Nature appears in the annual reports of 90% of FTSE companies, yet only 20% identify it as a principal risk.
This gap, highlighted by Schroders Chair Matthew Westerman during a recent webinar hosted by Environmental Finance in partnership with Natcap, raises an important question: how can businesses move beyond recognising nature-related risks to making informed decisions about them?
Matthew was joined by Andrew Walton, Chief Sustainability Officer and Chief Corporate Affairs Officer at Lloyds Banking Group, and Sebastian Leape, CEO of Natcap, to explore what effective board engagement looks like.
From artificial intelligence and cybersecurity to geopolitical uncertainty, boards face no shortage of competing priorities. For nature to command their attention, it needs to be understood through the same lens as other material business risks.
Matthew described how Schroders considers nature alongside other strategic risks in its board risk register. Andrew emphasised that boards are ultimately concerned with the long-term strategy and economics of the business, including how nature-related dependencies could affect customer viability, financial performance and future growth.
"Start with the business. Truly understand the dependencies of the business," he advised.
Rather than asking boards to treat nature as a separate priority, sustainability leaders should demonstrate how it affects the strategic and financial questions they are already responsible for answering.
Unlike greenhouse gas emissions, which can be measured using a relatively standardised metric, nature-related risks depend on multiple environmental factors that vary considerably between locations.
But complexity should not become an excuse for inaction. Boards need information that is sufficiently robust to inform commercial decisions, even where uncertainty remains.
Andrew illustrated this through Lloyds' work with the 46,000 farming businesses it lends to in the UK. Working with the Soil Association Exchange, the bank has been assessing the financial implications of transitioning to regenerative farming practices, including the potential impact on yields.
Understanding these transition costs can help Lloyds assess the financial viability of different approaches and inform lending products that support farmers through the transition. Andrew also highlighted the importance of longer-term purchasing commitments from buyers such as McCain, which can give farmers greater confidence to invest in changing their practices.
Sebastian emphasised that the same principle applies across sectors. By looking beyond direct operations into supply chains, using location-specific data and quantifying potential impacts on operating profit, businesses can turn environmental risk assessments into information that informs purchasing, investment and risk management decisions.
Boards don't need to examine every environmental risk assessment. They need confidence that the right information is being incorporated into the decisions their businesses make.
Matthew's closing advice to sustainability leaders was to come to the board not just with an issue, but with a recommendation for addressing it and a clear explanation of what they need the board to help achieve.
That means establishing ownership, measurable indicators and triggers for intervention, alongside specific proposals for managing the risks identified.
Recommendations might include investing in supply-chain resilience, adjusting lending or investment strategies, developing new products, or strengthening relationships with suppliers and customers.
These decisions also involve important trade-offs. As Sebastian highlighted, switching suppliers or purchasing insurance may reduce a company's exposure without addressing the underlying environmental risks. Where businesses depend on particular landscapes or commodities, investing in supply-chain resilience or landscape restoration may also be part of a longer-term response. Boards need to understand these options and their implications to make informed choices.
Getting nature onto the board agenda is not an end in itself. The real measure of progress is whether understanding nature-related risks changes how businesses invest, lend, source materials and manage their exposure.
As the discussion made clear, boards don't need perfect information to act. They need to understand what's at stake, what options are available and what management recommends.