivers of tropical deforestation

JBS is able to list on the New York Stock Exchange

Climate change and nature loss
The natural systems, land use and climate change
are interlinked. Increasing temperatures anddeforestation hasten the decline in nature, which
impairs the ability of natural systems to regulate theglobal climate.
ClimatechangeBiodiversity
loss
Deforestationand landdegradation
Source: BNEF

© Bloomberg Finance L.P.2023

Source: BloombergNEF, Our World in Data, Pendrill et al.
(2019). Note: Data covers 2005-2013. Recent observations
suggest that drivers have not changed significantly since2013. Gray bars represent commodities other than beef.

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37

JBS | Packaged food – meat products
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

A 2022 Bloomberg News investigation, referenced

ranches not tied to illegal land clearance and checks

throughout this case study, found that JBS slaughtersa third of all cattle in the Brazilian Amazon, sourcing

thousands of suppliers daily. “One hundred percent of
our suppliers in the biome abide by those criteria,

from ranchers throughout the region.

which is to say, zero deforestation,” said thecompany’s global president of operations in Latin

JBS was purchasing cattle from suppliers entrencheddeep in the Amazon, where forests have been razed toaccommodate growing herds. After attention was first

America and Oceania in a 2020 press conference.
The company is forthright in its assertions of adrawn to the beef industry’s role in driving nature loss

deforestation-free supply chain. However, a major

in the Amazon by a 2009 report, major Brazilian
supermarket chains pledged to suspend contracts withcaveat exists – JBS only verifies the provenance of
cattle from direct suppliers to ensure their legality.

suppliers tied to Amazon deforestation, and a Brazilian
federal prosecutor filed a billion-dollar lawsuit against

Despite cattle in Brazil moving on average between
two and three – and sometimes up to six – ranches

the cattle industry for environmental damage. JBS
responded by agreeing, in a settlement with the federal

before slaughter JBS registers only the location
immediately before purchase. The Bloomberg News

government, to a moratorium on buying livestock frominvestigation said this enables the early stages of aland cleared after October 2009.

cow’s lifecycle to take place in deforested areas,
before the animal is sold to land-intensive pasture andAmazon deforestation between January 2010 andAugust 2023, monthly and trailing 12 months

then fattening stages. It is the latter ranches that are
certified as deforestation-free – and on which JBS’provenance claims rest.

Financial and reputational impacts on JBS
Allegations of deforestation have followed JBS since2009, resulting in legal penalties, termination of supply
contracts with downstream customers and divestment
by financiers.
In 2017, JBS was fined 24.7 million Brazilian reais
Source: BloombergNEF, Brazil National Institute for Space
Research (INPE). Note: Data from INPE’s DETER system.

To assess how this commitment translated to on-theground action, Bloomberg analyzed the coordinates of
1 million now-restricted cattle shipments between 2009
and 2021, finding that though JBS had indeed ramped
up its monitoring, it also aggressively expanded its
Amazon footprint over the period. Its base of direct
suppliers in the region, from whom JBS sources cattle
first-hand, more than doubled to 16,900 from 7,700,
while it purchased from a total of over 60,000 Amazon
ranchers cumulatively, including indirect suppliers.
JBS stresses that for the last decade it has compliedwith the 2009 settlement, purchasing only from

© Bloomberg Finance L.P.2023($7.7 million) by Ibama, the Brazilian Institute ofEnvironment and Renewable Natural Resources, forpurchasing 49,000 cattle from illegally deforested
areas in the Amazon state of Pará between 2013 and2016. JBS pointed to independent audits by DNV.GL,
which showed no irregularities relating to deforestationin over 7,000 of its transactions in 2018. The following
year, DNV.GL added a note stating that its comments
only applied to JBS’ direct dealings and thatverifications were not in place for its indirect supply
chain.
For a company with over $72 billion in revenue in
2022, a seven-figure fine does not present an
existential threat. Of more significance is access tocapital. In July 2023, JBS moved ahead with a long-

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38

JBS | Packaged food – meat products
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

delayed plan to list its shares on the New York Stockchains, including Sainsbury, Aldi and Carrefour, said in

Exchange, filing a registration request with the US
Securities and Exchange Commission (SEC). JBS

December 2021 that they would commit to either stop
selling specific JBS products or sourcing Brazilian beef“sees the move as key to accessing a broader pool of
institutional investors […] potentially slashing its capitalentirely. Despite accounting for only $5.6 billion, or
7.5%, of the company’s revenue in 2022, the shifts incosts and boosting stock valuation relative to US
competitors such as Tyson Foods,” according toretailer sourcing policy highlight future market risk for
JBS. The EU’s Regulation on Deforestation-freeBloomberg News. As of November 2023, the company

Products, which applies to all companies that trade

had a market capitalization of $9.5 billion, which it
expects to increase to almost $30 billion, if the listing

within the bloc, places further pressure on European
food retailers and service providers to examine theircloses the valuation gap with its main rival Tyson
Foods Inc., according to an internal presentation in

supply chains or face penalties up to 4% of revenue.

July.

engagement with JBS

Previous attempts to list in the US fell apart following
allegations of corruption that resulted in JBS incurring
a $3.2 billion fine. This time, deforestation and climatechange have prompted various environmentalorganizations to contact the SEC, urging it to block thelisting or investigate claims in the company’s IPO
prospectus, such as increased transparency. In
response, the SEC said that the concerns “will begiven careful consideration in view of theCommission’s overall enforcement responsibilities
under the US federal securities laws”. An excoriating
Bloomberg Opinion piece in September 2023 argued
that permitting the listing to go ahead would be “anESG nightmare”.
The SEC has form in investigating environmental
issues, particularly greenwashing, which is how NGOs
and standard setters such as CDP have described
JBS’s proposed “zero illegal deforestation” approach. It
recently set up a Climate and ESG task force andinvestigated mining company Vale and electric truck
maker Nikola over making misleading environmental
and governance claims to investors. A run of
subpoenas sent to asset managers relating to ESG
marketing likewise suggests a possible futurecrackdown on greenwashing. Vale and Nikola paid
$55.9 million and $125 million in settlements
respectively, but Vale did not admit or deny the claims.
European supermarkets have also reacted to theallegations of illegal deforestation against JBS. Six© Bloomberg Finance L.P.2023

Response from the financial sector and risks ofFinancial institutions are beginning to reconsider theirpositions, cognizant of the growing legal, market andtransition risk that accompanies debt and equity
finance of activities tied to deforestation. In 2018,
Norway’s Government Pension Fund Global (GPFG) –the world’s largest pension fund – sold its 1.78% equity
stake in JBS, while Nordea Asset Management, theinvestment arm of northern Europe’s largest financial
services group, divested from the company in 2020,
selling €40 million ($46 million) in shares. Each cited“unacceptable risk” stemming from continued
association with the company. In March 2023, the NL
Times reported that several of the largest Dutch
pension funds are expecting to soon step away frominvestments in JBS over environmental concerns.
According to Bloomberg Terminal data, banks haveprovided or underwritten over $60 billion of finance to
JBS and its subsidiaries since 2013 in the form ofbonds and loans; Barclays alone extended $10 billion.
After numerous media and NGO reports highlighted its
involvement with JBS, Barclays rewrote its forestry andagricultural commodities statement to exclude
engagement with companies whose operations or
supply chains involve illegal deforestation. As of March
2023, no JBS share or bondholding data can be foundfor Barclays, suggesting that it has ceased financing
the company. Similarly, analysts at HSBC havewarned of the potential risks of investing in JBS due todeforestation concerns.

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39

JBS | Packaged food – meat products
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

Increasing awareness of transition and systemic risk

pollutants each deemed impactful, according to thestemming from deforestation not only impacts JBS, butalso its financiers, who open themselves to newmateriality matrix.

avenues of legal risk. In November 2023, Paris-based
NGO Sherpa filed a criminal complaint against French
financial institutions, including BNP Paribas, Credit
Agricole and Axa, to the French financial prosecutor’s
office alleging the banks abet illegal deforestation

JBS is far from an outlier among meat processing
companies. Among peers of JBS operating in the
Amazon, a cursory search yields legal and reputationalrisks for Cargill, Minerva and Marfrig, with selectedcases summarized below.

through their provision of finance to JBS. Bank
representatives either did not respond immediately for

Similar risks faced by soft commodities companies

comment or said that their firms’ policies on climate
abide by international laws and standards.

Company Risk type

Description

Cargill

Legal andreputational

Fined $29 million for growing
soya on deforested land in the
Amazon, alongside four othergrain firms.

Minerva

Legal

Ibama filed a public civic action
against the meat producer in
September 2023, alleging illegal
clearance of almost 200,000
hectares of rainforest in Brazil.

Marfrig
GlobalFoods

Legal andreputational

Brazilian authorities found links
between the meat producer’s
indirect suppliers and embargoed
land, drawing a 1.19 million reais($290,000) fine and criticism fromfast food chains.

operating in the Amazon

Nature risk across protein companies
The agriculture sector is one of the most highly
dependent on nature, according to the World
Economic Forum, with 100% of direct economic value
generation and 85% of supply chain value generation
being moderately or highly dependent.
Nature dependency of gross value added acrossagriculture companies’ direct operations andsupply chain
Source: BloombergNEF

Managing nature risks in the protein sector
Companies producing beef on land tied to tropicalrainforest destruction face some of the largest naturerelated risks. Increased scrutiny from regulators,
consumers and finance providers is resulting in
Source: World Economic Forum, BloombergNEF. Note: JBS
is categorized as an agricultural company due to its live
animal supply chain contributing to deforestation.

pressure to tighten supply chains and trace agricultural
goods from their origin to retail outlet. Technology
including blockchain-based sourcing and satellite
monitoring can help with managing impacts anddependencies. In the short-term, disclosure on indirect

The ENCORE nature tool identifies 19 ecosystemservices that large-scale livestock production

supply chains remains the most meaningful step.

processes are dependent upon. Of these, three direct
physical inputs are deemed be to be of very highMore from BNEF:

materiality, including ground and surface water, andExposure (web | terminal)

plant material for fodder. Livestock production also has
major nature-related impacts, with impact drivers ofnature loss across water and terrestrial ecosystemuse, greenhouse gas emissions, and water and soil

© Bloomberg Finance L.P.2023

Banking on Nature: Lending Policy and Risk
Boycotts, Buycotts, Lifestyle Choices, andDiscursive Acts (web | terminal)
Theme: Sustainable Food Systems (web | terminal)

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40

PG&E Corp | Electric transmission and distribution
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

2. PG&E Liabilities for California Wildfires Led toBankruptcy
Power companies interact with the natural world in

Manifestation of nature risk

ways that bring existential threats. This is exemplified
by the bankruptcy of PG&E Corp, the parent of

PG&E’s (NYSE: PCG) service territory extends

regulated power and gas utility Pacific Gas andElectricity Company. The Northern California utility wasforced to file for Chapter 11 bankruptcy after a federal
court found PG&E liable for a series of forest fires from2015 to 2018 that were started by sparking lines andpoorly maintained infrastructure. It later paid out
billions of dollars in settlements and was required toinvest heavily in upgraded transmission anddistribution equipment, as well as monitoring systems.

100% Share of gross value added by power utilities thatis moderately or highly dependent on nature

through urban, rural and wild settings. It covers
approximately 70,000 square miles – almost twice thesize of South Korea or Portugal – including some of
the most forested areas of the state, in Northern
California and the Sierra Nevada mountains.
Severe and prolonged drought – exacerbated byclimate change – has made these natural settings
more vulnerable to wildfire.
PG&E's service territory is smothered with highfire-threat areas

91% Decline in PG&E’s share price in the 15 months

Fire threat■ Elevated■ Extreme

following the 2017 Napa Valley fire

▬ PG&E service area

$5.36 billion Amount paid by PG&E in settlements
to compensate for the impacts of the wildfires

Climate change and nature loss
The natural systems, land use and climate change
are interlinked. Increasing temperatures anddeforestation hasten the decline in nature, which
impairs the ability of natural systems to regulate theglobal climate.
ClimatechangeBiodiversity
loss
Deforestationand landdegradation

Source: PG&E, California Public Utilities Commission,
BloombergNEF.

Source: BloombergNEF© Bloomberg Finance L.P.2023

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41

PG&E Corp | Electric transmission and distribution
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

Throughout the early 2000s, several Californianand major harm to its reputation. This was thewildfires were attributed to the state’s utilities.
However, it was the Napa Valley and Camp Fires inculmination of almost two years of turbulence for
PG&E: prior to the Napa Valley fires, its share price2017 and 2018, respectively, together causing over
100 fatalities and destroying an area almost the size of

had peaked at $71, before tumbling to $6 when newsof its bankruptcy filing was revealed. For more BNEF

Los Angeles, that garnered global attention. Across
California, the proximity of electrical transmission lines

analysis of PG&E wildfires, see: here, here and here.

to drought-affected vegetation significantly increased
the risk of wildfires. According to a federal judge,
PG&E’s liability for damage caused since 2010
stemmed from failures to properly trim trees in theforest regions north of San Francisco, resulting in fires
when branches hit the lines.
Sparking transmission and distribution lines also

Since the company emerged from bankruptcy in July
2020 and completed its court-ordered reorganization,
its share price hasn’t climbed above $20. Nor has
PG&E been able to fully recover its reputation.
However, following a large public share offering topartially fund the bankruptcy exit, PG&E’s market
capitalization returned to its pre-wildfire level of $36
billion in 2022 after reaching lows of $3 billion in 2019.

caused fires, as with 2018’s Camp Fire, where a live
wire broke free of a 99-year-old tower that PG&E’s
own guidelines deemed to be a quarter-century past its

PG&E Corp share price fell 91% from September
2017 to January 2019“useful life”. The company’s total liabilities for fires
between 2015 and 2018 amounted to some $30 billion,
far in excess of its insurance limits.
PG&E contractors trim trees around distributionlines in California in June 2019, in preparation for
anticipated wildfires

Source: BloombergNEF, Bloomberg Terminal.

In addition to financial loss and reputational damage,
PG&E underwent management upheaval: its longtime
CEO stepped aside after the company pleaded guilty
to 84 counts of manslaughter. Patti Poppe succeededinterim CEO Bill Johnson, who had guided it throughSource: Bloomberg

Financial and reputational impacts on
PG&E
On January 14, 2019, the company announced it was
filing for Chapter 11 bankruptcy and was looking to sell
its natural gas unit, following negative media coverage© Bloomberg Finance L.P.2023

the implementation of the $59 billion reorganization
plan. In March 2023, Poppe pledged $18 billion in
wildfire prevention through 2025, which includes
shoring up PG&E’s infrastructure to reduce the risk of
sparking lines and restore investor confidence in theutility.

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displayed or used as the basis of derivative works without the prior written consent of Bloomberg Finance
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42

PG&E Corp | Electric transmission and distribution
Acute

Chronic

Physical risk

Legal andpolicyMarketTechnology Reputational

Transition risk

PG&E remains highly exposed to future wildfire risk.

ecosystem services, across climate regulation, flood

Rising temperatures and less frequent rainfall render
Northern California more prone to drought, creating theand storm protection, and soil stabilization and erosion
control. Flood and storm protection is deemed to be of

conditions for forest fires to ignite and spread quickly.
While moving a portion of its transmission

very high materiality to companies in the sector.

infrastructure underground and requiring more
stringent equipment inspections have helped mitigate
this risk, the scale of its transmission and distribution
network across the state means that wildfires willremain a key consideration in the company’s long-term
strategy. Nonetheless, its restructuring has played an
important role in convincing investors, consumers andregulators that the company is better insulated fromnature risk.

The impacts of electric transmission and distribution on
nature are more significant than the dependencies.
The ENCORE materiality matrix identifies seven
impact drivers of nature loss, which assess the impacts
of production processes on ecosystem services andnatural capital, that result from the operations of thesector. Of these, water use and pollution, greenhousegas emissions, and soil pollutants are rated highly orvery highly material to nature loss.
The number of wildfires in the US tied to the operations

Nature risk across electric utilities

of electric utilities has increased in the last decade. A

The electric utilities sector is one of the most highly

California state audit found that electrical power
caused 10% of all wildfires and was responsible fordependent on nature, according to the World
Economic Forum, with 100% of direct economic value
generation and 81% of supply chain value generation
being moderately or highly dependent.

20% of the total area burned from 2016 to 2020.
Annual incidences of US wildfires caused bypower generation, transmission or distribution

Nature dependency of gross value added acrosselectric utilities’ direct operations and supply
chain

Source: US Forest Service, BloombergNEF.

Source: World Economic Forum, BloombergNEF. Note:
PG&E is categorized as an electric utility as it is the mainpart of the company and most relevant to the wildfires.

Global Canopy and UNEP’s ENCORE nature tool
provides further information on these natureinteractions, providing information specific to electric
power transmission and distribution, as well as
infrastructure holdings. The production processes
entailed in these operations are dependent on four

© Bloomberg Finance L.P.2023

Carbon dioxide released by wildfires contributes toclimate change, in turn making future fires more likely
and introducing a new set of climate risks for theutilities sector, including less resilience to natural
disasters. An October 2023 article in Nature found thatanthropogenic warming has enhanced the expected
frequency of extreme daily wildfire growth by 25%, on
average, relative to pre-industrial conditions.
To address this issue, California has started a public
safety power shutoff (PSPS) program, under which

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43

PG&E Corp | Electric transmission and distribution
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

utilities suspend local electricity services when weather

found that between 2000 and 2016, wildfires in

conditions carry a high risk of electrical equipment
igniting wildfires. The subsequent outages can leave

California cost utilities more than $700 million intransmission- and distribution-related damage;

thousands of customers without power.

including data from recent years brings total costs toover $1 billion.

Despite observing the financial collapse of PG&E,
several other US utilities are facing legal andreputational loss related to wildfires. In June 2023, anOregon jury found PacifiCorp liable for the 2020
wildfires in the state, which the company is appealing.
As of October 2023, Xcel Energy is engaged in court
cases from insurance companies seeking to ascribe toit responsibility for wildfires in Colorado in 2021,
though Xcel denies liability. According to Wall Street
analysts, Hawaiian Electric is facing potential
bankruptcy for its possible role in the 2023 Maui

Managing nature risks in the utilities sector
While PG&E’s wildfire risk is location-specific, it serves
as a prime example of a firm not fully appreciating its
impacts and dependencies on the natural world andhow those impacts and dependencies inform anunderstanding of nature-related risks to the businessand investors. Better identification, assessment anddisclosure of these would have increased awarenessand the likelihood of preventive actions being taken.

wildfires, among the deadliest in US history, after Mauicounty filed a lawsuit against the utility company inWith growing awareness of potential liabilities facing
utility companies, the issue has become far more

August 2023. Hawaiian Electric denies liability.

financially material for stakeholders. Managing risk andFor more BNEF analysis, see: Hawaiian Electric Is

by extension ensuring safety, particularly in relation towildfires, should be a top priority for utilities operating

Latest Utility Scorched by Wildfires (web | terminal).
Similar risks and opportunities for electric utilities

achievable through the use of reporting and disclosure
frameworks, and the selection of relevant metrics andCompany

Risk type

Hawaiian
Electric

Legal and After Maui fires, HE is facing a
reputational financial crisis and litigation overaccusations from Maui county
that its power lines played a rolein igniting fires. It denies liability.

targets.

Legal and Embroiled in litigation for failure
reputational to shut off power in extreme
weather conditions that led towildfires in Oregon, the company
has already paid out almost $100
million to farmers, though it could
be liable for $11 billion.

Zesty.AI and Cape Analytics are building increasingly
accurate modeling tools that harness AI technology.

PacifiCorp

Description

in the western US. To achieve this, the first step isunderstanding nature dependencies and impacts,

Better wildfire prediction would also help the industry.
Several startups and companies, including Kettle,

Insurance and reinsurance companies are availingthemselves of the nascent services to better manage
financial risk. For companies such as PG&E, these

Xcel Energy Legal and Facing litigation for its alleged
reputational failure to implement a shut-off asconditions worsened in the buildup to Colorado’s 2021 wildfires.
Xcel denies liability.

offerings could enable improved preparations in the
run up to future wildfire outbreaks.

Source: BloombergNEF.

Wildfire Victims Draw the Short Straw in PG&E Exit
Plan (web | terminal)

Beyond causing wildfires and incurring the resulting

More from BNEF:

liabilities, electric utilities in California are also at risk ofsustaining asset damage from wildfires ignited

Theme: Power Grids Struggle to Cope with Extreme
Weather (web | terminal)

naturally or by human activities other than their own. A

Storm-Battered US Power Grids Need Intervention
Now (web | terminal)

2018 assessment by California’s Energy Commission© Bloomberg Finance L.P.2023

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44Tesla Inc. | Automotive
Acute

Chronic

Legal andpolicyPhysical risk

MarketTechnology Reputational

Transition risk

3. Tesla’s Reliance on Groundwater Hinders
Brandenburg Gigafactory Development

Water provision services create nature-related risk

Manifestation of nature risk

across a wide number of industries, some non-Multinational automotive and clean energy company

obvious. Electric vehicle giant Tesla faced months ofdelays to its flagship Berlin-Brandenburg ‘gigafactory’Tesla (Nasdaq: TSLA) manufactures and sells electric

after environmental campaigners attempted to halt
construction over the area’s declining groundwater andthe water demands of the facility’s full-scale
production.
Investors interpreted these delays as a threat tovehicles, battery energy storage and solar equipment,
attaining a $700 billion market capitalization andalmost $100 billion revenue in 2023. A key factor in thecompany’s rapid growth has been the speed at which it
increased its production capacity, typified by theconstruction of its first ‘gigafactory’ in Nevada in 2016,

Tesla’s aggressive expansion plans, worsening falls in
the firm’s share price and posing questions over thefollowed by another five in North America, Asia andviability of its long-term operations in the region.

Despite requiring less water withdrawal per vehicle$5.7 billion Cost of Brandenburg gigafactory

than most of its competitors, Tesla uses an average ofover 2,500 liters of water for each car it produces.

delayed by groundwater concerns

3.1% Decline in company’s share price between NGOs’
complaint about water licensing and stock market opening

39% Share of gross value added in the direct operationsof the automotive sector is moderately nature-dependent

Europe in subsequent years.

Much of this is as a paint diluting agent, coolant for
production machinery and an input in power-washingequipment. This water is sourced from utilities suppliedby surrounding rivers, lakes and groundwater,
depending upon local hydrogeological conditions.
Water withdrawal intensity in global vehicle
manufacturing

Physical risk
Nature dependency exists when the operations ofan organization rely on the presence of an
ecosystem service to function. These dependencies
can present a physical risk to business operations,manifesting through degradation of nature and theresulting loss of ecosystem services.
Acute risks are short-term events that change thestate of nature and are typically location specific.
Chronic risks are long-term, incremental changes
to the state of nature, with consequences that are

Source: Company reports, BloombergNEF

not anticipated to recede or revert to prior condition.

© Bloomberg Finance L.P.2023

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45Tesla Inc. | Automotive
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

The company announced plans for the construction offactory’s operation would have on groundwater levels,

its fourth gigafactory – the Gruenheide facility in
Brandenburg, on the outskirts of Berlin, Germany, infailing to factor in climate change in its estimates. Afterthe court allowed the issue of the license to proceed,

November 2019. With initial foundation work beginningin May 2020, production of the firm’s Model Y vehicles

WSE released a statement in late March 2022, notingthat the overall situation in the area among

was widely expected to be underway in late 2021, an
extremely rapid timeline.

communities and businesses remains tense and thatthe new arrangement would lead to full exploitation of

In August 2021, as reported by Bloomberg News,
when Tesla CEO Elon Musk was questioned about
whether the facility would deplete the area’s water

existing groundwater reserves, precluding further
development.
This poses problems for Tesla’s plans to ramp up

supply, he broke out in laughter, describing the notion
as “completely wrong”, adding, “It’s like waterproduction at the factory. The facility reached a run
rate of 1,000 vehicles per week in June 2022, rising toeverywhere here. Does this seem like a desert to you?
It’s ridiculous. It rains a lot.”

5,000 per week in March 2023, equivalent to 250,000
annually, or half of the plant’s maximum capacity. The

Groundwater levels in the area surrounding the plant
have been declining over the past three decades,
exacerbated by climate change, with droughts in 2018,2019 and 2020. Despite this, the Brandenburg state
environment ministry granted a 30-year license toutility Wasserverband Strausberg-Erkner (WSE), to
supply 1.4 million cubic meters of groundwater to theTesla plant annually, roughly doubling the total volume

company is now seeking permission to expand further,to one million vehicles at the facility per year, but isagain facing opposition from local environmentalgroups over its water use.

Managing nature risk
Tesla is well aware of the importance of managing
water risk. Its 2022 Impact Report notes that “water isof water extracted from the area.

becoming increasingly scarce as the climate changes”
and outlines a number of initiatives being taken at its

Groundwater levels declining in area surrounding

factories. These include water-intensive process

the Brandenburg plant

optimization and elimination, such as the installation of
hybrid cooling towers, removal of quench tanks incasting and introduction of cascade rinsing systems in
its paint shop and battery can wash process. It alsoplans to capture roof runoff in central undergroundstorage, recycle rainwater to cool manufacturing
equipment, and capture condensed moisture for use incooling towers. Tesla estimates that the introduction ofthese processes at its Texas facility in 2023 will save
320 million gallons of groundwater use annually.
The company does not appear to consider water

Source: BloombergNEF, Germany Ministry for theEnvironment’s Information Platform.

Local environmental groups filed a complaint to theFrankfurt Oder administrative court challenging thelicense on the grounds that the ministry did notconduct sufficient checks on the impact that the© Bloomberg Finance L.P.2023

availability a priority when selecting locations for its
facilities. Other factors, including production and tax
incentives, skilled labor and market access have taken
precedence. Its Nevada, Texas, Berlin and Shanghai
facilities are all in (or directly adjacent to) water
stressed areas, as will be its sixth gigafactory, currently

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46Tesla Inc. | Automotive
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

under construction in Santa Catarina, Mexico. Among

to raise the company’s share price target in early 2022

the six, the underutilized Buffalo, New York factory
inherited from SolarCity is the only one not proximate

was optimism over its ability to get its Brandenburg
facility operational quickly. If the firm is unable toto water risk.

expand its current operations to its target level due togroundwater concerns, it stands to miss out on up to

Tesla’s experience in Germany has shown the needfor the company to be more aware of the importance ofwater availability, even in areas where many (such as$36 billion in revenue annually, assuming sufficientdemand and a base price of $48,725 for the Model Y.

its polarizing CEO) may not expect it to be an issue.

Neither of these financial impacts present existential

The World Resources Institute expects water scarcity
to become increasingly more severe, raising the water

threats to Tesla. Rather, the strategic delays havedisrupted a longer-term road map for the company andrisk that the company’s operations are exposed to andrequiring more stringent mitigation and adaptation.

brought minor uncertainty to investors.

Nature risk across the automotive industry
Water stress by region in 2040 and location of

The automotive industry is one of the most globalized,

Tesla gigafactories

with supply chains covering many countries acrossmaterial sourcing and assembly. As a whole, it ismoderately dependent on nature. According to theWorld Economic Forum, just under 40% of gross value
added in the direct operations of the automotive sector
is moderately dependent on nature, though 80% of its
supply chain value is highly or moderately reliant.
Nature dependency of gross value added across

Ratio of water withdrawals to supply■ Low (<10%) ■ Low to medium (10-20%) ■ Medium to high(20-40%) ■ High (40-80%) ■ Very high (>80%)

the automotive sector

Source: World Resources Institute, BloombergNEF.

Financial and reputational impacts on
Tesla
After environmental groups filed the licensing
complaint on February 21, 2022, the Nasdaq-listed
shares of the company fell 3.1% in the hours before
trading opened. This was part of a broader 19%
decline over the first two months of 2022, thoughisolating the precise contribution of the complaint ischallenging.
Investors saw the eight-month delay as an obstacle tothe company’s strategy of rapid expansion, particularly
in providing its Model Y SUV to the European market.
Bloomberg notes that the primary reason for analysts© Bloomberg Finance L.P.2023

Source: World Economic Forum, BloombergNEF.

The ENCORE tool offers more specific information,
though does not draw a distinction between internal
combustion engines and electric vehicles incorporating
battery metals. The manufacture of automotive partsand equipment is deemed to be dependent on 11
ecosystem services, with those related to water andwater use being the most relevant. The use of groundand surface water as inputs, water flow maintenance,
mediation of sensory impacts and flood and storm

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Tesla Inc. | Automotive
Acute

Chronic

Legal andpolicyMarketPhysical risk

Technology Reputational

Transition risk

protection are of moderate materiality to

The situation faced by Tesla in Brandenburg is not

manufacturers.

unique. Climate change and the increasing frequencyof droughts have exposed more companies to water

Water features prominently in the nature impacts of thesector. The materiality matrix identifies seven impact
drivers of nature loss, of which water use, greenhousegas emissions, water and soil pollutants, and solid
waste are each classified as highly or very highly
material.
The EV sub-sector will be exposed to more naturerelated risks as the energy transition accelerates.
Lithium-ion battery manufacture will increasesignificantly to 2050, following BNEF’s Net Zero
Scenario and Electric Vehicle Outlook. This will require
29 times more manganese, 26 times more iron and 22
times more lithium than 2022 levels. Evaporitic

risk in recent years. Volkswagen, Toyota and Tesla
were affected by a 2022 drought in China after
depleted reservoirs used for hydropower led to power
shortages, while falling water levels in the Rhine river
led to supply chain disruptions for many companies inthe same year. Examples of water related risks acrossthree other sectors are presented in the following table:
Droughts have created water-related risks for othercompanies in various sectors
Company

Sector

TSMC

Technology In Taiwan, persistent
droughts in 2021 led thegovernment to further
tighten restrictions on watersupply, putting the output of
the world’s biggest contract
chipmaker at risk.

Cargill

Food and
agriculture

Prolonged droughts acrossthe US in 2013 reduced crop
yields and added costs tomeat processing operations
for the world’s biggest
agricultural trader byvolume, reducing quarterly
revenue 42%.

Uniper SE

EnergyThe utility company warned
that droughts in Germany inAugust 2022 would require it
to cut production at two key
coal-fired power plants, as
depleted Rhine river levels
hindered transport of fuelsupplies.

technology currently used to extract lithium carbonate
requires 100 to 800 cubic meters of water per metric
ton and brings a suite of other environmental harms.
Cobalt mining contaminates soil and water,
phosphorous mining impacts landscapes andbiodiversity, while nickel extraction is particularly
carbon intensive.
Annual metals demand from lithium-ion batteries
under BNEF’s Net Zero Scenario

Description

Source: BloombergNEF

More from BNEF:
Electric Vehicle Outlook 2023 (web)2023 Lithium-Ion Battery Price Survey (web |terminal)
Source: BloombergNEF. Note: Lithium is expressed in million
metric tons lithium carbonate equivalent.

© Bloomberg Finance L.P.2023

Theme: EVs Are on Their Way to Price Parity With
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When the Bee Stings: Counting the Cost of Nature-Related Risks
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Appendix A. Glossary of terms
The definitions used throughout this report align with those used by the TNFD and are drawn froma range of organizations
Table 2: Glossary of nature-related terms
Term

Definition

SourceBiodiversity

The variability among living organisms from all sources,
including, inter alia, terrestrial, marine and other aquatic
ecosystems and the ecological complexes of which they
are part; this includes diversity within species, between
species and of ecosystems.

Convention on
Biological
Diversity

Climatological

Relating to the atmosphere and weather patterns over a
World Bank
time period, focused on the natural and artificial forces that
influence long-term weather patterns. In the context ofnatural disasters, climatological phenomena cover drought,
glacial lake outburst flood and wildfire.

Ecosystem

A dynamic complex of plant, animal and microorganism
CBD, IPBES
communities and the non-living environment, interacting asa functional unit.

Ecosystem
service

The contributions of ecosystems to the benefits that areused in economic and other human activity.

Geophysical

Referring to physical processes and properties of the Earth, IPCC
particularly its composition. Geophysical phenomena in thisreport include earthquakes and volcanic activity.

Hydrological

Relating to the hydrologic system – Earth’s closed water
system, including land and terrestrial ecosystems,
evaporation, precipitation, transpiration, among others.
Hydrological phenomena in this report refer to floods.

National Oceanicand Atmospheric
Administration

Meteorological

Relating to weather. In this report, meteorologicalphenomena are short-term events that occur in the
troposphere and stratosphere, including extreme
temperatures, fog, and storms.

EuropeanEnvironment
AgencyNatural Capital

The stock of renewable and non-renewable natural
resources (e.g., plants, animals, air, water, soils, minerals)that combine to yield a flow of benefits to people.

Capitals Coalition

NatureThe natural world, with an emphasis on the diversity ofliving organisms (including people) and their interactions
among themselves and with their environment.

IPBES

Risk

Risk refers to consequences for human or ecologicalsystems. It is not used as a substitute for probability or
chance, nor is it a generic term for something bad.

IPCC

UN

Source: BloombergNEF, TNFD.

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When the Bee Stings: Counting the Cost of Nature-Related Risks
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Appendix B. Ecosystem services
Defined as the contributions of ecosystems to the benefits that are used in economic or otherhuman activity. The four groups of ecosystem services are:•Provisioning services: Material benefits obtained from nature, including food, raw materials,
freshwater and medicines.

•

Regulating services: Maintenance of biosphere integrity resulting from the functioning of
ecological processes, providing stability and allowing other flows of value to continue.
Examples include regulation of air, water and soil quality, carbon sequestration and storage,
pollination, moderation of extreme natural events, and erosion prevention.

© Bloomberg Finance L.P.2023•

Supporting services: Ecosystem services that provide habitats or maintain diversity of life,
influencing survival and covering living spaces for species and genetic diversity.

•

Cultural services: Non-material benefits that people obtain from ecosystems, including
recreation and mental health, aesthetic appreciation and tourism.

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50When the Bee Stings: Counting the Cost of Nature-Related Risks
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Appendix C. Further information on the types ofnature risk
Physical risks
Physical nature-related risks arise due to a decline in the state of nature disrupting the ecosystemservices on which a firm’s operations depend. They are classed as either acute or chronic,
broadly referring to short- and long-term nature-related events:•

Acute risks are short-term events that change the state of nature and are typically location
specific, such as wildfires destroying infrastructure, crop diseases affecting harvest yield, oroil spills reducing ocean fish stocks.

•

Chronic risks are long-term, incremental changes to the state of nature, with consequencesthat are not anticipated to recede or revert to their prior condition. Examples include climatechange and ocean acidification.

In some instances, isolating the precise form of physical risk becomes arbitrary. While a shortterm drought is clearly an acute risk, it can progressively mutate into a chronic risk without any
substantive change to its characteristics. In this way, a long-term drought can be seen as having
attributes of both acute and chronic risk. Likewise, an oil spill initially presents acute risk to theoperations of nearby fisheries, though its more persistent effects can also be considered chronic.
Both acute and chronic nature-risk are becoming more severe due to the underlying decline innatural systems. This is well established. The Intergovernmental Science-Policy Platform on
Biodiversity and Ecosystem Services (IPBES) notes in its most recent global assessment reportthat the current rate of nature decline is unprecedented. Natural ecosystems have declined by
47% on average, relative to their earliest estimated states, while approximately 25% of species
are threatened with extinction, and the abundance of naturally present terrestrial species has
fallen by 23% since prehistory. BNEF clients can access further analysis on nature loss in the
Biodiversity Finance Factbook: COP28 Edition.
There are varying degrees of dependency on nature, rendering ecosystem services of low,
moderate or high materiality to the company (see box below). The extent of materiality is derived
from the scale and scope of a firm’s interactions with nature, the resilience of the associatedecosystem, and risk mitigation efforts employed by the firm.
Dependencies occur both in companies’ direct operations and supply chains – risk upstream canpropagate downstream through second-order dependencies. For example, steel producers use
substantial volumes of water for cooling in the steel production process. Depletion or degradationof the water sources on which they rely would put continued operations at risk and open the
sector to financial loss. Downstream companies that use steel as an input would likewise face risk
as their supply chain is disrupted. Financial institutions also have indirect dependencies on
ecosystem services, as their business model is predicated on engagement with companies thatinteract, in some form, with nature.

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When the Bee Stings: Counting the Cost of Nature-Related Risks
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Materiality
Materiality refers to the importance of some factor when making a decision. In accounting andfinance, it is the importance of an event or information influencing a company’s valuation, theomission of which in a financial statement could mislead investors or other stakeholders.
Given that exposure to nature risk has financial implications for the firm, it follows thatinvestors ought to be apprised of this information.
Single materiality is conventionally used in accounting. For nature, it captures only how firm
valuation can be affected by changes in the ecosystem services that production depends on.
For example, in the case of a large-scale horticulture producer highly reliant on water, investor
decisions are likely to be influenced by changes related to this dependency. If local groundand surface water are expected to be significantly depleted or degraded, the firm’s future
earnings and valuation will be affected, and this should be made known to financially involved
stakeholders
Double materiality also includes the impacts of the firm on nature. While single materiality
refers to “outside-in” effects, i.e., how changes external to the firm affect its valuation, double
materiality is also “inside-out”, capturing how production processes change the state of nature.
Continuing the horticulture example above, if pesticide run-off from farming operations pollutes
nearby watercourses, causing eutrophication and harming wildlife, this information should also
be disclosed, lest potential financial penalties or regulatory tightening impact cashflow.

Costs of physical risk
There are three types of loss associated with physical nature risk, covering both direct andindirect costs to the firm. While short-term asset damage and economic costs are significant,research on climate risk indicates that the longer-term impairment from lost productivity andstalled economic growth can be up to six times as much.
Acute physical risks tend to affect firms directly, particularly in the form of asset damage, and are
inherently easier to calculate. Chronic risk manifests more insidiously, stymying productivity andhitting supply chains.
Table 3: Types of losses from acute and chronic physical nature risks
Type of loss

Impact of physical nature risk

ExamplesAsset damage

Destruction of physical asset

Productivity loss

Output loss from nature

Decline of pollinators reduces crop yield

Supply chain disruptions

Droughts create shipping bottlenecks

Farmland destroyed by wildfires

Cost of remediation and clean up $16B to rebuild after 2022 Pakistan floods
Economic costs

Price surge of suppliers

Water scarcity increases input prices

Losses borne by other sectors

Alien species impact water security■ Direct costs■ Indirect costs

Source: BloombergNEF© Bloomberg Finance L.P.2023

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When the Bee Stings: Counting the Cost of Nature-Related Risks
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Transition risk
Nature-related transition risk comprises four subcategories:•

Policy and legal risks: Changes in policy, regulation or legal precedent constrain theoperations of firms whose production processes impact nature, incurring costs either throughlegal challenges or the imposition of penalties. For example, more stringent environmental
impact assessments (EIAs) add costs and limit the scope of potential future offshore winddevelopments, or a government’s environment agency introduces more stringent standards
for chemical companies extracting surface water close to production facilities.

•

Market risks: Movements in market prices, particularly in financial markets, create losses forcompanies. For example, uncertainty over impacts of an emerging zoonotic disease cansuppress demand for a company’s products, or stock markets can react negatively to a firm’s
environmental impacts, reducing its valuation.

•

Technology risks: Technological developments enable consumers to purchase new productswith lower nature impacts than their current choices, curtailing demand for the incumbent
product. Biodegradable packaging offers an alternative to single-use plastics and lab-grownmeat could offer a source of protein with fewer nature impacts than cattle.

•

Reputational risks: Consumer perception of companies and products with a (reputed) highnature impact can suppress demand and brand value. For example, a campaign against
unsustainably sourced palm oil by a cosmetics brand leads consumers to competitors using
coconut oil in lieu of palm.

Estimating which sector is exposed to transition risk requires analysis of nature impacts. The
2019 IPBES global assessment report identifies five drivers of nature loss, accounting for over
90% of nature’s decline relative to pre-industrial levels: land and ocean use change, resource
exploitation, climate change, pollution and invasive alien species. The industries and commodities
which underpin these drivers are shown in Table 4. It follows that companies operating withinthese sectors are more likely to have higher exposure to nature-related transition risks, as they
are the most vulnerable to shifting regulation and customer preferences.
Table 4: Drivers of nature loss
Pressure

Industries

Commodities
or services

Nature loss
contribution %Changes in land and sea use
Agriculture, forestry, fishing,and conversion of natural habitats to other uses mining, energy

Beef, palm oil, soy, timber,rubber, pulp

30%

Resource exploitation
Extraction of living and non-living material fromnatureAgriculture, materials, energy,
fishing, forestry

Crops, beef, timber,seafood, coal, oil, gas

23%

Climate change
Long-term alteration of temperature of weather
patterns

Energy, materials, agriculture,transportation

Coal, oil, gas, beef

14%

Pollution
Introduction of harmful substances into theenvironment

Agriculture, industry,transportation, energy, metals

Crops, packaging, textiles

14%

Invasive alien species
Introduction of species without naturalcompetitors to new ecosystems

Trade, tourism, agriculture,
forestry, aquaculture

Shipping, aviation, tourism,
exotic species

11%

Source: BloombergNEF, IPBES.

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When the Bee Stings: Counting the Cost of Nature-Related Risks
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Systemic risks
Systemic risks arise from the breakdown of entire systems, rather than declines in theircomponent parts. While their causes can be multifaceted, stemming from issues with supply
chains, infrastructure, climate change, economics or politics, they are generally characterized bytipping points, where one loss triggers a chain of others, preventing the system returning to its
equilibrium. Two categories of systemic risk exist for nature, in line with the approach of the TNFD
and others:•

Ecosystem stability risk: Destabilization of a key natural system, such that it is no longer able
to provide ecosystem services as before. Examples include global collapse of pollinators ordesertification across entire previously fertile regions.

•

Financial stability risk: Collapse of an entire financial system prevents basic economic
activities, such as lending or insurance to function as normal.

Each of these systemic risks can manifest from the build-up of individual physical or transition
risks, passing a threshold and growing to affect entire systems. While this form of risk cannot be
prevented by individual companies, it is nonetheless necessary to factor into long-term strategicplanning to minimize negative financial impacts. Such calculations are commonly undertaken by
insurance providers and credit risk analysts at financial institutions. Systemic risk is unpredictable,
and can result from different interactions between business and nature – both complex systems.
This form of risk is slow to materialize and has not yet had evident, verifiable financial impacts oncompanies.
Further information on nature-related risks and the relationship to impacts, dependencies andopportunities can be found in the conceptual foundations section of the Recommendations of the
TNFD. BNEF clients can access further research on nature reporting, markets and finance here:
web | terminal.

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When the Bee Stings: Counting the Cost of Nature-Related Risks
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About usContact details
Client enquiries:• Bloomberg Terminal: press <Help> key twice• Email: support.bnef@bloomberg.net
Lead author
Alistair Purdie

Analyst, Biodiversity Markets and Finance apurdie2@bloomberg.net

Project coordinator
Hugh Bromley

Manager, Agriculture and Nature

hbromley1@bloomberg.net

Contributing analysts
Alexander Liddington
Analyst, Sustainable Agriculture

aliddington@bloomberg.net

Caroline Lewis

Analyst, Sustainable Agriculture

clewis310@bloomberg.net

Claudio Lubis

Associate, Climate Solutions

clubis@bloomberg.net

Helen Ramsbottom

Relationship Manager, UK and Irelandhramsbottom@bloomberg.net

Maria-Olivia Torcea

Analyst, Upstream Oil and Gas

mtorcea@bloomberg.net

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