Nature and Ecosystems

Nature provides fundamental contributions that underpin business activity, including food supply, clean water, energy and carbon capture.

To halt and eventually reverse the loss of nature, the private sector must operate within the planet’s ecological limits. Folketrygdfondet expects companies to align their operations with a nature-positive transition. This implies considering the long-term costs of nature loss, as well as the opportunities that come from strengthening ecosystems.

The loss or degradation of nature and ecosystems can create major challenges for companies that depend on natural resources or have significant environmental impacts. Nature and climate risks are also interrelated. Climate-friendly development requires conservation, restoration, and sustainable management of nature.

There are different types of nature-related risk (NOU 2024:2):

• Physical risk arises when the loss or degradation of nature and ecosystems affects a company’s operations. This includes businesses directly dependent on natural resources, such as aquaculture and power production, but also insurance, transport, construction, and other land-intensive activities. Most companies are also exposed to physical risk through their value chains.

• Transition risk stems from regulatory changes, taxes, market expectations, consumer preferences and technological developments. Companies that fail to adapt may face liability, loss of permits, reputational harm, reduced market access, and other challenges. Businesses with nature-positive or circular models may benefit from new opportunities.

• Liability risk relates to financial responsibility for nature loss or environmental harm caused or contributed by the company.

Folketrygdfondet’s expectations apply to companies with material nature-related risk and are based on the OECD Guidelines for Multinational Enterprises, the UN Global Compact, the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD), and the Kunming-Montreal Global Biodiversity Framework (2022).

• The board is responsible for ensuring that nature-related risks and opportunities are integrated into strategy, decision-making and incentive structures, and that this is reflected in reporting, risk management, and financial planning.

• Companies should assess how the impact of different nature-related events could affect strategy and financial planning in both the short and long term. Scenarios should include events with potentially large impacts, such as ecosystem collapse, pollution incidents or tighter regulation. Companies should also consider stress-testing their business model against nature loss in the value chain.

• Companies should set goals, roadmaps and measures for managing nature-related risks, opportunities, impacts and dependencies. Both physical and transition risks should be assessed continuously across the whole business. Targets should be realistic and science-based where relevant and applicable.

• Companies should explore methods to quantify nature-related risk, for example by assessing the value of ecosystem services, exposure to high-risk areas, or the financial implications of environmental measures.

• Companies should work on developing an internal nature price or shadow price to highlight and manage their impacts and dependencies on nature. They should be transparent about assumptions, ranges of outcomes and sensitivities, including how the company plans to manage scenarios and potential regulatory changes.

• Companies should be open about how they identify, assess and manage nature-related risk, including in their value chains.

• Companies should report on their management of nature-related risk in line with recognised frameworks and standards.