Assessing financial exposure to nature-related risks shows the value of location-based analysis beyond sector averages and portfolio proxies.
Lloyds and Earth Blox have published The Missing Line Item: Financial exposure hidden in environmental dependencies, a joint report that puts a financial estimate on nature-related risks for three companies' operations and supply chains. Using Earth Blox, we assessed Nature Value at Risk (Nature VaR) at the asset level for International Paper, a data centre operator and a diversified industrial company, covering their own sites and a sourcing region one of them depends on.
Three findings from the report explain why estimating financial exposure to nature-related risks requires location-based analysis:
Every business depends on nature to some degree, and many depend on it heavily. Those dependencies sit across the value chain, not just the assets a company owns and operates: the water a facility draws on, the stability of the ground beneath it, the landscapes that supply its raw materials.
Sector averages, spend-based estimates and portfolio proxies are useful for a first, broad view of a business's relationship with nature. They cannot answer what that exposure is worth or where it sits because they treat exposure as a property of an industry rather than of a place. Two facilities running the same process, in the same business and even in the same country, can sit in entirely different environmental contexts. The financial consequences of that difference remain hidden until they are assessed directly.
Nature VaR estimates the proportion of economic value that could be at risk or lost if the natural resources and services supporting a site, asset, or supply chain become degraded or unavailable. Depending on the context, that value may be the revenue generated at a site, the value of an asset, or the production value within a sourcing region. It is assessed using a severe but plausible 1-in-20-year scenario (a 5% annual probability) and calculated separately for each relevant natural resource or environmental service. The methodology is based on the approach recommended by the Network for Greening the Financial System (NGFS) in The Green Scorpion, and draws on concepts developed by the European Central Bank, the World Bank and the World Economic Forum.
Nature VaR focuses specifically on dependency-related risks. It does not assess nature-related transition risks such as changes in regulation, or other risk categories, including market risk and geopolitical risk.
International Paper's mills carry some exposure, driven mainly by water supply and the mitigation of storms and floods. The greater risk sits upstream, in the wood fibre sourcing region. Nature VaR for pest and disease control averaged 13.3% but ranged from 10.2% to 19.6% across the locations sampled, while rainfall variability and water supply reached a maximum of 15.9% and 14.3%, respectively.
The highest exposure in this part of the value chain sits on land the company neither owns nor operates, and it varies by almost a factor of two across the locations sampled. That makes it a question for sourcing decisions and supplier engagement rather than site capital expenditure, and one that emerges only when the assessment examines multiple locations within the sourcing region instead of treating the region as a whole.
"Our entire business model depends upon the sustainability of forests. Forests sustain biodiversity, regulate water cycles and maintain our planet's ecological balance. International Paper is committed to responsible sourcing of forest fiber, balancing risk assessment and due diligence, sourcing controls and supplier engagement to protect these essential global ecosystems." - Sophie Beckham, Chief Sustainability Officer at International Paper
The two data centres we assessed are operated by a large US global technology services company and use the same water-based cooling technology. Water supply dominated at both sites, with a Nature VaR three to four times higher than any other dependency. The estimates differed materially: 13.1% at Boulder, Colorado against 8.8% at Columbus, Ohio. Boulder depends on a supply sensitive to snowfall conditions, with mountain snowpack acting as a natural reservoir that releases water gradually through the year. In early 2026, Colorado recorded its lowest winter snowpack in 40 years. Columbus draws on more diversified sources. The difference between them owes little to how the two facilities are run and a great deal to the local conditions at each site.
"As data-centre demand expands rapidly, water availability has become a critical operational dependency. This study estimates the potential revenue exposure at each site, supporting capital planning and resilience-related decision-making." - Sam Fleming, Co-founder at Earth Blox
The third case study covers three manufacturing facilities operated by a single diversified industrial company. Water supply was the most material dependency at all three, at approximately 9% to 12% Nature VaR. At the most water-exposed site, the surrounding landscape also carries less plant cover to stabilise soils, and the analysis showed how wildfires upstream could compound that: vegetation loss on steep slopes increases erosion, and subsequent rainfall carries ash and sediment into the rivers and reservoirs the site depends on. One risk amplifies the other, and assessing each environmental risk can help to show where multiple risks could coincide.
Because ecosystem services are physical and often local, exposure has to be assessed where the asset or sourcing area sits. And because the result is expressed as a percentage of value at that location, it becomes something a risk committee, a CFO or a lender can interrogate and stress test, which moves nature beyond the sustainability function and into the business decisions that determine capital allocation. The Taskforce on Nature-related Financial Disclosures (TNFD) made the same argument in its 2025 guidance for CFOs.
Earth observation makes estimating Nature VaR practical at scale. The same workflow that assesses one mill can be applied to a sourcing region spanning thousands of hectares, using consistent data and a single methodology. On Earth Blox, the full analysis is transparent and auditable at every step, which is important for a credit committee or an assurance provider. This gives businesses a standardised and repeatable way to estimate their nature risk profile.
The same logic applies to a loan book or an investment portfolio. If exposure varies by a factor of two inside one sourcing region, it varies at least as much across counterparties or investment holdings in the same sector. Asset-level assessment gives credit, risk and investment teams a comparable, finance-relevant view of where environmental dependency turns into potential financial exposure, and a basis for engaging clients on it.
"Businesses are starting to see that environmental issues aren't just sustainability concerns. They can have a real impact on operating costs, supply chains, asset values and, ultimately, long-term growth." - Farhad Merali, Head of Coverage, North America Lloyds
Read Lloyds Farming with nature report to see how they mapped nature risk and opportunity across 5.1 million hectares of farmland with Earth Blox.
This report focuses on operations in the United States, but the questions apply wherever a company's assets and sourcing regions sit.
Read The Missing Line Item: Financial exposure hidden in environmental dependencies for the full methodology and results.
Or, to see what Nature VaR looks like across your own sites and sourcing regions, talk to us about an assessment.
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