How landscape investment reduces risk

Jan Willem Den Besten
Jan Willem Den Besten
Jan Willem is a senior expert in Green Finance at IUCN Netherlands and a co-creator of LIFT.

Below you see the SWOT matrix. It’s a simple tool for mapping Strengths, Weaknesses, Opportunities and Threats of an entity. At some point, most businesses have done this quick assessment of their business. If this is brand new to you, take a bit of time to learn more now.

SWOT Matrix

Integrated landscape investments can combat weaknesses and offset threats. In financial terms, ‘threats’ are typically called ‘risk’.

Risk is the level of likelihood or potential that an investor will not get the financial return they hoped for. And in order to increase the likelihood of getting their financial return, investors want to see how you are using their investment or other resources to preserve revenue, prevent costs, and mitigate risks.

In the context of landscape investments, there’s a few main types of risk which concern people and organisations enough to motivate them to make an investment to preserve financial returns.

Operational risk

In short, an operational risk is one which has a potential negative impact on the ability of the business to complete its normal processes.

Companies with extended supply chains and contractual obligations to deliver product on time, at agreed quantity and quality, face multiple risks all along the road to the ultimate delivery of their goods to their wholesalers or retailers. To reduce this type of business risk inherent to supply chain management, we may focus on ensuring good supply through climate smart agriculture practices that sustain production even in the case of drought, for example. This is a great example of sustainable land use investment. 

Integrated landscape investments would reduce supply-related business risks not only at the level of the farm where items are produced, but throughout the broader landscape.

For example, a landscape platform may coordinate investments not only in farmer training activities to teach climate smart agriculture practices, but also in riparian restoration for flood control and drought protection, collectively-owned flood-resilient crop storage facilities, and weather-indexed insurance for producers. This integrates many levels of partners, and dovetails sustainability and business goals together.

Reputational risk

You’ve likely noticed that in the last few years, many companies are investing in sustainability, environmental conservation and other worthy causes. And just as importantly, these companies proudly share their sustainability efforts in their marketing strategies. Additionally, companies are adding protocols and making investments in programs that enforce commitments to human rights-related objectives like Free, Prior and Informed Consent (FPIC), fair trade principles, and ridding their supply chains of child labor and human trafficking.

What these companies are doing is investing in their reputation. Some of this investment works to attract new customers and revenue. But mostly, companies are doing this to mitigate the risk of costs and losses associated with reputational damage that comes from campaigns or stories that reach consumers about violations of accepted norms and ethics by the company or within their supply chain.

Exposure to reputational risks is higher in consumer-facing brands, and these are also able to take advantage of market opportunities provided by sustainability efforts. Such companies usually have the highest margins in the supply chain, which allows some extra flexibility to be early movers in sustainability efforts, including participating in landscape partnerships. Retailers and manufacturing brands that have made corporate commitments need partners in their supply chains and within the landscapes in which they operate to help deliver on those commitments. In contrast, traders and suppliers often have slim profit margins and few reputational advantages from engaging in landscape partnerships.

Regulatory risks

Regulatory and legal risks arise from uncertainty related to the stability of existing legal frameworks. If landscape actors agree to a set of joint actions that limit the need for further regulation, changes in regulatory regimes may be avoided. This is common, for instance, around water issues: if a high-water-use industry voluntarily commits to landscape-scale efforts to support water conservation and quality, they may be able to avoid legal restrictions on their facilities’ water use.

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