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Ecosystem degradation poses significant challenges for financial undertakings, pushing them to adapt by integrating biodiversity considerations into decision-making, fostering sustainable practices for a resilient future.
Understanding biodiversity loss and its economic impact
Biodiversity loss — the rapid decline in species, ecosystems, and genetic diversity caused by activities like deforestation, pollution, and climate change — poses escalating risks for companies and the financial sector alike. Ecosystems provide vital services like carbon absorption by forests and crop pollination that are often undervalued in economic decisions1. In the EU, 72% of companies rely on these ecosystems whose degradation poses economic challenges, and 75% of bank loans are granted to these companies.2 For the financial sector, this translates into heightened investment risks, as companies within impacted industries become less stable and potentially less profitable.
Challenges in quantifying biodiversity risks
A challenge in addressing this, is the complexity of quantifying biodiversity risks. Unlike climate change which has established indicators like greenhouse gas emissions, standardized metrics for biodiversity are still developing. Also, new tools have emerged such as WWF’s Biodiversity Risk Filter that prioritizes actions to understand and address biodiversity risks3 and GIST Impact Biodiversity4 that assesses the value of nature. Additionally, the Partnership for Biodiversity Accounting Financials (PBAF) aims to provide frameworks for assessing the impact and the quantification of investments on biodiversity5.
Evolving regulatory frameworks
Regulatory frameworks are evolving in response to the biodiversity crisis. Initiatives like the Convention on Biological Diversity (CBD)6 and the EU’s Biodiversity Strategy for 20307 emphasize sustainable finance, requiring financial institutions to integrate biodiversity risks in their risk management. The Taskforce on Nature-related Financial Disclosures (TNFD) presents disclosure recommendations on nature-related dependencies, impacts, risks and opportunities.8 Furthermore, biodiversity is included in the CSRD and the EU Taxonomy, making it dependent on materiality as a disclosure to be prepared for. This marks a significant shift toward environmental accountability as investor awareness grows and stakeholders demand transparency regarding investments’ impacts on biodiversity.
Transformative change and capacity building
Integrating biodiversity into decision-making requires transformative change and capacity building, yielding both ecological and financial returns, prompting some frontrunners to include biodiversity considerations in their strategies. The European Investment Bank (EIB) now offers financial products aimed at conserving natural capital, with resources trained to evaluate biodiversity impacts. Similarly, the Dutch Central Bank provides guidance for integrating biodiversity into risk management processes.9
We acknowledge the importance of integrating biodiversity in risk management processes to safeguard ecological and economic resilience. We invite our clients to reflect on how considering biodiversity can help shape holistic ESG strategies, thereby creating new opportunities while reducing reputational risks. Innovation, collaboration and adaptation are essential for ensuring a sustainable future.
Summary
Biodiversity loss is a growing risk bearing financial consequences threatening economic stability.