Governing environmental risk in an era of geopolitical instability

Global boardrooms face a world defined by cascading crises. Geopolitical rivalry, inflationary pressures, supply chain disruption and energy insecurity dominate their agendas.

In this context, environmental risks such as climate change and nature loss are still framed as future concerns – important, but secondary to traditional economic and security imperatives.

The result is a persistent blind spot: environmental risk is systematically underestimated as a near-term driver of instability, even as it contributes to and actively amplifies the crises commanding the most attention today.

Take the World Economic Forum’s The Global Risk Report 2026 – while environmental risks have been in the top five global risks every year since 2011, there remains a misunderstanding is that environmental risks can be managed later – yet, in truth, action is needed today to prevent future impact or degradation.

At the heart of this blind spot lies an outdated understanding of risk. Boards continue to assess threats in isolation, separating financial risk from environmental risk and geopolitical risk from corporate strategy. Climate and nature are often delegated to sustainability functions, detached from core decisions on growth, capital allocation and risk appetite.

In practice, risk does not behave this way. Climate change and nature loss are not parallel challenges to conflict or economic volatility; they are deeply intertwined, creating reinforcing feedback loops that operate across borders and time horizons.

Despite mounting evidence of such dynamics, governance systems remain fragmented. Corporate boards often approach environmental issues through compliance and disclosure. Security is considered solely within the realm of defence institutions. This siloed approach fails to account for the interconnected risks that reshape economic stability and competitiveness.

Across regions and sectors, environmental health underpins corporate performance and, accordingly, when degraded can lead to corporate risk. Roughly 55% of global GDP — equivalent to $58 trillion in economic value – is moderately or highly dependent on nature and its services, according to PwC. As ecological systems erode, so does the economic foundation they support.

Understanding climate and nature risk therefore offers more than an environmental lens; it provides an early-warning indicator of geopolitical disruption. According to the World Bank, natural resources were a source of contention in one in four global crises and conflicts. In addition, as much as 70% of the most climate-vulnerable countries are also among the most fragile.

Vice versa, conflict accelerates environmental degradation, compounding ecological stress. This creates long-tail risks for insurers, investors and firms operating in or sourcing from conflict-affected regions. Environmental damage is both a cause and a consequence of instability, locking regions – and the supply chains that depend on them – into cycles of fragility.

Finally, strategic competition around critical natural assets is expanding, with ecosystem services increasingly treated not only as resources to steward but as instruments of geopolitical leverage. As access to water, arable land and critical minerals becomes more strategically contested, regulatory and security responses – from export controls to environmental standards – are reshaping competitive landscapes.

Food systems illustrate how localized environmental stress can lead to broader instability. In many African countries, for example, agriculture sits at the centre of both livelihoods and national stability. Shifts in rainfall, soil degradation and biodiversity loss undermine crop yields, pushing up food prices and straining already fragile economies.

These pressures can lead to drivers of instability such as income loss, migration and resource competition, while also disrupting regional and global supply chains. In this way, environmental degradation does not remain an ecological problem alone – it becomes a driver of economic volatility and a potential catalyst for political instability and conflict.

Within the corporate ecosystem, boards are uniquely positioned to bridge short-term pressures and long-term risk. Their role is not to manage environmental issues, but to ensure that climate and nature are governed as material drivers of strategy, security and long-term value. So what needs to change?

First of all, boards must consider climate and nature as strategic risks. Environmental factors should shape corporate strategy, capital allocation and risk appetite. This means embedding climate and nature considerations into company goals and performance objectives, and testing business models against multiple scenarios – including geopolitical disruption, ecosystem tipping points and regulatory shifts – across short-, medium- and long-term horizons.

Secondly, boards must expand how risk is defined and assessed. Oversight should include indirect, systemic and fast-evolving climate and nature risks across the value chain, not only those that are easily quantifiable or immediately visible. Understanding how environmental degradation affects – and is affected by – financial performance is essential to protecting long-term value.

Thirdly, boards must use foresight to balance short-term pressure with long-term value. Scenario analysis and systems thinking help challenge assumptions, reveal hidden dependencies and surface long-tail risks that traditional models miss. This enables more informed decisions under uncertainty and reframes environmental constraints as opportunities for innovation, resilience and competitive advantage.

This shift is not about adding new reporting requirements; it is about aligning governance with the realities of today’s operating environment in which competitiveness, security and sustainability are structurally intertwined. Climate protection is no longer a discretionary cost but a strategic determinant of economic strength.