Environmental

Risk Outlook
2019

Changing the perspective on risk maplecroft.com

Verisk Maplecroft | Environmental Risk Outlook 2019

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 Verisk Maplecroft | Environmental Risk Outlook 2019

Contents:

1 How will regulators respond to the air pollution threat? 4

2 Plastics crisis: Investors eye circular economy 6

3 Shrinking the corporate disclosure gap on climate change 8

4 Sustainability targets in spotlight as 2020 nears 10

Verisk Maplecroft’s Environmental Risk Outlook 2019 covers key and emerging
environmental issues that investors and companies cannot afford to ignore if they want to
mitigate their exposure to financial, reputational, and regulatory risks.

Will Nichols, Head of Environmental Research, gives his perspective on what businesses
will need to watch out for in the year ahead.

© Verisk Maplecroft 2019 | maplecroft.com 3

1  How will regulators respond
to the air pollution threat?

Will Nichols
Head of Environmental Research

Driving the news

Worsening outlook for air quality impacts to health will drive legislative action.

Why it matters
Vehicle bans, industrial emissions caps, and other regulations will add to operational costs and supply
chain risks.

Watch out for

Regulators making air quality a top priority. Across 2018, a host of reports highlighted the societal cost of
air pollution, from respiratory illnesses to academic underachievement, crime, and premature death. These
reports show the problem is global and by no means limited to Asia’s industrial hubs. Our Air Quality Index
in 2019-Q1 shows Europe is home to a fifth of the 1,211 world cities where annual fine particulate matter
(PM2.5) levels exceed WHO safe levels.

European authorities are responding by curbing road transport, complicating urban supply chains and last
mile delivery. In the past year, Madrid, Hamburg and Rome have implemented or announced bans on diesel
vehicles. Brussels introduced a low emission zone with fines for polluting vehicles similar to London’s, and a
host of French cities – as well as Maplecroft’s UK home city of Bath – are set to follow suit in 2019.

In Asia, where urban air pollution is worst, the risk picture is confused. Coal plants continue to be built across
the continent as a cheap energy source, but continued public outcry over the health impacts of air pollution
means we expect more plant shutdowns, snap bans and the stricter enforcement of regulations that have
characterised the past three years.

Spiralling urban populations will leave almost 300 million more people living in polluted areas by 2035 –
around 230 million of which will be in China or India – and over a billion worldwide, raising the prospect of
coordinated global restrictions on heavy industry and transportation.

4 © Verisk Maplecroft 2019 | maplecroft.com Photo: iStock

 Verisk Maplecroft | Environmental Risk Outlook 2019

Air pollution risks set to spiral for city dwellers

Verisk Maplecroft's Air Quality Index shows that by 2035 China and India will still have the most amount of people
living in extreme risk areas for air pollution. But the issues in other emerging markets are shown by the larger
proportional increases in populations at risk.

700

103% 34%
DR Congo China
71%
Population exposed to extreme risk of air pollution (millions of people)

600
Congo 550

69%
500
Nepal 62% 57%
Vietnam Bangladesh
56% 410
Pakistan
400
45%
35% India
South Africa
300 289
24%
Thailand

200 199

100

47 48
29 22 30 30
4 5 9 14 15 20 18
2 3 2
0
Nepal Congo Vietnam DR Congo South Africa Thailand Pakistan Bangladesh India China

2018 2035 XX%

Xxxxxx % increase in population at extreme risk
© Verisk Maplecroft 2019

Source: Verisk Maplecroft, UN

Next steps
Companies operating in polluted areas don’t even need to be big contributors – just the most visible – to feel
the force of regulatory measures and public disapproval. Mitigating these risks will require granular data that
helps companies understand and compare risk profiles of operations and suppliers.

© Verisk Maplecroft 2019 | maplecroft.com 5

Verisk Maplecroft | Environmental Risk Outlook 2019

2  Plastics crisis: Investors eye circular economy

Will Nichols
Head of Environmental Research

Driving the news

Public outcry over plastic pollution is driving investor interest in a circular economy.

Why it matters
Investors, legislators, and consumers are scrutinising corporate waste and packaging policies like never
before, putting pressure on businesses to act or face the threat of fines, boycotts or even divestment.

Watch out for

Investors acting to limit exposure to plastic pollution. The outcry only really started in 2015 with press pictures
of pristine beaches caked in plastic. Then footage of dead and maimed sea creatures hit our screens which,
along with growing alarm over microplastics in the food chain, fuelled the public backlash. Shareholder
resolutions prompted global companies like Coca Cola, McDonald’s, and Starbucks to ditch single-use
plastics, putting pressure on their peers to follow suit. Today, regulators are sweeping up the laggards: our
map shows the UK, EU, China and India are among more than 60 countries introducing national or regional
legislation to limit plastic bags or other single use plastic materials.

China and some of its neighbours have stopped accepting waste plastic imports; the spill over – estimated
at more than 111 million tonnes by 2030 – will end up in countries that cannot deal with the influx, meaning
responsible disposal cannot be guaranteed in western nations that relied on shipping their waste overseas.
The 2018 G7’s ocean plastic charter and ongoing discussions at the UN Environment Assembly raise the
prospect of a global treaty to address the issue, while at the start of this year an alliance of more than 25
major companies committed USD 1 billion to reduce the amount of plastic waste they produce and improve
recycling. Three years on from barely registering in popular consciousness, plastics and their consequences
are now front and centre.

The risk to investors is significant: Norway’s USD1 trillion sovereign wealth fund has around USD25 billion
invested in plastics producers alone. Seven of the world’s 10 largest plastic producers are oil and gas
companies. The sector is accustomed to shareholder divestment campaigns relating to its contribution to
climate change, but consumer concern around plastic pollution could start to add more fuel to those fires in
2019 – and give investors food for thought.

6 © Verisk Maplecroft 2019 | maplecroft.com Photo: iStock

 Verisk Maplecroft | Environmental Risk Outlook 2019

Plastics become key battleground in war on waste

The Trump White House has pledged China, Thailand, Malaysia and
to fund ocean cleanups and called Vietnam all restricted waste plastic
on other nations to do the same imports in 2018

The UK and EU are both aiming to

phase out single use plastics by 2020

Local National Announced

© Verisk Maplecroft 2019

Source: UNEP

Next steps
In 2019, it will be harder than even for investors and corporates to overlook plastic pollution: a wave of
shareholder resolutions and capital is poised to propel technological solutions and cross-sector partnerships
into the mainstream. The investment opportunities in infrastructure needed to support a circular economy will
be huge but, given the current lack of plastic alternatives, collaboration is the best way for industries to get
smarter about the materials produced, how they are used, and what happens once they are thrown away.

© Verisk Maplecroft 2019 | maplecroft.com 7

Verisk Maplecroft | Environmental Risk Outlook 2019

3  Shrinking the corporate disclosure gap

on climate change

Will Nichols
Head of Environmental Research

Driving the news

Investors are demanding corporates share more information on exposure to climate risk

Why it matters
A ‘disclosure gap’ leaves investors without a clear picture of the risk their portfolios are facing, complicating
decision-making and encouraging regulators to intervene.

Watch out for

Generic climate risk information being usurped by data-led, contextual analysis. The disparity between
investor expectations and what companies are currently disclosing is significant. A 2018 CDP report, for
example, found 50% of companies disclose climate risks within a six year timeframe, giving investors little
insight into long term physical and transition risks.

A growing body of legislation has pushed climate disclosure forward in the past decade, particularly in
developed economies, and the TCFD recommendations are supercharging the movement – as seen by the
seven-fold rise in companies adopting science-based targets from 2015-2018. But, even though companies
are acutely aware of investor demands for greater information about the risks they are facing from climate
change, such as scenario analysis, disclosures are still basic and are typically buried in CSR reports rather
than being integrated into financial filings.

These disclosures make it difficult for investors to assess and come up with potential actions. Likewise,
disclosed information is rarely contextualised: how can investors judge corporate actions to address, say,
future climate-related water shortages without an accurate picture of water availability in all that company’s
locations? Barrick, the world’s largest gold miner, is not the only company to complain that analysis in isolation
can be superficial, distorted and misleading.

During 2019, we expect corporations to continue to close the disclosure gap by embracing standardised
disclosure initiatives in increasing numbers. Meanwhile, investors’ thirst for information will be increasingly
standardised through legislation that echoes California’s landmark 2018 bill requiring two giant pension funds
to report publicly on the climate-related financial risk of their public market portfolio.

8 © Verisk Maplecroft 2019 | maplecroft.com Photo: iStock

 Verisk Maplecroft | Environmental Risk Outlook 2019

Science-based targets go global

North American and European firms account for most of the globe's corporate science-based targets. But interest is
growing significantly in emerging markets where environmental problems such as air pollution, water stress and flood
damage are front and centre.

2015 2016
25 63
EU EU
2 2
10 China 23 China
USA USA

1 3
India India

2017 2018
128 209
EU EU
2 4
51 China 96 China
USA USA
3 26
India India

Number of confirmed Science Based Targets

No data 1-2 3-5 6-10 11-49 50-64 >65

© Verisk Maplecroft 2019

Source: Science Based Targets

Next steps
The TCFDs already provide a template to test how their operations and portfolios can cope with climate
change. But by working to understand risk at a sovereign and sub-sovereign level, companies can provide the
contextual risk data investors are crying out for.

© Verisk Maplecroft 2019 | maplecroft.com 9

Verisk Maplecroft || Environmental
Political Risk Outlook
Risk Outlook
2018 2019

4  Sustainability targets in spotlight

as 2020 nears

Will Nichols
Head of Environmental Research

Driving the news

Corporates are asking ‘where now?’ after 2020 deadline for sustainability goals.

Why it matters
Companies face key decisions on where to focus sustainability resources and strategy over the coming
decade, while under pressure from shareholders, customers and employees to increase transparency
and accountability.

Watch out for

Organisations rejecting company-centric goals in favour of jointly working towards external benchmarks. 2020
seemed a long way off when companies were setting corporate sustainability goals in the early 2000s. Fast
forward to 2019 and the endpoint is in sight. Shareholders are now starting to demand not only new targets,
but new ways to measure progress – look at Shell linking executive bonuses to emissions targets.

Currently, only around one in five companies have set emission reduction targets to 2030 or beyond.
This leaves them out of sync with the shift to long-term targets demanded by the influential TCFD
recommendations and those governments that have set out net zero pathways by mid-century. More than
130 countries pledged to limit emissions by that date under the Paris Agreement, but the rise of right wing
populists in major economies in the last two years and the concurrent rise in global emissions puts the onus
on business to pick up the climate baton.

Even so, curbing emissions is far from the only game in town. Companies looking to 2030 will have this year
to decide whether to also address air pollution, water quality, loss of species and habitats and the growing
mountains of waste that will take thousands of years to break down.

In the past five years, reports from the UN, the World Bank and NGOs like WWF have clearly shown that
economic activity is pushing the boundaries of what the planet can support. The concurrent rise of reporting
on forests and water – and increasing alignment with science-based benchmarks – shows that boardrooms
recognise that a wide range of topics need to be tackled and they may not have the expertise internally to do
this. This realisation suggests that when setting the next generation of sustainability goals this year companies
will not focus just on what they think they can achieve, but instead work towards collaborative, cross-industry
partnerships or align with overarching initiatives like the Sustainable Development Goals.

10 © Verisk Maplecroft 2019 | maplecroft.com Photo: iStock

 Verisk Maplecroft | Environmental Risk Outlook 2019

CDP disclosures expanding in scope

Companies are already measuring and disclosing sustainability metrics beyond simply carbon - and
the trend of addressing a broad picture of risk issues will continue as corporates set post-2020
sustainability goals.

Actual number of CDP disclosures 2003-2017

2017
764
3,500 2012 211
345 2,418
2010 100
3,000 2,257
176
Number of Carbon Disclosure Policies

2,119
2,500

2,000

1,000

1,500

500

15

16

17
03

04

05

06

07

08

09

10

11

12

13

14
20

20

20

20
20

20

20

20

20

20

20

20

20

20

20

Climate Change Water Deforestation

© Verisk Maplecroft 2019

Source: CDP (Fortune 200 data is from Pivot Goals)

Next steps
Creating corporate profiles of the most material risks and opportunities will help companies identify which
topics to target and where they are happy to let others lead. Fully embedding sustainability into the way a
company does business, joining industry-wide partnerships with definite and comparable benchmarks, and
creating KPIs that enable meaningful assessment of progress towards those benchmarks, will go some way to
allaying investor concerns.

© Verisk Maplecroft 2019 | maplecroft.com 11

About our index methodology
Our reports draw on Verisk Maplecroft’s 150+ risk indices, which are updated quarterly or annually. The indices provide comparable quantitative country
risk scores for key issues impacting investors. Time-series risk data enable us to identify the trajectory of risk in a country and its root causes, as well as
opportunities for investment.

Scores and ranks: Using quantitative or qualitative methodology, comparative risk scores are created on a scale of 0 to 10, where 0 is ‘extreme risk’ and 10
‘low risk’, for up to 198 countries. Countries are also assigned a rank, with a rank of 1st denoting the highest risk country in an index.

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