Financial Risk Exposure

Financial risk exposure

Purpose

This module translates nature-related materiality into financial exposure by distributing a company's revenue across ENCORE risk indicators. It covers all 34 risk indicators (13 transition + 25 physical) and can be assessed across direct operations, upstream supply chain, and downstream value chain.

Methodology

The assessment follows 4 steps:

1. Define a financial metric — A financial metric (e.g. turnover) is assigned to each project entity.
2. Evaluate activities — Activities are broken down and assessed individually from the product or monetary input data collected.
3. Sector mapping — Each activity is mapped to a sector in ENCORE to obtain a severity score (Very Low to Very High) for each of the 34 risk indicators.
4. Weight activities — Activities are weighted by their relative contribution to total impacts or dependencies. This weight, applied to the financial metric, yields the monetary exposure per indicator and severity level.

Risk characterisation

For each indicator, two dimensions are reported:

• Severity — the ENCORE materiality rating (Very Low -> Very High) for the sector; reflects the intrinsic nature risk level of the activity.
• Proximity — the geographic sensitivity score from the priority sites module, when site-level data is available; reflects whether the company's locations are situated in areas sensitive to that specific risk. This feature is currently work in progress.

Scope

The assessment can be run across three value chain scopes, which can be combined or analysed separately:

• Direct — the entity's own operations
• Upstream — supply chain (rank 1, rank 2...)
• Downstream — consumer-facing value chain

Example — Water provisioning risk