Managing Nature Risk Without Perfect Data

For all the attention now paid to nature risk, identifying the risk is often the easier part.

The harder question is what a company does with that information. In our recent webinar with BASF and Clariant, much of the discussion came back to the practicalities: how much supply-chain visibility is enough, which raw materials deserve closer scrutiny, and how environmental risks make their way into procurement and risk-management decisions.

Perfect traceability is not the starting point

For large chemicals companies, supply chains are rarely tidy.

BASF buys from thousands of suppliers. Clariant described traceability as a spectrum, from knowing a commodity’s probable country of origin to identifying the individual farm or plantation.

That makes perfect visibility an unrealistic ambition.

A more practical approach is to begin with what is available. Country of origin, supplier location, major producing regions and commodity-level risk can already provide useful signals. More detailed investigation can follow where the exposure appears material.

Waiting until every supply chain is fully mapped may produce better data. It may also delay action indefinitely.

Decarbonisation can create new nature risks

The problem becomes more complicated as companies change what they buy.

For Clariant, palm oil was an obvious early focus: material to the business, associated with well-documented environmental risks and already under scrutiny from customers and investors.

But the wider shift towards bio-based raw materials raises a more difficult question.
Replacing fossil feedstocks may reduce carbon emissions while increasing exposure to land, water and biodiversity risks. BASF described the move from a tonne of crude oil to a tonne of biomass as “game changing” in the complexity of upstream impacts and dependencies.

That makes prioritisation important.

Companies do not need the same level of analysis for every raw material. Volume, geographic concentration, environmental sensitivity, traceability and strategic importance can help determine where deeper investigation is warranted.

The test is whether the risk has an owner

Analysis only becomes useful when it enters an existing business process.
Clariant has fed nature assessments into its broader risk-management system, where material issues sit alongside financial, operational and regulatory risks.

Fabio Amorim described the contrast plainly. When a nature risk remained within sustainability, the response could amount to: “Nice, thank you for the information.” Once it entered the strategic management process, somebody had to own it.
BASF follows a similar logic in procurement. Depending on the problem, the response may involve supplier engagement, diversification, product substitution or switching suppliers.

Even then, the obvious response is not always the best one. Leaving a high-risk sourcing region may reduce a company’s exposure without doing much for the underlying environmental problem. In some cases, engagement with suppliers may achieve more than exit.

For companies trying to get to grips with nature risk, this suggests a fairly pragmatic approach. Start with the materials that matter most, use the information already available to identify where exposure looks greatest, and investigate further where the answer could change a sourcing or procurement decision.

That may not produce a complete picture of the supply chain, but it is enough to start managing the risk.