Changing risk management - New risks, new opportunities

Why life cycle assessment and true cost accounting are becoming indispensable in a changing economic reality

Today, companies are facing profound changes in the global risk landscape. It is no longer just a matter of traditional economic factors such as demand, liquidity, or market volatility. Environmental, resource, and biodiversity risks are also becoming increasingly important factors in business models, investment decisions, and bank lending.

Natural capital risks are becoming increasingly important for the financial and real economies.

The financial and real economies are beginning to identify and assess so-called natural capital risks. These are risks that arise from dependence on natural resources or from environmental pollution. Examples include water scarcity, soil and crop losses, CO₂ price risks, supply chain disruptions due to extreme weather, and several others.

Against this backdrop, methods such as life cycle assessment (LCA) and true cost accounting (TCA) are becoming increasingly important. They provide sound data that companies can use to make their environmental impact, dependencies, and hidden follow-up costs transparent, thereby remaining competitive in a new risk landscape.

Why risk factors in the economy are changing

More and more institutions—from banks and insurance companies to international standardization organizations—are recognizing the financial materiality of natural capital. Various frameworks, such as the EU Sustainable Finance Taxonomy and the Global Biodiversity Framework, require companies to quantify their impact on nature and their dependence on ecosystems.

At the same time, financial institutions are increasingly expanding their risk models to include environmental indicators. These include transition risks, such as rising CO₂ prices, physical risks, such as droughts or floods, and reputational risks, such as environmental damage caused by corporate practices. This means that environmental impacts and resource dependence are increasingly influencing credit terms, financing costs, and rating assessments.

The role of LCA and TCA

Life Cycle Assessment (LCA) is a robust method for quantifying the environmental impact throughout a product's life cycle. Together with True Cost Accounting (TCA), which monetizes these effects and thus translates them into understandable values, a comprehensive, scientifically sound basis can be developed to help companies adapt to the new framework conditions.

Systematically recording your own production processes enables you to identify risks at an early stage, reliably meet regulatory requirements, improve access to credit and financing conditions, and, above all, strategically plan the necessary transformation.