Study for methodological framework and assessment of potential financial risks associated with biodiversity loss and ecosystem degradation

Biodiversity loss and ecosystem collapse are one of the biggest threats facing humanity in the next decade. An important driver of global decline of biodiversity is the unsustainable use of nature’s resources emanating from political and economic decisions based on narrow sets of criteria, that do not fully encompass the diverse value that biodiversity and healthy ecosystems hold for the financial community. The EU has recognized that in order to achieve ambitious climate and biodiversity targets of the European Green Deal, a shift in the way business understands and accounts for their relationship with nature and people is required. Accurately incorporating the benefits of nature and understanding the risks associated to the nature degradation and biodiversity loss is critical to ensure long-term financial stability.

While all major investment banks and financial institutions have made significant progress in the making climate risk assessments a standard, assessments on the risks associated to biodiversity and nature loss remain in their infancy, but have quickly gained traction over the past years. The aim of this project is to develop a methodological framework for biodiversity loss related financial risks for the European Commission. For this purpose we reviewed current literature and best practices in integrating nature-related risks into investment portfolios, and furthermore investigates sectoral materiality and sensitivity to different nature risks to identify the most vulnerable sectors in the EU. On this basis, together with our partners, we developed methodological framework for financial institutions to assess their risk exposure to nature and biodiversity.