Modeling place-based planetary risk for a global beauty company

Here’s a closer look: 

1) Double materiality assessment. We began with a double materiality assessment, evaluating both impact materiality (how the company affects its environment) and financial materiality (how planetary risks impact financial performance). As part of this assessment, our team analyzed 100+ risks across the company’s manufacturing sites, distribution and logistics nodes, retail stores, salons, and sourcing regions.

Seven priority physical and transition risks were identified for further analysis and financial impact quantification. Physical risks included extreme weather, water stress, and commodity supply, while transition risks included energy market transition, packaging technology, carbon pricing, and reputational risk.

2) Internal and external data collection. To develop a geospatially informed scenario analysis and financial model, our team gathered data from internal company sources, industry benchmarks and academic reports, and earth and economic datasets from SpatiaFi.

Company-specific inputs included physical assets, sourcing regions, raw and manufactured material flows and volumes, site-level energy use, and water consumption, while planetary data layers included climate hazard data (cyclones, flooding, sea-level rise), nature and suitability datasets for key commodities, FAO ECOCROP, NGFS/IEA transition pathways, WRI Water Stress, and many others. This integration enabled location-specific exposure analysis across multiple warming scenarios and time horizons.

3) SpatiaFi modeling and financial quantification. To link the company's physical footprint and sourcing regions to projected planetary impacts, we built upon our Suitability Projections using Agro-ecological Dynamics and ECOCROP (SPADE) model in SpatiaFi. The chronic shifts in growing region suitability identified by the SPADE model were combined with a bespoke econometric model to quantify the probability of financial impacts for each future climate scenario. The following metrics were used to financially quantify physical risks: 

• Physical risk from extreme weather: business interruption costs, asset-level damage projections from cyclones, flooding, and sea level rise.
• Water stress: increased utility spend, business interruption costs.
• Commodity scarcity: suitability, yield, and price change for kelp, palm, vanilla, patchouli, ylang-ylang, and vetiver.

For example, under a high emissions scenario, our analysis revealed that prices of some key natural ingredients could increase by up to 20% by 2050, and combined water and climate risks could expose the company to between $180M and $420M in annual business interruption costs.

While SpatiaFi powered the physical risk modeling, Earth Finance also evaluated the financial implications of priority transition risks under multiple time horizons.