A guide to environmental risk in business: understanding impacts and governance

A guide to environmental risk in business: understanding impacts and governance

GoodBlog | read time: 3 min

Published: 27 August 2025

As companies face growing pressure to address their environmental impacts, understanding and managing environmental risk has become an operational imperative. From climate-related disruption in supply chains to tightening environmental regulations, the risks associated with nature loss and ecosystem degradation are increasingly material to business performance. 

For organisations seeking to operate responsibly, protect their reputation, and meet stakeholder expectations, effective environmental risk governance is essential. 

What is environmental risk? 

Environmental risk refers to the potential threats to a business that stem from its own impacts and dependencies on the natural world, as well as those on wider society. These risks may arise from a company’s direct operations or across its value chain and can take many forms. 

A business’s impacts on the environment might include direct pollution, such as a chemical spill contaminating a freshwater source, or indirect effects like greenhouse gas emissions contributing to climate change. Impacts can also be cumulative. For example, repeated seabed disturbances from offshore activity may slowly degrade a marine ecosystem over time. 

Dependencies are equally important. Many businesses rely on natural resources or ecosystem services to operate. A garment factory, for instance, may depend on a local water source to process textiles. If that resource becomes depleted or contaminated, the business faces a significant operational risk. 

Today’s business leaders need to be hyper-vigilant about the ethical risks in their global operations and supply chain, acutely aware that an issue in one country can quickly become a reputational and financial challenge in another. They know investors, regulators and customers are scrutinising companies like never before.  

This rising scrutiny is the result of economic and political shocks which have shattered a half-century of faith in stable, prosperous globalisation. A tougher economic climate has failed to deliver prosperity to many, reducing trust in companies among the public and politicians, and that same low growth combined with geopolitical turbulence is driving companies into new markets and geographies which can present a whole new set of environmental risks.  

Types of environmental risk 

Environmental risks can be grouped into two main categories: physical risks and transition risks. 

Physical risks arise from changes in the natural environment. These can be acute, such as algae blooms triggered by fertiliser runoff, or chronic, like biodiversity loss caused by excessive pesticide use over time. 

Transition risks result from the societal shift towards a more sustainable economy. These include: 

• Policy changes affecting environmental regulation 
• Market pressures driven by shifting consumer and investor expectations 
• Technological developments that render environmentally harmful practices obsolete 
• Reputational risks linked to real or perceived environmental harm 
• Litigation risks arising from inadequate environmental management 
• Together, these risks can impact supply chain stability, cost structures, legal compliance and brand trust. 

Assessing environmental risk in supply chains 

To manage environmental risks effectively, businesses need to understand the condition of the ecosystems they interact with and the pressures those systems face. This means evaluating: 

• The extent of the ecosystem: the size of a specific ecosystem asset such as a wetland or rainforest 
• The condition of the ecosystem: its ability to maintain integrity, structure and function within a natural range 
• The status of species: including population trends and extinction risk 

Indicators of environmental change include climate impacts, land or freshwater use, levels of pollution, and shifts in biodiversity caused by invasive species or habitat disruption. 

Importantly, resilience varies. Two ecosystems in similar condition may respond very differently to disturbance. For example, monoculture plantations may appear healthy but can collapse quickly if disrupted, due to low biodiversity. Assessing both condition and resilience is therefore vital for a full understanding of environmental risk. 

Environmental risk and human rights 

Environmental degradation does not occur in isolation from people. It affects livelihoods, access to essential resources, health outcomes and living conditions, with vulnerable communities often bearing the brunt of these impacts. 

At the same time, measures to mitigate environmental harm can themselves pose social risks. Conservation projects have historically displaced millions of people, particularly Indigenous and nomadic communities. Fencing off land for preservation may sever ties to livelihoods, culture and ancestral heritage. 

Environmental governance must therefore be approached through a human rights lens. This means engaging with local communities, recognising traditional stewardship, and ensuring that protection of the environment does not come at the cost of dispossession or harm. 

How GoodCorporation supports environmental risk management 

GoodCorporation works with businesses to build robust systems for identifying, managing and monitoring environmental risk across operations and supply chains. 

Our environmental governance and management services support companies in: 

• Developing clear policies and procedures to assess environmental impacts and dependencies 
• Embedding environmental considerations into wider risk and compliance frameworks 
• Conducting on-the-ground assessments through interviews with management, staff and stakeholders across the value chain 
• Identifying gaps in environmental risk oversight and providing practical recommendations for improvement 

Managing environmental risk for long-term resilience 

Environmental risk is no longer a future concern. It is a present-day business issue that affects operational continuity, legal exposure and stakeholder confidence. Companies that invest in strong governance and data-driven assessments are better positioned to meet regulatory expectations, protect their reputation and operate sustainably. 

To learn more about how GoodCorporation can support your organisation, explore our environmental governance and management services or download a free copy of our Environment Framework here.

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