Study for a methodological framework and assessment of potential financial risks associated with biodiversity loss and ecosystem degradation : final report.
Date: 2024-06-25
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union
Subjects: EU Member State, EU strategy, biodiversity, decision-making, degradation of the environment, environmental risk prevention, farming sector, financial risk, green economy, healthcare industry, natural resources, real estate market, report, risk management, sustainable finance

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

Final Report 

Written by Maha Cziesielski, Cosima Dekker-Hufler, Timea Pal,  
Graeme Nicholls, Foivos Petsinaris, Lisa Korteweg (Trinomics) 
Michael Obersteiner, Nikolay Khabarov (IIASA) 

February 2024 
Updated in June 2024 

 
  
EUROPEAN COMMISSION 

Directorate-General for Financial Stability, Financial Services and Capital Markets Union 
Directorate B — Horizontal Policies 
Unit B.2 — Sustainable Finance 

E-mail:   FISMA-B2@ec.europa.eu      

European Commission 
B-1049 Brussels 

 
 
EUROPEAN COMMISSION 

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

Directorate-General for Financial Stability, Financial Services and Capital Markets Union 

2024 

EN 

Manuscript completed in February 2024 

Please note that Sections 2.1.1, 2.2.2 and 3.2.3 of this report were updated in June 2024 to ensure that all 
references to existing frameworks are current and accurate. 

This document has been prepared for the European Commission however it reflects the views only of the 
authors, and the European Commission is not liable for any consequence stemming from the reuse of this 
publication. 

Luxembourg: Publications Office of the European Union, 2024 

© European Union, 2024 

The reuse policy of European Commission documents is implemented by Commission Decision 
2011/833/EU of 12 December 2011 on the reuse of Commission documents (OJ L 330, 14.12.2011, p. 39). 
Unless otherwise noted, the reuse of this document is authorised under a Creative Commons Attribution 
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PDF 

ISBN 978-92-68-18346-5 

doi:10.2874/30768  EV-05-24-544-EN-N 

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

Abstract  

loss  pose  multifaceted  risks,  extending  beyond 

One  of  the  key  pillars  of  the  European  Green  Deal  (EGD)  is  set  on  prioritizing  the 
preservation  and  enhancement  of  natural  capital.  Amidst  key  legislations  and 
the  EU  Sustainable  Finance  agenda  mandates 
international  commitments, 
transparency,  urging  financial  institutions  to  align  with  nature-positive  strategies. 
Biodiversity  and  nature 
the 
environmental  realm,  impacting  essential  economic  activities  and  the  overall  financial 
system.  Recognizing  these  risks,  both  public  and  private  sectors  are  increasingly 
integrating nature and biodiversity into long-term strategies and risk assessments. This 
study  aims  to  enhance  the  European  financial  sector's  preparedness  by  providing  a 
flexible  methodological  framework,  drawing  on  existing  climate  and  nature  risk 
approaches. Reviewing best-practices and existing frameworks, the study covers the key 
definitions  and  steps  in  determining  risk  drivers,  types,  transmission  channels,  and 
exposure  assessments.  An  assessment  of  the  EU’s  sectoral  exposure  furthermore 
reveals  that  agriculture,  real  estate  and  construction,  and  healthcare  sectors  as  most 
susceptible. This highlights the importance of nature’s location specificity. The developed 
framework  supports  financial  institutions  in  assessing  and  managing  biodiversity  and 
nature-related  risks,  offering  practical  considerations  for  risk  identification,  forward-
looking scenarios, and mitigation actions. The aim is to encourage financial institutions 
to embark on a journey towards progressively integrating nature-related risks into their 
sustainability frameworks and decision-making processes. 

5 

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

Abstrait 

L'un des principaux piliers du Green Deal européen (EGD) consiste à donner la priorité 
à la préservation et à l'amélioration du capital naturel. Parmi les législations clés et les 
engagements internationaux, l'agenda de l'UE en matière de finance durable impose la 
transparence,  exhortant  les  institutions  financières  à  s'aligner  sur  des  stratégies 
favorables à la nature. La perte de biodiversité et de nature pose des risques à multiples 
facettes, allant au-delà du domaine environnemental et ayant un impact sur des activités 
économiques essentielles et sur le système financier dans son ensemble. Conscients 
de  ces  risques,  les  secteurs  public  et  privé  intègrent  de  plus  en  plus  la  nature  et  la 
biodiversité dans les stratégies à long terme et l'évaluation des risques. Cette étude vise 
à  améliorer  la  préparation  du  secteur  financier  européen  en  fournissant  un  cadre 
méthodologique flexible, s'appuyant sur les approches existantes en matière de risques 
climatiques  et  naturels.  Passant  en  revue  les  meilleures  pratiques  et  les  cadres 
existants, l'étude couvre les définitions et les étapes clés de la détermination des facteurs 
de risque, des types, des canaux de transmission et de l'évaluation de l'exposition. Une 
évaluation  de  l'exposition  sectorielle  de  l'UE  révèle  en  outre  que  les  secteurs  de 
l'agriculture,  de  l'immobilier  et  de  la  construction,  et  des  soins  de  santé  sont  les  plus 
sensibles.  Cela  souligne  l'importance  de  la  spécificité  géographique  de  la  nature.  Le 
cadre élaboré aide les institutions financières à évaluer et à gérer les risques liés à la 
biodiversité et à la nature, en proposant des considérations pratiques pour l'identification 
des  risques,  des  scénarios  prospectifs  et  des  mesures  d'atténuation.  L'objectif  est 
d'encourager  les  institutions  financières  à  s'engager  sur  la  voie  de  l'intégration 
progressive  des  risques  liés  à  la  nature  dans  leurs  cadres  de  durabilité  et  leurs 
processus décisionnels. 

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

EXECUTIVE SUMMARY 

The European Green Deal (EGD) represents an ambitious strategy aimed at ensuring a 
sustainable  and  prosperous  future  for  Europe,  while  addressing  climate  change  and 
environmental  degradation  challenges.  Central  to  the  EGD  is  the  preservation  and 
enhancement  of  natural  capital  to  foster  a  sustainable,  equitable  and  competitive 
economy within the European Union. Legislation and international commitments such as 
the  Biodiversity  Strategy  for  2030  and  the  recently  adopted  Global  Biodiversity 
Framework  (GBF),  the  EU  Sustainable  Finance  agenda,  encompassing  the  EU 
the  Sustainable  Finance  Disclosure  Regulation  (SFDR),  Corporate 
Taxonomy, 
Sustainability  Reporting  Directive  (CSRD)  and  European  Green  Bond  Standard 
Regulation, compel financial institutions towards transparency and alignment with nature 
positive strategies and actions. 

The loss of biodiversity and nature poses multifaceted risks that extend well beyond the 
environmental sphere, rippling deeply into essential economic activities and our overall 
financial system. Many industries heavily rely on services provided by ecosystem, 
and  the  combined  effects  of  these  dependencies  are  often  underestimated.  In 
economic  terms,  biodiversity  and  nature  related  risks  can  affect  different  sectors  and 
industries in a multitude of manners. Moreover, biodiversity and nature loss can have 
indirect  but  significant  repercussions  on  financial  institutions.  Acknowledging  the 
importance  of  risks  related  to  biodiversity,  the  public  and  private  sector  are 
increasingly incorporating nature and biodiversity considerations into their long-
term strategies and risk assessments.   

The  primary  objective  of  this  study  lies  in  enhancing  the  European  financial  sector’s 
preparedness to address and manage risks emanating from environmental degradation 
and biodiversity loss. By critically examining the existing landscape, this research aims 
to  provide  financial  institutions  with  a  flexible  and  adaptable  methodological 
framework for measuring and quantifying these challenges and risks through the 
development  of  a  specific  methodological  framework.  The  proposed  framework, 
which  draws  on  existing  climate  and  nature  risk  assessment  framework,  and  was 
presented and discussed at an outreach workshop and during interviews with European 
financial  stakeholders,  aligns  with  major  references  such  as  the  NGFS1,  OECD2  and 
TNFD3 approaches. 

The fundamentals of nature-related risk frameworks  

The four fundamentals of nature-related risk frameworks (see Figure 1) – risk drivers, 
risk  types,  transmission  channels  and  exposure/materiality  assessment  –  find  their 
origins  in  the  more  advanced  and  established  climate-related  risk  frameworks.  This 
framing  captures  how  nature  can  affect  the  performance  of  financial  institutions,  and 

1 NGFS (2021) Biodiversity and financial stability: building the case for action. 
2 OECD (2023), "A supervisory framework for assessing nature-related financial risks: Identifying and navigating 
biodiversity risks", OECD Business and Finance Policy Papers, No. 33, OECD Publishing, 
Paris, https://doi.org/10.1787/a8e4991f-en. 
3 TNFD (2023) Recommendations of the Taskforce on Nature-related Financial Disclosures 

7 

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

conversely, how their respective activities can impact nature, a relationship, known as 
‘double materiality’.  

Risk drivers, the root cause of nature loss, are described in this report based on the 
IPBES  classification  of  drivers  of  biodiversity  and  ecosystem  change4  -  land  use  and 
climate change, resource use, pollution and invasive aliens’ species. From these drivers, 
multiple risk types can propagate from the degradation of nature and derived ecosystem 
services  (physical  risks)  or  through  the  misalignment  between  economic  actors  and 
actions  which  protect/restore  nature,  or  reduce  negative  impacts  on  nature  (transition 
risks)  5  6. These two risk types can interact with each other and  exacerbate a range of 
impacts upon both ecological and financial systems. Hence, their consideration within a 
risk framework is significant.  

Figure 0 - Risk categorisation of nature-related risk frameworks 

Understanding the manner and the scale in which risk transmits to the financial system 
(transmission channels) can assist financial institutions in understanding the financial 
risks  and  impacts.  These  predominantly  are  credit  risk,  market  risk,  liquidity  risk, 
underwriting risk, and operational risk7. Exposure assessments can assist a financial 
institution  to  measure  and  assess  their  dependency  and  impact  on  nature.  While 
advanced assessments exist with key tools such as ENCORE, IBAT and EXIOBASE, 
tools lag behind in the integration of key nature-related risk relational features (location-
specificity,  value  chain  interactions,  time  projections).  Materiality  assessments  use 
scenarios to translate exposure into tangible financial risk, however important data gaps 
due to the complexity of the relationship between nature and socio-economic systems 
exist. As such, the integration of nature-related risk within the decision-making processes 

4 IPBES (2019): Summary for policymakers of the global assessment report on biodiversity and ecosystem services of 
the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services 
5 TNFD (2023) Recommendations of the Taskforce on Nature-related Financial Disclosures 
6 NGFS (2021) Biodiversity and financial stability: building the case for action.  
7 CISL (2021) Handbook for nature-related financial risks: key concepts and a framework for identification, University of 
Cambridge.  

8 

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

of  financial  institutions,  as  well  as  the  formulation  of  proactive  mitigation  approaches 
(e.g.,  due  diligence,  Biodiversity  Action  Plans,  ESG  integration)  remain  an  ongoing 
endeavor.  

Assessing sectoral exposure and understanding nature-related risks in the 
EU Economy 

While  every  sector  is  to  some  degree  dependent  upon  and  has  an  impact  on  nature, 
some (sub)sectors or industries are more exposed to biodiversity and nature related risks 
than others, with implications on the financial institutions that loan, insure, or invest to 
entities from these sectors. The (sub)sectors that are commonly identified by relevant 
resources as particularly exposed to nature related risk range across primary, secondary, 
and  tertiary  sectors.  The  intensity  of  their  exposure  to  nature  related  transition  and 
physical  risks,  and  the  financial  implications  of  these  exposures,  however,  varies 
considerably. This section therefore undertook an analysis to estimate the materiality of 
their exposure to nature-related risks from the perspective of the EU economy, using the 
fundamentals of the nature-related risks introduced by the Study (Section 1). The ranking 
and prioritization of (sub)sectors according to the materiality of their exposure to nature-
related risks can guide the implementation of the framework for assessing nature-related 
risks  in  the  EU  (Section  3),  especially  in  the  short  term  until  data  at  the  entity  level 
becomes more available.   

The assessment of the exposure of the affected sub-sectors to physical and transition 
risks,  shown  in  Figure  2,  highlights  agriculture  and  farming,  forestry,  fishing  and 
aquaculture, but also water and waste services, metals and mining, and construction and 
engineering as the most materially exposed sectors at the global level. Integrating the 
economic, investment and employment relevance of these affected sub-sectors to the 
EU,  however,  shifts  the  focus  towards  real  estate  and  construction,  agriculture  and 
farming, and health care delivery as the most critical areas from the EU perspective, as 
shown by Figure 3. The implementation of the sectoral exposure assessment approach 
confirms the importance for each financial institution to consider the sectoral distribution 
of its financial assets.  The assessment also sheds light on the important limitations that 
existing tools still have in terms of factoring in supply chain interlinkages and locational 
specificities in determining the materiality of exposure to nature related risks.  

9 

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

Figure 2 -  (Sub)sector dependence and impact score 

4,5

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3,5

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2,5

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Energy Production

Oil and Gas - Mid 
and Downstream

Oil and Gas

Pulp and Paper 
Production

Chemicals 
(and biofuels)

Hospitality, Food 
and Beverage 
Services

Automobiles and 
Components

Construction and 
Engineering

Metals and Mining

Construction 
Materials

Fishing and 
Aquaculture

Agriculture and 
Farming

Forestry

Water and Waste 
Services

Food and Beverages
Textiles, Apparels 
and Footwear

Water 
Transportation

1,5

2

2,5

3

3,5

4

4,5

Subsector Dependence Score

Figure 3 - Mapping BES Risk Exposure Scores and EU Economic Relevance Indicators for the affected sub-
sectors 

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16%

14%

12%

10%

8%

6%

4%

2%

0%

Real Estate and 
Services

Health Care 
Delivery

Agriculture and 
Farming

Construction and 
Engineering 

0

1

2

3

4

5

6

7

8

BES Risk Exposure Score

Case  studies  can  provide  a  temporary  solution  to  addressing  these  limitations,  until 
existing tools make further progress to integrate relational aspects and facilitate a more 
comprehensive  nature-risk  assessment  approach.  The  cases  of  real  estate  and 
construction, agro-food production and health care delivery unveil: 1) the significance of 
so-called "hidden risks," through biological and macroeconomic feedback loops, 2) the 
substantial  impact  of  inter-sectoral  and  locational  linkages  that  can  amplify  risk 
propagation across various sectors, thereby generating more pronounced financial risks 

10 

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

than commonly estimated, and 3) the current deficiency in comprehending transmission 
channels and mitigation measures at the sectoral level.  

Developing a framework for assessing nature-related risks in the EU 

This framework sets out an overall approach and step-by-step methodology for financial 
institutions to assess the financial impacts of biodiversity and nature-related risks. The 
framework is intended to equip financial institutions with an approach that can be applied 
for different use case and resource constraints, working towards best practice in a data 
challenged  environment,  with  the  focus  on  being  adaptive  in  the  context  of  improving 
data and the understanding of nature-related risks.  

the  NGFS  conceptual 

The  framework  is  complementary  to  three  existing  sets  of  methodological  guidance 
related  to  biodiversity  and  nature-related  risk  assessments  in  the  financial  sector, 
framework 
including 
(developed  as  part  of  the  technical  support  project  launched  by  the  European 
Commission at the initiative of the central bank of Hungary) and the TNFD approach. 
The main steps and concepts used in this framework are aligned with these approaches 
but provides individual financial institutions with an additional layer of detail on practical 
steps required to implement a biodiversity and nature- risk assessment. 

framework,  the  OECD  supervisory 

This  framework  is  split  into  three  stages  and  eight  steps  as  shown  in  Figure  4.  Each 
stage covers the key components of nature risk assessment for financial institutions from 
defining the appropriate assessment scope, to quantifying transition and physical risks, 
estimating impacts and dependencies exposure and translating exposure and risks into 
financial impacts at entity and institution level. For each step, the framework details how 
specific actions could be carried out by financial institutions. It also includes discussions 
around  key  challenges,  synergies  and  design  decisions  that  arise  when  undertaking 
these actions, including discussions around synergies and differences with climate risks 
assessment approaches and metrics.  

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

Figure 4 - Methodological framework for assessing nature related financial risks 

The  framework  underlines  several  practical  considerations,  that  are  important  for 
financial institutions to carry out nature-related risk assessments. These include: 

●  Clearly setting out the intention and use of the risk assessment to inform key 

design choices, such as granularity of data required and whether qualitative or 
quantitative data is required, 

●  Conducting risk identification prior to a full risk assessment to understand where 

to invest time and resources in conducting deeper levels of assessment, 

●  Using forward-looking scenarios to assess future exposure to risk, particularly 

given the uncertainty of the development and timing of different physical and 
transition risks, 

●  Assessing when and where location-specific data is required to generate robust 

insights on impacts and dependencies, 

●  Using an approach that considers nature-related risks that occur due to value 

chain exposure, given that a significant amount of financial exposure in Europe 
is in sectors that do not directly impact or depend on nature, 

●  Considering the range of mitigation actions that have potential to reduce 

exposure to risks, both in terms of actions available for individual counterparties 
or portfolio companies and for financial institutions at large. 

Financial  institutions  now  have  a  considerable  amount  of  methodological  guidance 
available to begin to carry out nature-related risk assessments and assess the financial 
materiality  of  these  risks.  Several  practical  challenges  remain  in  areas  of  ongoing 
development for individual financial institutions and the sector at large. These include: 

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

● 

● 

the development of publicly available nature scenarios useful for the 
financial sector substantially lags behind availability of comparable climate 
scenarios. In the short term, financial institutions will be best served by 
developing their own scenarios that meet their risk assessment needs or by 
building on existing climate scenarios to construct integrated nature and climate 
scenarios, 

the consideration of the location is central to a robust nature risk 
assessment. Financial institutions are likely, however, to encounter significant 
challenges in compiling data that is comprehensive enough to generate 
granular insights across the whole portfolios. Individual financial institutions can 
work in the short-term to prioritise and determine which risks or parts of a 
portfolio require very granular data, while collaboration between financial 
institutions, supervisors, companies, data providers and scientists can help 
close this gap over time, 

● 

the availability of value chain and supply chain data for individual 
companies in the economy is limited. This is a significant barrier to generating 
robust, portfolio-wide risk assessments and is an area where a significant 
amount of innovation and work is required. 

Recommendations and actionable insights: 

Nature-related risk assessment is an evolving field for financial institutions. As improved 
capabilities, new data and regulations begin to emerge, financial institutions can already 
begin  now  to  build  towards  best  practice  and  explore  how  nature-related  risk 
assessments  can  support  their  activities  and  efforts  towards  financing  a  sustainable 
future. This could be done in three main phases:  

(i) 

a short-term exploratory and planning phase  

Financial  institutions  can  start  implementing  this  framework  by  piloting  high-level  or 
targeted assessments (e.g. sector, region, etc.) and building up capabilities towards best 
practice for the various use cases, although alignment of data, metrics, and approaches 
to assess nature-related risks is expected to improve over time.  

(ii) 

a medium-term deepening phase building strong capability 

Financial institutions can deepen their capabilities on nature-related risks assessment by 
conducting  more  comprehensive  quantitative  analysis,  including  exploring  scenario 
analysis.  They  might  also  want  to  start  implementing  risk  management  measures  by 
engaging  with  clients  and  initiating  preliminary  discussions  on  mitigation  actions  and 
transition plans for risks they currently do not act on. 

(iii) 

a  long-term  mainstreaming  phase  integrating  nature  in  their  frameworks, 
including exploring full integration with climate models  

In the  long-term financial  institutions might  work towards making  nature an  integrated 
part of their sustainability risk assessment and management, especially by integrating 
climate  and  nature  models  and  management  processes,  including  capital  allocation 
strategies,  lending  policies,  annual  reporting  combined  with  integrated  TCFD-TNFD 

13 

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

disclosures  to  enable  the  development  of  comprehensive  nature  transition  plans. 
Financial institutions might also consider mainstreaming nature across the organization 
by  ensuring that  nature  is  included  in  decision  frameworks  at  all  levels  and  across  all 
divisions, beyond risk teams.  

Key take-away points 

Despite the increasing recognition of the significance of nature and biodiversity in our 
collective health and economic prosperity, prevalent lack of assessments, transparent 
reporting  and  disclosure  are  hindering  the transition  from  awareness  to  impactful  and 
mitigative actions. Nature holds inherent value, fundamental to financial institutions and 
companies’  success,  yet 
lack  of 
acknowledgment consequently results in that neither risks nor opportunities are being 
sufficiently considered in assessments of both financial institutions and companies.  

its  worth  often  remains  unquantified.  This 

Deeper assessment into the sectoral exposure shows that biodiversity and nature related 
risks can have diverse impacts across various sectors and industries, accentuating the 
varying degrees of exposure present in the financial landscape. Available tools represent 
sectoral  exposure  at  a  global  level,  yet  context-specific  information  is  crucial  to  truly 
understand the level of impact and dependencies that a sector has on nature at a local 
or regional level. Assessment specifically of the European economy’s dependencies and 
impacts  show  that  a  wide  array  of  sectors  is  heavily  dependent  on  nature  and  thus 
exposed  to  associated  risks  in  one  form  or  another:  agriculture,  real  estate  and 
construction,  and 
the  most  susceptible. 
Contextualizing  global  data  to  regional  markets  provides  pivotal  insights  for  financial 
institutions to evaluate their risk exposure comprehensively. 

the  healthcare  sector  came  out  as 

The methodological framework offers financial institutions a systematic approach 
to  assess  the  financial  impacts  stemming  from  biodiversity  and  nature-related 
risks. It aims to provide a flexible approach that can be applied in diverse circumstances, 
considering  resource  limitations  and  evolving  data  accessibility.  The  framework  is 
designed  to  accommodate  a  scalable  approach,  allowing  institutions  to  initiate 
assessments  with  simplicity  and  gradually  delving  into  more  sophisticated 
analysis. This component of scalability ensures that the framework is adaptable to the 
needs and capacities of financial institutions as they progress in integrating nature and 
biodiversity considerations into their risk assessments. The framework thus provides an 
adaptable assessment amid a data-constrained environment.  

Furthermore,  the  framework  has  also  been  designed  in  consideration  of  evolving 
environmental  standards  and  regulations.  The  framework  methodology  remains 
flexible so that it can easily be integrated into emerging framework to ensure that 
it  remains  relevant  within  the  evolving  landscape.  It  thus  presents  a  dynamic  tool 
that  can  adapt  and  align  with  emerging  best-practices  in  nature-related  financial 
assessments.  

As  the  financial  sector  navigates  environmental  challenges,  the  insights  provided 
through  the  framework  assessment  will  empower  institutions  to  integrate  nature  and 

14 

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

biodiversity considerations into risk assessments and advance their strategies towards 
sustainable and resilient practices. 

15 

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

RÉSUMÉ EXÉCUTIF 

Le Pacte Vert pour l’Europe (EGD) représente une stratégie ambitieuse visant à assurer 
un  avenir  durable  et  prospère  à  l'Europe,  tout  en  relevant  les  défis  du  changement 
climatique  et  de  la  dégradation  de  l'environnement.  La  préservation,  le  maintien  et  la 
restauration  du  capital  naturel  pour  favoriser  une  économie  durable,  équitable  et 
compétitive  au  sein  de  l'Union  européenne  (UE)  sont  au  cœur  de  l’EGD.  Dans  ce 
contexte, la législation et les engagements internationaux tels que la Stratégie en faveur 
de  la  Biodiversité  à  l'horizon  2030  et  le  Cadre  Mondial  pour  la  biodiversité  (GBF) 
récemment adopté, la Stratégie en matière de finance durable de l'UE, qui englobe la 
taxonomie  européenne,  le  règlement  sur  la  publication  d’informations  en  matière  de 
durabilité dans le secteur des services financiers (SFDR), la directive sur la publication 
d'informations en matière de durabilité par les entreprises (CSRD) et le règlement sur 
les obligations vertes européennes, obligent les institutions financières à faire preuve de 
transparence et à s'aligner sur des stratégies, et les incitent à développer  des actions 
favorables à la nature. 

L'appauvrissement de la biodiversité et de la nature pose des risques à multiples facettes 
qui  dépassent  largement  la  sphère  environnementale  et se répercutent profondément 
sur des activités économiques essentielles et sur l'ensemble de notre système financier. 
De  nombreuses  industries  dépendent  fortement  des  services  fournis  par  les 
écosystèmes,  et  les  effets  combinés  de  ces  dépendances  sont  tendent  à  être 
sous-estimés. D’un point de vue économique, les risques liés à la biodiversité et à la 
nature peuvent en effet affecter différents secteurs et industries de multiples façons. En 
outre, la perte de biodiversité et de nature peut avoir des répercussions indirectes mais 
significatives sur les institutions financières. Reconnaissant l'importance des risques 
liés  à  la  biodiversité,  les  secteurs  public  et  privé  intègrent  progressivement  les 
considérations relatives à la nature et à la biodiversité dans leurs stratégies à long 
terme et leur évaluation des risques.   

L'objectif  principal  de  cette  étude  est  d'améliorer  la  préparation  du  secteur  financier 
européen à aborder et à gérer les risques émanant de la dégradation de l'environnement 
et de la perte de biodiversité. En examinant de manière critique le contexte actuel, cette 
recherche  vise  à  fournir  aux  institutions  financières  un  cadre  méthodologique 
flexible  et  adaptable  pour  mesurer  et  quantifier  ces  risques  à  travers  le 
développement d'un cadre d’évaluation spécifique. Le cadre proposé, qui s'inspire 
des  cadres  d'évaluation  des  risques  climatiques  et  naturels  existants,  et  qui  a  été 
présenté et discuté lors d'un atelier de sensibilisation et au cours d'entretiens avec des 
acteurs  financiers  européens,  s'aligne  sur  des  références  majeures  telles  que  les 
approches du NGFS8 , de l'OCDE9 et de la TNFD10 . 

8 NGFS (2021) Biodiversity and financial stability : building the case for action. 
9 OCDE (2023), "Un cadre de surveillance pour l'évaluation des risques financiers liés à la nature : Identifier et gérer les 
risques liés à la biodiversité ", Documents de politique économique et financière de l'OCDE, n° 33, Éditions de l'OCDE, 
Paris, https://doi.org/10.1787/a8e4991f-en. 
10 TNFD (2023) Recommandations de la Taskforce on Nature-related Financial Disclosures  

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Les fondements des cadres d'évaluation des risques liés à la nature  

Les quatre éléments fondamentaux des cadres d’évaluation de risques liés à la nature 
(voir  figure  1-1)  -  facteurs  de  risque,  types  de  risques,  canaux  de  transmission  et 
évaluation de l'exposition/de l'importance relative - trouvent leur origine dans les cadres 
d’analyse  des  risques  liés  au  climat,  plus  avancés  et  mieux  établis.  Ces  cadres 
permettent  de  comprendre  comment  la  nature  peut  affecter  les  performances  des 
institutions  financières  et,  inversement,  comment  leurs  activités  respectives  peuvent 
avoir un impact sur la nature, une relation connue sous le nom de "double matérialité".  

Les facteurs de risque, qui sont la cause première de la perte de la nature, sont décrits 
dans le cadre de ce rapport sur la base de la classification IPBES concernant les facteurs 
de changement de la biodiversité et des écosystèmes11, qui distingue cinq facteurs clés 
(changements  d’usage  des  terres  et  de  la  mer,  exploitation  directe  de  certains 
organismes, changement climatique, pollution et espèces exotiques envahissantes). À 
partir de ces facteurs, de multiples types de risques peuvent se propager du fait de la 
dégradation de la nature et des services écosystémiques (risques physiques), ou du fait 
des circonstances externes qui sont souvent associées à désalignement (institutionnel) 
entre  les  acteurs  économiques  et  les  actions  qui  protègent/restaurent  la  nature,  ou 
réduisent  les  impacts  négatifs  sur  la  nature  à  des  impacts  sur  la  nature  (risques  de 
transition)1213.  Ces  deux  types  de  risques  peuvent  interagir  et  exacerber  une  série 
d’impacts pour le système économique et financier. Il est donc crucial de les prendre en 
compte dans tout cadre d’analyse du risque.  

Figure 0 Catégorisation des risques dans les cadres d’évaluation des risques liés à la nature 

11 IPBES (2019) : Résumé à l'intention des décideurs du rapport d'évaluation mondiale sur la biodiversité et les services 
écosystémiques de la plateforme intergouvernementale scientifique et politique sur la biodiversité et les services 
écosystémiques. 

12 TNFD (2023) Recommandations de la Taskforce on Nature-related Financial Disclosures  

13NGFS (2021) Biodiversity and financial stability : building the case for action.  

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Comprendre  l’ampleur  des  risques  et  la  manière  dont  ils  se  transmettent  au  système 
financier (canaux de transmission) peut aider les institutions financières à comprendre 
les risques financiers et leurs impacts. Il s’agit principalement du risque de crédit, du 
risque  de  marché,  du  risque  de  liquidité,  du  risque  de  souscription  et  du  risque 
opérationnel1415.  Les  évaluations  de  l’exposition  peuvent  aider  une  institution 
financière à mesurer et à évaluer sa dépendance et son impact sur la nature. Bien que 
des évaluations avancées existent et proposent des outils clés tels que ENCORE, IBAT 
et EXIOBASE, ces outils n’intègren’ pas pleinement les principales caractéristiques des 
risques liés à la nature (tels que la spécificité du lieu, les interactions au sein la chaîne 
de valeur, ou les projections temporelles). Les évaluations de la matérialité utilisent 
des scénarios pour traduire l’exposition aux risques financiers tangibles, mais il existe 
d’importantes lacunes dans les données en raison de la complexité de la relation entre 
la  nature  et  les  systèmes  socio-économiques.  Ainsi,  l’intégration  des  risques  liés  à  la 
nature  dans  les  processus  décisionnels  des  institutions  financières,  ainsi  que  la 
formulation d’approches d’atténuation proactives (par exemple, la diligence raisonnable, 
les plans d’action en faveur de la biodiversité, l’intégration ESG) restent à consolider.  

Évaluer l’exposition sectorielle et comprendre les risques liés à la nature 
dans l’économie de l’UE 

Si tous les secteurs dépendent dans une certaine mesure de la nature et ont un impact 
sur  elle,  certains  (sous-)secteurs  ou  industries  sont  plus  exposés  que  d’autres  aux 
risques liés à la biodiversité et à la nature, ce qui a des répercussions sur les institutions 
financières qui prêtent, assurent ou investissent dans des entités de ces secteurs. Les 
(sous-)secteurs  communément  identifiés  par  la  littérature  analysée  comme  étant 
particulièrement  exposés  aux  risques  liés  à  la  nature  couvrent  les  secteurs  primaire, 
secondaire  et  tertiaire.  L’intensité  de  leur  exposition  aux  risques  physiques  et  de 
transition  liés  à  la  nature,  ainsi  que  les  implications  financières  de  ces  expositions, 
varient  toutefois  considérablement.  Cette  section  a  donc  entrepris  une  estimation  de 
l’importance de leur exposition aux risques liés à la nature du point de vue de l’économie 
de l’UE, en utilisant les principes fondamentaux des risques liés à la nature introduits par 
l’étude (section 1). Le classement qui en résulte et la hiérarchisation des (sous-)secteurs 
en fonction de l’importance de leur exposition aux risques liés à la nature peuvent guider 
la mise en œuvre du cadre d’évaluation des risques liés à la nature dans l’UE (section 
3), en particulier à court terme, jusqu’à ce que les données au niveau de l’entité soient 
plus couramment disponibles.   

L’évaluation de l’exposition des sous-secteurs concernés aux risques physiques et de 
transition,  présentée  dans  la  figure  1-2,  met  en  évidence  l’agriculture  et  l’élevage,  la 
sylviculture, la pêche et l’aquaculture, mais aussi les services liés à l’eau et aux déchets, 
les  métaux  et  les  mines,  ainsi  que  la  construction  et  l’ingénierie,  comme  étant  les 
secteurs les plus matériellement exposés au niveau mondial. Toutefois, si l’on analyse 
l’importance de ces sous-secteurs du point de vue de l’économie, de l’investissement et 

14 CISL (2021) Handbook for nature-related financial risks : key concepts and a framework for identification, Université de Cambridge.  

15 TNFD (2023) Recommandations de la Taskforce on Nature-related Financial Disclosures 

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de  l’emploi  dans  l’UE,  l’immobilier  et  la  construction,  l’agriculture  et  l’élevage,  et  la 
prestation de soins de santé, émergent comme les domaines les plus critiques, comme 
le  montre  la  figure  1-3.  La  mise  en  œuvre  de  l’approche  d’évaluation  de  l’exposition 
sectorielle confirme l’importance pour chaque institution financière de prendre en compte 
la répartition sectorielle de ses actifs financiers. L’évaluation met également en lumière 
les limites importantes des outils existants en ce qui concerne la prise en compte des 
liens  entre  les  chaînes  d’approvisionnement  et  les  spécificités  locales  dans  la 
détermination de l’importance de l’exposition aux risques liés à la nature.  

Figure 2 Dépendance (sous-)sectorielle et score d’impact 

4,5

4

3,5

3

2,5

2

1,5

e
r
o
c
S

t
c
a
p
m

I

r
o
t
c
e
s
b
u
S

1

1

Energy Production

Oil and Gas - Mid 
and Downstream

Oil and Gas

Pulp and Paper 
Production

Construction and 
Engineering

Metals and Mining

Construction 
Materials

Fishing and 
Aquaculture

Agriculture and 
Farming

Chemicals 
(and biofuels)

Hospitality, Food 
and Beverage 
Services

Automobiles and 
Components

Forestry

Water and Waste 
Services
Food and 
Beverages
Textiles, Apparels 
and Footwear

Water 
Transportation

1,5

2

2,5

3

3,5

4

4,5

Subsector Dependence Score

Figure 3 Mise en correspondance des scores d’exposition aux risques liés à la biodiversité et et aux 
écosystèmes et des indicateurs de pertinence économique de l’UE pour les sous-secteurs concernés 

r
o
t
a
c
i
d
n
I

e
c
n
a
v
e
l
e
R

c
i
m
o
n
o
c
E
U
E

16%

14%

12%

10%

8%

6%

4%

2%

0%

Real Estate and 
Services

Health Care 
Delivery

Agriculture and 
Farming

Construction and 
Engineering 

0

1

2

3
5
4
BES Risk Exposure Score

6

7

8

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Les études de cas peuvent apporter une solution temporaire à ces limitations, jusqu’à 
ce  que  les  outils  existants  progressent  davantage  dans  leur  intégration  des  aspects 
relationnels et facilitent une approche plus complète de l’évaluation des risques liés à la 
nature. Ainsi, et à partir des cas de l’immobilier et de la construction, de la production 
agroalimentaire et de la prestation de soins de santé, cette étude révèle : 1) l’importance 
des  « risques  cachés »  du 
rétroaction  biologiques  et 
macroéconomiques, 2) l’impact substantiel des liens intersectoriels et locaux qui peuvent 
amplifier  la  propagation  des  risques  dans  divers  secteurs,  générant  ainsi  des  risques 
financiers plus prononcés que généralement estimé, et 3) les lacunes actuelles dans la 
compréhension  des  canaux  de  transmission  et  des  mesures  d’atténuation  au  niveau 
sectoriel.  

fait  de  boucles  de 

Élaboration d’un cadre d’évaluation des risques liés à la nature dans l’UE 

Le cadre proposé définit une approche globale et une méthodologie structurée étape par 
étape,  permettant  aux  institutions  financières  d’évaluer  les  impacts  financiers  de  la 
biodiversité  et  des  risques  liés  à  la  nature.  Le  cadre  vise  à  doter  les  institutions 
financières  d’une  approche  qui  peut  être  appliquée  à  différents  cas  et  contraintes  de 
ressources,  afin  de  permettre  l’adoption  de  bonnes  pratiques  malgré  la  rareté  des 
données.  L’accent  a  ainsi  été  mis  sur  l’adaptabilité  du  cadre  d’évaluation,  dans  un 
contexte où la quantité et la qualité des données et la compréhension des risques liés à 
la biodiversité et à la nature sont en évolution constante.  

Ce cadre complète trois ensembl’s méthodologiques existants : le cadre conceptuel du 
NGFS, le cadre de surveillance de l’OCDE (élaboré dans le contexte du projet de soutien 
technique lancé par la Commission européenne à l’initiative de la banque centrale de 
Hongrie) et l’approche de la TNFD. Les principales étapes et les concepts utilisés par la 
présente  étude  sont  alignés  sur  ces  approches,  tout  en  fournissant  aux  institutions 
financières  un  niveau  de  détail  supplémentaire  sur  les  étapes  pratiques  de  mise  en 
œuvre. 

Le cadre résultant de cette étude est divisé en trois phases et huit étapes, comme décrit 
dans le schéma 1-4. Chaque étape couvre les éléments clés de l’évaluation des risques 
liés à la biodiversité et à la nature pour les institutions financières, balayant la définition 
du  champ  d’évaluation,  la  quantification  des  risques  de  transition  et  des  risques 
physiques, l’estimation de l’exposition aux impacts et aux dépendances, et la traduction 
de l’exposition et des risques en impacts financiers pour l’institution. Pour chaque étape, 
le cadre d’évaluation détaille la manière dont les institutions financières peuvent mener 
à bien des actions spécifiques. Il comprend également des éléments de réflexion sur les 
principaux défis, synergies et point conceptuels qui se posent lors de la mise en œuvre 
de ces actions, ainsi que sur les synergies et les différences avec les approches liées 
aux risques climatiques.  

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Figure 4 Cadre méthodologique pour l’évaluation des risques financiers liés à la nature 

De  surcroît,  le  cadre  souligne  six  considérations  pratiques  fondamentales  pour  les 
institutions financières qui procèdent  à une évaluation des risques liés à la biodiversité 
et à la nature : 

•  Une  définition  claire  des  objectifs  et  de  l’utilisation  finale  de  l’évaluation  est 
nécessaire pour éclairer les choix conceptuels qui sous-tendent l’évaluation, tels 
que la granularité et le type (qualitatif ou quantitatif) de données requises, 

•  L’identification  des  risques  doit  être  réalisée  préalablement  à  leur  évaluation 
complète  afin  d’utiliser  stratégiquement  le  temps  et  les  ressources  dédiés  à 
l’évaluation, 

•  L’utilisation de scénarios prospectifs est fondamentale pour évaluer l’exposition 
future  au  risque,  compte  tenu  de  l’incertitude  liée  à  la  nature  et  la  vitesse  de 
l’évolution des risques physiques et de transition, 

•  L’utilisation  de  données  spécifiques  au  lieu  de  réalisation  des  impacts  et  des 

risques est nécessaire pour obtenir des informations solides, 

•  La prise en compte des risques qui surviennent en raison de l’exposition de la 
chaîne  de  valeur  est  cruciale,  dans  la  mesure  où  une  part  importante  de 
l’exposition  financière  en  Europe  se  situe  dans  des  secteurs  qui  n’ont  pas 
d’impact direct sur la nature ou qui n’en dépendent pas, 

•  L’éventail des mesures de réduction du risque doit être envisagé dans toute sa 
diversité,  tant  pour  les  mesures  applicables  aux  entités  bénéficiant  des 
investissements qu’au niveau des institutions financières et de leur portefeuille.  

21 

 
 
 
 
 
 
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Les institutions financières disposent désormais d’un nombre considérable d’orientations 
méthodologiques pour évaluer les risques liés à la biodiversité et à la nature, et à estimer 
leurs  implications  financières.  Des  défis  pratiques  subsistent  néanmoins  pour  divers 
aspects  en  cours  de  développement,  à  la  fois  pour  les  institutions  financières  et  le 
secteur financier dans son ensemble : 

•  L’élaboration de scénarios liés à la nature accessibles au public et utiles au 
secteur financier accuse un retard considérable par rapport à la disponibilité de 
scénarios climatiques. À court terme, les institutions financières bénéficieraient 
donc  de  scénarios  propres,  développés  en  interne  sur  la  base  de  scénarios 
climatiques, et qui répondent à leurs besoins, 

•  La prise en compte de la localisation est essentielle pour une évaluation solide 
des  risques  liés  à  la  biodiversité  et  à  la  nature.  La  compilation  de  données 
informations  granulaires  sur 
suffisamment  complètes  pour  générer  des 
l’ensemble des portefeuilles risque toutefois de générer d’importantes difficultés. 
À court terme, les institutions financières peuvent prioriser les risques matériels 
ou les portions de leur portefeuille qui nécessitent des données très granulaires. 
La coopération entre les institutions financières, les superviseurs, les entreprises, 
les fournisseurs de données et la communauté  scientifique permettra par la suite 
de combler les lacunes restantes, 

•  La disponibilité des données relatives aux chaînes de valeur et aux chaînes 
d’approvisionnement  est  limitée.  Il  s’agit  là  d’un  obstacle  important  à  la 
réalisation d’évaluations solides des risques à l’échelle d’un portefeuille, et d’un 
point qui nécessite un travail approfondi. 

Recommandations et points d’action 

L’évaluation des risques financiers liés à la biodiversité et à la nature est un domaine en 
pleine  évolution.  Tandis  que  des  connaissances renforcées,  de  nouvelles  données  et 
des réglementations commencent à émerger, les institutions financières peuvent dès à 
présent  s’inspirer  des  bonnes  pratiques  existantes  et  explorer  la  manière  dont  les 
évaluations des risques liés à la nature peuvent soutenir leurs activités et leurs efforts 
en  vue  de  financer  un  avenir  durable.  Dans  cette  optique,  trois  phases  d’action  se 
dégagent :  

(iv) 

Une phase exploratoire et de planification à court terme  

Les institutions financières peuvent commencer à mettre en œuvre le cadre proposé par 
la présente étude en pilotant des évaluations de haut niveau ou ciblées (par exemple, 
par secteur, région, etc.) et en renforçant leur capacité à mettre en œuvre les bonnes 
pratiques  existantes.  En  parallèle,  il  est  entendu  que  l’alignement  des  données,  des 
mesures  et  des  approches  pour  évaluer  les  risques  liés  à  la  nature  est  amené  à 
progresser.  

(v) 

Une  phase  d’approfondissement  à  moyen  terme  et  le  renforcement  des 
capacités 

Les institutions financières peuvent renforcer leur capacité d’évaluation des risques liés 
à la nature en menant des analyses quantitatives plus complètes, y compris en explorant 

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l’analyse  de  scénarios.  Elles  pourraient  également  mettre  en  œuvre  des  mesures  de 
gestion du risque en s’engageant auprès de leurs clients et en entamant des discussions 
préliminaires sur les mesures d’atténuation et les plans de transition pour les risques sur 
lesquels elles n’agissent pas actuellement. 

(vi) 

Une phase d’intégration de la nature dans les cadres d’analyse et de décision 
sur  le  long  terme,  y  compris  à  travers  l’intégration  dans  les  modèles 
climatiques  

À  long  terme,  les  institutions  financières  pourraient  faire  de  la  nature  une  partie 
intégrante de leur évaluation et de leur gestion du risque de durabilité, notamment en 
intégrant les modèles climatiques et liés à la nature dans les processus de gestion – y 
compris  dans  les  stratégies  d’allocation  de  capital,  les  politiques  de  prêt,  les rapports 
annuels, et  des divulgations consolidées de la TCFD-TNFD. Cela permettrait par ailleurs 
l'élaboration  de  plans  de  transition  complets.  Les  institutions  financières  pourraient 
également envisager d'intégrer la nature dans l'ensemble de leurs politiques, en veillant 
à ce qu'elle soit incluse dans les cadres de décision à tous les niveaux et dans toutes 
les divisions, au-delà des équipes chargées des risques.  

Points clés à retenir 

Malgré la reconnaissance croissante de l'importance de la nature et de la biodiversité 
pour  notre  santé  collective  et  notre  prospérité  économique,  le  manque  généralisé 
d'évaluations, de rapports transparents et de divulgations entrave la transformation de 
la  prise  de  conscience  en  des  mesures  concrètes.  La  nature  possède  une  valeur 
inhérente et fondamentale pour le succès des institutions financières et des entreprises, 
mais sa valeur reste rarement quantifiée. De ce fait, ni les risques ni les opportunités ne 
sont suffisamment pris en compte dans les évaluations des institutions financières et des 
entreprises.  

Une évaluation plus approfondie de l'exposition sectorielle montre que les risques liés à 
la biodiversité et à la nature peuvent avoir des impacts divers dans différents secteurs 
et industries, ce qui accentue les différences d'exposition au sein du paysage financier. 
Les  outils  actuellement  disponibles  permettent  bien  de  représentent  l'exposition 
sectorielle au niveau mondial, mais des informations plus spécifiques – cruciales pour 
comprendre  réellement  le  niveau  d'impact  et  les  dépendances  d'un  secteur  –  sont 
nécessaires au niveau local ou régional. L'évaluation spécifique des dépendances et des 
impacts de l'économie européenne montre qu'un large éventail de secteurs est fortement 
dépendant de la nature et donc exposé aux risques associés sous une forme ou une 
autre : l'agriculture, l'immobilier et la construction, ainsi que le secteur des soins de santé 
sont  apparus  comme  les  plus  sensibles.  La  contextualisation  des  données  mondiales 
aux marchés régionaux fournit des informations essentielles aux institutions financières 
pour évaluer leur exposition aux risques de manière exhaustive. 

Le  cadre  méthodologique  proposé  par  cette  étude  offre  aux  institutions 
financières  une  approche  systématique  pour  évaluer  les  impacts  financiers 
découlant  des  risques  liés  à  la  biodiversité  et  à  la  nature.  Il  vise  à  fournir  une 

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approche flexible qui peut être appliquée dans des contextes variés, en tenant compte 
des limitations des ressources et de l'évolution de l'accessibilité des données. Ce cadre 
est  conçu  pour  s'adapter  à  une  approche  évolutive,  permettant  aux  institutions 
d'entamer  les  évaluations  avec  simplicité  et  de  passer  progressivement  à  une 
analyse plus sophistiquée. Cela garantit que le cadre soit adaptable aux besoins et 
aux  capacités  des  institutions  financières  à  mesure  qu'elles  progressent  dans 
l'intégration  des  considérations  relatives  à  la  nature  et  à  la  biodiversité  dans  leurs 
évaluations  des  risques.  Le  cadre  fournit  donc  une  évaluation  adaptable  dans  un 
environnement où les données sont limitées. 

En  outre,  le  cadre  a  été  conçu  en  tenant  compte  de  l'évolution  des  normes  et  des 
réglementations  environnementales.  La  méthodologie  du  cadre  reste  flexible,  de 
sorte qu'elle peut facilement être intégrée dans un cadre émergent pour s'assurer 
qu'elle  reste  pertinente  dans  un  paysage  en  évolution.  Il  s'agit  donc  d'un  outil 
dynamique qui peut s'adapter et s'aligner sur les bonnes pratiques émergentes.  

Alors  que  le  secteur  financier  est  confronté  à  des  défis  environnementaux,  les 
informations fournies par le cadre d’évaluation permettront aux institutions d'intégrer les 
considérations relatives à la nature et à la biodiversité dans l'évaluation des risques et 
de faire progresser leurs stratégies vers des pratiques durables et résilientes.  

24 

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

Contents 

Abstract ............................................................................................................. 5 

Abstrait .............................................................................................................. 6 

EXECUTIVE SUMMARY .................................................................................... 7 

RÉSUMÉ EXÉCUTIF ....................................................................................... 16 

1.  Background ............................................................................................ 29 

1.1.  Paving the way for sustainable finance ................................................ 29 

1.2.  Evolving risk assessment landscapes: adding nature to climate ......... 32 

1.3.  Assessing nature related risks for diverse financial institutions ........... 33 

2. 

Task 1 - Understanding the types of risks associated to nature loss 38 

2.1. 

Introduction .......................................................................................... 38 

2.1.1.  Key definitions ........................................................................................ 39 
2.1.2.  Methodology outline ................................................................................ 40 

2.2.  Risk categorization .............................................................................. 42 

2.2.1.  Risk drivers ............................................................................................. 43 
2.2.2.  Risk types ............................................................................................... 46 
2.2.3.  Transmission channels ........................................................................... 50 
2.2.4.  Financial risk ........................................................................................... 51 

2.3.  Approaches to identify, assess and mitigate risk ................................. 53 

2.3.1.  Exposure assessment approaches ......................................................... 54 
2.3.2.  Materiality assessment ........................................................................... 63 
2.3.3.  Mitigation approaches ............................................................................. 65 

2.4.  Key conclusions and data gaps ........................................................... 72 

2.4.1.  Identifying risks ....................................................................................... 72 
2.4.2.  Conducting risk assessment ................................................................... 73 
2.4.3.  Mitigation approaches ............................................................................. 74 

3. 

Task 2 - Industry/business sector sensitivity to biodiversity loss and 
ecosystem degradation risks ................................................................ 76 

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

3.1. 

Introduction .......................................................................................... 76 

3.1.1.  Key contributions .................................................................................... 77 
3.1.2.  Methodological outline ............................................................................ 78 

3.2. 

Identification of (sub)sectors exposed to biodiversity and nature related 
risks ..................................................................................................... 79 

3.2.1.  Methodology ........................................................................................... 80 
3.2.2.  Exposed (sub)sectors ............................................................................. 83 
3.2.3.  Relevance for biodiversity and nature risk assessment and management

 86 

Developing of sector-specific assessment and/or disclosure metrics for exposed 

sectors, ................................................................................................... 91 
3.2.4.  Sectoral sensitivity assessment approaches ........................................... 92 

3.3.  Prioritization of exposed (sub)sectors from the EU perspective .......... 98 

3.3.1.  Methodology ......................................................................................... 100 
3.3.2.  Biodiversity and nature related risk assessment ................................... 102 
3.3.1.  EU relevance assessment .................................................................... 109 
3.3.1.  Significance of exposure score ............................................................. 112 

3.4.  Transmission and mitigation mechanisms in most exposed (sub)sectors

117 

3.4.1.  Sub-Sector 1: Real Estate..................................................................... 118 
3.4.2.  Sub-Sector 2: Agriculture and Farming ................................................. 129 
3.4.1.  Sub-Sector 3: Health Care Delivery ...................................................... 140 

3.5.  Key conclusions and recommendations ............................................ 148 

4. 

Task 3 - Developing an applicable methodological framework ....... 151 

4.1 

Introduction ........................................................................................ 151 

4.1.1.  Methodology and key considerations .................................................... 152 

4.2.  Overview of the framework ................................................................ 156 

4.2.1.  The 3 phases of nature risks assessment ............................................. 156 
4.2.2.  The 8 steps of nature-related risks assessment .................................... 157 

4.3.  Detailed step-by-step approach ......................................................... 159 

4.3.1.  Phase 1 – Scoping ................................................................................ 159 
4.3.2.  Phase 2: Entity level assessment .......................................................... 166 
4.3.3.  Phase 3: Financial institution level risk assessment and mitigation ....... 186 

4.4. 

Illustrative case studies ...................................................................... 191 

4.4.1.  Case study 1 : Qualitative heatmap assessment ................................... 192 
4.4.2.  Case study 2: Comprehensive counterparty level assessment ............. 198 
4.4.3.  Case study 3 : Project-level assessment in real estate ......................... 203 
4.4.4.  Case study 4 : Asset-level risk assessment for a bank’s business with an 

agricultural crop grower ........................................................................ 208 

4.5.  Roadmap ........................................................................................... 211 

4.5.1.  Short-term – exploration and planning .................................................. 212 
4.5.2.  Medium-term – deepening capabilities for nature risks assessment and 

management ......................................................................................... 214 

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

4.5.3.  Long-term- Mainstreaming nature risks assessment and management . 215 

5.  Annex A – Tools and sectoral assessment ....................................... 217 

6.  Annex B – Stakeholder interview synthesis report ........................... 230 

27 

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

DISCLAIMER  

The information and views set out in this report are those of the authors and do not 
necessarily reflect the official opinion of the Commission. The Commission does 
not guarantee the accuracy of the data included in this study. Neither the 
Commission nor any person acting on the Commission’s behalf may be held 
responsible for the use which may be made of the information contained therein 

AUTHORS 

Dr. Maha Cziesielski (Trinomics) 

Cosima Dekker-Hufler (Trinomics) 

Timea Pal (Trinomics) 

Graeme Nicholls (Trinomics) 

Lisa Korteweg (Trinomics) 

Foivos Petsinaris (Trinomics) 

Dr. Nikolay Khabarov (IIASA) 

Dr. Michael Obersteiner (IIASA) 

ACKNOWLEDGEMENTS 

We would like to thank our colleague Jeroen van der Laan (Trinomics) for his 

skilful scrutiny and European Commission representatives for their helpful reviews 

and comments.  

PRESENTED BY 

Trinomics B.V. 

Westersingel 34 

3014 GS Rotterdam 

The Netherlands 

28 

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

1.  Background 

The  European  Green  Deal  represents  an  ambitious  and  strategic  response  by  the 
European Union to tackle the pressing challenges of climate change and environmental 
degradation. By fostering a  sustainable, equitable, and prosperous society, the Green 
Deal  envisions  a  resource-efficient  and  competitive  economy  that  safeguards  and 
enhances the EU's natural capital.  

Natural capital serves as the foundation of our economy and society, providing essential 
land  and  resources  for  economic  activities  and  recovery  from  economic  crises. 
Ecosystems play a vital role in both rural and urban areas, offering a diverse range of 
services,  including  flood  control,  improved  air  and  water  quality,  pollination,  and 
recreational opportunities among others. A recent analysis by PwC highlighted that 55% 
of the world's total GDP, is moderately or highly dependent on nature and its services, 
making it vulnerable to risks from biodiversity and natural capital loss16, a value slightly 
greater than the previous assessment by the World Economic Forum17. Changes in the 
stock and condition of natural capital alter its ability to provide the goods and services 
upon which businesses depend, and therefore have implications for the operations and 
profitability of businesses and financial institutions18. Our economies are therefore clearly 
“embedded in nature” and not external to it.19 If we consider this in our assessments of 
economic  possibilities  and  risk  assessments,  it has  profound  implications  on  what  we 
can legitimately expect in terms of future prosperity and economic stability20. 

Despite  the  ambitious  goals  set  by  the  European  Green  Deal, the  world  still  grapples 
with ecosystem collapse and the failure to achieve biodiversity targets by 202021. Studies 
and reports continue to reveal the sustained degradation of ecosystems and the urgent 
need for stronger conservation efforts22 23. Despite mounting evidence of the critical state 
of biodiversity and natural capital, many institutions still perceive the environment as an 
externality, neglecting its true value in economic decision-making. 

1.1.  Paving the way for sustainable finance 

To  address  this  challenge,  the  European  Union  has  implemented  and  committed  to 
several  key  legislations  and  international  commitments  aimed  at  incentivizing  the 
internalization of environmental considerations and promoting more sustainable market 
decisions,  either  directly  though  addressing  financial  institutions  or  more  indirectly 
through  the  promotion  of  nature  conservation  and  valuation.  The  new  Biodiversity 
Strategy for 2030, which has most recently led to the adoption of a proposal for a Nature 

16 Evison (2023). Managing nature risks: From understanding to action. PwC Strategy and Business.  
17 The World Economic Forum and PwC (2020) Nature Risk Rising: Why the Crisis Engulfing Nature Matters for 
Business and the Economy 
18 Dasgupta (2021) The Economics of Biodiversity: The Dasgupta Review Headline Messages.  
19 Ibid 
20 Ibid 
21 EEA (2020) State of nature in the EU, Results from reporting under the nature directives 2013-2018. EEA Report 
No.10//2020. 
22 Ibid 
23 IPBES (2018) The IPBES regional assessment report on biodiversity and ecosystem services for Europe and 
Central Asia 

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

Restoration  Law24,  which lays  out targets  and  actions to  restore  and  protect  Europe's 
ecosystems  and  put  Europe’s  biodiversity  on  a  path  of  recovery  by  2030.  By  setting 
ambitious  targets  and  emphasizing  the  importance  of  nature  restoration,  these 
frameworks strive to steer institutions and governments towards a more responsible and 
nature-friendly  approach.  At  an  international  level  the  Global  Biodiversity  Framework 
(GBF), adopted in December 2022, aims to halt global biodiversity loss and guide global 
action  to  protect  biodiversity  and  nature.  The  23  action-oriented  targets  developed 
emphasize  a  whole-society  approach.  While  all  targets  are  of  relevance  of  financial 
institutions  -  they  should  align  their  investment,  lending,  underwriting  and  insurance 
activities with the goals and targets of the GBF25 - particularly Target 15 calls to ‘Take 
legal, administrative or policy measures to encourage the private sector (companies and 
financial  institutions)  to  assess  and  disclose  risks,  dependences  and  impacts  on 
biodiversity related to their activities’.  

To drive more direct change in the financial sector the EU has formulated the Strategy 
for  Financing  the  Transition  to  a  Sustainable  Economy  in  2021,  which  outlines  a 
comprehensive framework designed to integrate sustainability considerations across all 
aspects  of  the  financial  sector26  to  support  the  transition  of  the  real  economy.  It 
encompasses  a  wide  range  of  measures  aimed  at  redirecting  financial  flows  towards 
more  sustainable  investments  and  fostering  responsible  business  practices.  The 
strategy's core objective is to set a framework for classifying green investments and as 
such provide a mechanism that can mobilize private capital in support of the European 
Green Deal and the EU's broader sustainability agenda. In conjunction with this strategy, 
the recent Sustainable Finance package encompasses a number of legislative proposals 
and  measures,  including  a  recommendation  on  transition  finance27.  These  proposals 
focus on enhancing the transparency and disclosure of sustainable investment practices, 
creating a more standardized framework for defining and reporting sustainable activities, 
encouraging the private funding of transition projects and technologies and harmonizing 
sustainable finance practices across the EU's Member States. 

The  EU  sustainable  finance  agenda  relies  on  three  pillars  (i)  the  EU  taxonomy  (ii)  a 
comprehensive disclosure regime for non-financial and financial undertakings (iii) and a 
set of investment tools to develop sustainable solutions. The EU Sustainable Finance 
Taxonomy  aims  to  classify  sustainable  economic  activities,  providing  a  framework  for 
identifying  investments  that  contribute  positively  to  environmental  objectives  including 
“protection  and  restoration  of  biodiversity  and  ecosystems’28.  The  EU  Taxonomy, 
together with the other disclosure and reporting specifying regulations, play pivotal roles 
in the sustainable finance framework. The Sustainable Finance Disclosure Regulation 
(SFDR)  mandates  financial  market  participants  to  disclose  their  sustainability  efforts 
(including  Environmental,  Social  and  Governance  indicators),  helping  to  foster 
transparency  and  accountability.  Financial  institutions  have  a  critical  role  to  play  in 
ensuring that nature and biodiversity loss can be halted, by proposing more sustainable 

24 European Commission, Nature Restoration Law. Available here: https://environment.ec.europa.eu/topics/nature-
and-biodiversity/nature-restoration-law_en 
25 United Nations Environment Programme (2023). Stepping Up on Biodiversity: What the Kunming-Montreal Global 
Biodiversity Framework means for Responsible Investors. Nairobi 
26 EC (2021). Strategy for financing the transition to a sustainable economy. COM(2021) 390 Final. 
27 DG FISMA (2023). Sustainable finance package – General Publications.  
28 EC (2020). Establishment of a framework to facilitate sustainable investment, amending Regulation (EU) 2019/2088. 

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

investment  options  and  accelerating  this  transformative  process.  In  parallel,  the 
Corporate  Sustainability  Reporting  Directive  (CSRD),  replacing  the  Non-Financial 
Reporting Directive (NFRD), mandates a large array of companies within the EU to report 
on  a  similar  set  of  comprehensive  ESG  indicators.    Complementing  the  CSRD,  the 
Europeans  Sustainability  Reporting  Standards  (ESRS)  provides  a  roadmap  for  how 
companies  should  report  sustainability  information  to  comply  with  the  directive  itself. 
Within  these  standards,  standard  E4  is  specifically  focused  on  biodiversity  and 
ecosystems,  focusing  on  how  actions  affect  nature  and  biodiversity,  what  mitigation 
measures are taken and the need for assessing risks and opportunities29.  

Additionally,  the  European  Green  Bond  Standard  Regulation  establishes  a  legal 
framework for issuers choosing this standard, ensuring that the funds raised are directed 
towards  projects  with  positive  environmental  impacts,  including  those  focused  on 
biodiversity and nature preservation30.  

In recent  years,  there  has  been  growing  awareness  of the  significant macroeconomic 
and financial risks that biodiversity and nature loss can pose31. There have been efforts, 
from  the  private  and  public  sector,  to  understand  the  links  between  nature  and 
biodiversity loss, and the possible risks that they could pose to the financial system, as 
well as understanding the impacts of their investments and lending on biodiversity and 
ecosystem degradation. Financial authorities globally have recognized the importance 
of understanding the extent to which biodiversity risks could pose a threat to financial 
stability.  Furthermore,  an  increasingly  substantial  body  of  literature  highlights  the 
heightened  interest  among  financial  institutions  in  comprehending  biodiversity-related 
risks and their implications across the economic and financial landscapes. Central banks 
and  supervisors  have  been  frontrunners  in  investigating  biodiversity  and  nature  risks, 
and the transmission channels that connect them to the financial system32  33  34 and in 
their supervisory framework. Most recently, the European Central Bank (ECB) conducted 
an in-depth assessment of the risk exposure within euro area banks held portfolios: the 
findings showed that 72% of non-financial corporations are highly dependent on at least 
one  ecosystem  service  and  that  75%  of  corporate  bank  loans  in  the  euro  area  are 
granted  to  corporations  with  a  high  dependency  on  ecosystem  services35.  The  study 
investigates  in  detail  key  transmission  channels  as  well  as  conducting  sensitivity 
analyses to gain a deeper understanding on different environmental scenarios impacts. 
In addition, the ECB has set the addressing of climate and biodiversity risks within their 
supervisory priorities for 2022 – 202436. 

29 EFRAG (2022). ESRS E4 Draft: Biodiversity and Ecosystems.  
30 European Parliament (2023) adoption of Regulation (EU) 2023/… of the European Parliament and of the Council of European Green Bonds 
and optional disclosures for bonds markets as environmentally sustainable and for sustainability-linked bonds.  
31 Dasgupta (2021) The Economics of Biodiversity: The Dasgupta Review Headline Messages.  
32Svartzman et la (2021). A silent spring for the financial system? Exploring biodiversity-related financial risks. Banque 
du France. 
33 Elderson (2023). The economy and banks need nature to survive. Available here: 
https://www.ecb.europa.eu/press/blog/date/2023/html/ecb.blog230608~5cffb7c349.en.html 
34 DNB - The Sustainable Finance Platform (2020). Biodiversity opportunities and risk for the financial sector. Platform 
voor Duurzame Financiering. Available at: https://www.dnb.nl/media/cy2p51gx/biodiversity-opportunities-risks-for-the-
financial-sector.pdf 
35 ECB (2023). Occasional Paper Series: living in a world of disappearing nature: physical risk and the implications for 
financial stability. Available at: 
https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op333~1b97e436be.en.pdf?90e7aaae4ef927f887a787587a22adba 
36 ECB (2022) Banking Supervision – Supervisory priorities for 2022-2024. Available at: 
https://www.bankingsupervision.europa.eu/banking/priorities/html/ssm.supervisory_priorities2022~0f890c6b70.en.html 

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

In parallel, a number of new international principles for more sustainable investment and 
decision  making  are  evolving  at  the moment.  The  Principles  for  Responsible  Banking 
(PRB) encourage banks to align their strategies with the Sustainable Development Goals 
(SDGs),  including  those  related  to  biodiversity  protection37.  The  UN  Principles  for 
Responsible  Investments  set  guidelines  to  encourage  investors  to  incorporate 
environmental, social and governance (ESG) factors into their investment decisions38. 
However,  need  for  further  awareness  and  understanding  of  individual  risk  exposure, 
transmission channels and mitigation opportunities is increasingly being recognized by 
financial institutions39 40 41. 

1.2.  Evolving risk assessment landscapes: adding 

nature to climate  

Prior  to  2014,  financial  institutions  did  not  consider  climate  change  impacts  in  their 
business decisions – by 2020 every major institution is using climate change predictions 
in  their  forward-looking  approaches  and  integration  of  climate-risk  assessments  into 
financial institution’s decision making is standard, exemplified by the work of the Network 
for  Greening  the  Financial  System  (NGFS)  and  the  Task  Force  on  Climate-related 
Financial  Disclosures  (TCFD).  The  NGFS  has  been  spearheading  the  integration  of 
climate  and  environmental  risks  into  banking  supervisory,  with  numerous  publications 
that cover guidelines for banks to take actions as well as informative climate scenario 
assessments  that  provide  insights  into  macroeconomic  and  financial  stability42.  The 
TCFD  has  been  adopted  by  the  Financial  Stability  Board  (FSB)  as  their  industry 
standard,  which  has  helped  propel  the  common  implementation  of  the  framework. 
Despite  the  initial  efforts  by  the    NGFS,  and  the  growing  acknowledgment  of  the 
importance of nature loss to the investment portfolios and assets of financial institutions, 
nature-related  financial  risks  assessment  approaches  have  only  recently  gained  the 
attention from the financial sector.43 It is therefore, that climate change risk assessment 
approaches are often used as a basis to develop the nature-related ones. This can be 
seen in the Taskforce on Nature-related Financial Disclosure (TNFD) framework, which 
currently  sets  the  gold-standard  for  nature-related  risk  assessments  for  financial 
institutions and corporations. The TNFD has built upon pre-existing framings of climate-
related  risks  to  enable  alignment  and  consistency  across  disclosures  and  reporting, 
differentiating from climate-based terminology where appropriate.  

However, it is important to enhance our understanding of the interaction between climate 
change and nature loss as they are interconnected and mutually reinforcing challenges. 
Climate change stands as one of the five primary drivers of nature loss and is projected 
to exert an even stronger influence in the future. The climate-nature nexus is based on 
complex  interlinkages  with  possible  negative  trade-offs,  with  major  implications  on 

37 UNEP-FI (2022). Principles of Responsible Banking Guidance. 
38 UN PRI. Available here: https://www.unpri.org/about-us/what-are-the-principles-for-responsible-investment 
39  AXA (2023). AXA IM Stewardship Report 2022. 
40 BNP Paribas Asset Management (2022). Sustainable by Nature Sequel: Our portfolio biodiversity footprint. 
41 Cherief et al (2022). The Market Effect of Acute Biodiversity Risk: The Case of Corporate Bonds. Available at SSRN 
42 NGFS (2020). Guide for Supervisors: integrating climate-related and environmental risks into prudential supervision.  
43 Finance for Biodiversity (2021). The ClimateNature Nexus Implications for the Financial Sector 

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

ecosystem and climate-system functions. For example, while solar and wind power are 
considered  climate  friendly,  the  construction  of  these  large-scale  farms  can  have 
negative impacts on local ecosystems and wildlife44.  While some climate adaptation and 
mitigation measures can harm nature, other climate mitigation (i.e. carbon sequestration) 
and  adaptation  (i.e.  flood  protection)  measures  have  the  potential  to  contribute  to 
restoring nature45.  Hence, nature and climate related risks directly interact and affect 
the  associated  financial  risks  that  are  addressed  under  each  realm46,  It  is  therefore 
important  that  we  move  towards  a  comprehensive  approach  that  can  encompass  the 
relation  between  biodiversity  and  climate  risk,  and  present  a  holistic  overview  of  the 
potential risks, their interactions and ultimately the full extent of their impact.   

In light of these linkages, the approach taken in this report is to develop a methodological 
framework which leverages and builds on current best practice and existing framework 
regarding climate risk assessment used in the financial sector, while augmenting these 
with specific considerations and additional elements required to robustly assess financial 
risks from nature loss. Climate risk frameworks and guidance are an advantage starting 
point  for  developing  a  framework  adaptable  to  biodiversity  and  nature  for  several 
reasons.  For  example,  risk  categorizations  (e.g.,  physical  and  transition  risks)  are 
broadly  consistent  across  climate  and  nature.  Additionally,  as  discussed  above, there 
are multiple interactions between climate and nature that require an integrated approach 
to the climate and nature transition. Finally, financial institutions have already established 
risk management processes for climate. Therefore, constructing a framework familiar to 
financial institutions will make it easier for these institutions to integrate biodiversity and 
nature assessments into existing processes. 

1.3.  Assessing nature related risks for diverse financial 

institutions 

Understanding the crucial role of natural capital in driving economic growth and recovery, 
this  study  delves  into  the  financial  risks  associated  with  nature  loss  and  ecosystem 
degradation. Given the increasing interdependencies between nature and the economy, 
the financial sector plays a pivotal role in supporting the Green Deal's objectives and the 
EU’s ambitions to a sustainable economy and society. As the bedrock of our economy, 
natural capital requires diligent protection to mitigate risks and foster sustainable growth. 
Building upon the EU's sustainable finance framework, this study sets out to assess and 
understand  the  potential  financial  consequences  of  biodiversity  loss  and  ecosystem 
degradation. 

At present, while strides have been made in identifying and managing climate-related 
financial  risks,  a  comprehensive  approach  to  biodiversity  and  ecosystem-related 
financial risks is still in its nascent stages. However, throughout the course of this study 
the  rate  at  which  new  research  publications  are  released  –  at  institutional  as  well  as 

44 Dhar et al. (2020). Perspectives on environmental impacts and a land reclamation strategy for solar and wind energy 
systems. Science of the total Environment, 718. 
45 IPCC (2022). Sixth Assessment Report: Climate change – Impacts, Adaptation and Vulnerabilities. 
46 NGFS and INSPIRE  (2022). Occasional paper: Central banking and supervision in the biosphere: An agenda for 
action on biodiversity loss, financial risk and system stability.  

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

international  organizational  level  –    indicate  that  the  momentum  for  considering  and 
incorporating nature and biodiversity risks in financial decision making is continuously 
increasing. This study aims to contribute to ongoing endeavours to bridge the knowledge 
gap  by  evaluating  existing  practices  for  risk  identification,  measurement,  and 
management  by  financial  institutions,  market  participants,  and  supervisors  and 
developing a framework for assessing financial risks from nature and biodiversity 
that is applicable to a broad range of financial institutions. 

This requires an understanding of how different types of financial institutions might affect 
the nature-related risks to which they could be exposed. The following section focuses 
on how factors such as the size, operations and types of assets affect the nature-related 
risks to which they could be exposed. This informs specific recommendations for different 
types of financial institutions, as well as the design of the overall framework. 

This study focuses on nature-related risks faced by four main types of private financial 
institutions. The institutions are defined below: 

1. 

2. 

3. 

4. 

Banks – financial institutions licensed to receive deposits and make loans47. 

Asset managers – financial institutions that manage the assets of their clients, 
making investment decisions based on each client’s investment strategy, risk 
tolerance and financial situation.48 

Asset owners – financial institutions that manage investments on behalf of 
participants, beneficiaries, or the organisation itself. Asset owners include 
pension funds, endowments and sovereign wealth funds.49 

Insurers – financial institutions that agree to compensate people, companies or 
other organisations for specific financial losses50 

Differentiation in how these institutions may be exposed to potential risks from nature 
and  biodiversity  are  driven  by  six  factors.  These  factors  are  core  determinants  of  the 
extent  to  which  physical  or  transition  risks  may  affect  these  organisations  in  the  EU.  
These include:  

o  Core function/Business model 

o  Geographic exposure 

o  Company size and industry concentration 

o  Types of assets held  

o  Sectoral diversification  

o  Time horizon considered 

47 Adapted from Investopedia (2023). How Banking Works, Types of Banks, and How To Choose the Best Bank for 
You. Available at: https://www.investopedia.com/terms/b/bank.asp 
48 AssetMetrix. What is Asset Management? Available at: https://www.asset-metrix.com/en/asset-management-
definition/ 
49 CFA. GIPS Standards for Asset Owners. Available at: https://www.gipsstandards.org/standards/gips-standards-for-
asset-owners/ 
50 Adapted from Insuranceopedia (2016). What Does Insurer Mean? Available at: 
https://www.insuranceopedia.com/definition/384/insurer#:~:text=What%20Does%20Insurer%20Mean%3F,organization
s%20for%20specific%20financial%20losses. 

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

In the following sections, we explore how these factors influence the nature-related 
risks faced by various types of financial institutions. 

The EU financial sector is a concentrated industry, implying institutions may be 
exposed to similar levels of nature-related risk. The insurance market is dominated 
by a few large multinational companies51, whilst the asset management industry is 
becoming increasingly concentrated.52 Furthermore, small and medium-sized banks 
represent less than 20% of the euro area banking sector in terms of assets.53 Large 
multinational financial institutions (across types) are therefore likely to share exposure 
to some of the same nature-related risks, as they are interconnected and serve similar 
sectors and clients. However, there are exceptions, with small and medium banks 
(2,400 as of 2020) existing across the EU54. The high concentration of financial 
institutions highlights the need to consider the interconnectedness of institutions, and to 
examine risks in sectors where many institutions have high levels of exposure. 

All four types of financial institutions are likely to be exposed to international 
nature-related risks, due to their global reach. European banks account for half of 
global banking assets and typically have internationally diverse lending portfolios.55 
Similarly, European reinsurers account for 50% of the world’s reinsurance.56 Asset 
managers and asset owners typically have portfolios consisting of debt and equity in 
large multinationals and, in cases where risk appetite is higher, may hold assets in 
developing countries. The geographic diversity of financial institutions’ exposure 
implies most EU financial institutions face potential exposure to nature-related risks 
outside the EU. Some institutions, local or national banks, which sometimes have a 
history of lending to specific sectors (like agriculture) may have exposure concentrated 
in nature-related risk within the EU.  

Banks are primarily exposed to nature-related credit risk and reputational risk 
primarily due to their corporate lending portfolio. One of the core functions of a 
bank is to provide loans to businesses, exposing them to credit risk through financing 
industries dependent on nature - the ECB estimates that 75% of bank loans within the 
EU are to firms that depend on ecosystem services57. Banks with greater exposure to 
industries which heavily impact or depend on nature, such as mining and agriculture, 
are likely to face the highest risk. For example, companies in the mining sector may 
face higher litigation risk and relocation costs as a result of laws introduced to protect 
biodiversity, such as protected area legislation, which in turn could lead to higher loan 
default rates. Additionally, the financing of companies or industries associated with 
negative impacts on nature can create reputational risk for banks, which may affect 
their funding, both through deposits and capital markets.  

51 Yahoo Finance (2023). 15 Biggest European Insurance Companies. Available at: https://finance.yahoo.com/news/15-
biggest-european-insurance-companies-
194251672.html#:~:text=According%20to%20PwC%2C%20the%20insurance,in%20the%20past%20four%20years. 
52 Banking hub by zeb (2020). Asset Management 2020 – insights into the European Asset Management Study. 
Available at: https://www.bankinghub.eu/research-markets/asset-management-2020-study 
53 ECB (2020). Taking the pulse of small and medium-sized banks in Europe. Available at: 
https://www.bankingsupervision.europa.eu/press/publications/newsletter/2020/html/ssm.nl200212_4.en.html 
54 ECB (2020). Taking the pulse of small and medium-sized banks in Europe. Available at: 
https://www.bankingsupervision.europa.eu/press/publications/newsletter/2020/html/ssm.nl200212_4.en.html 
55 EBRD (2014). Europe’s banking union in the global financial system: constructing open and inclusive institutions. 
Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3121082 
56 Insurance Europe. Statistics. Available at: https://www.insuranceeurope.eu/statistics 
57 ECB (2023). Occasional Paper Series: living in a world of disappearing nature: physical risk and the implications for 
financial stability. Available at: 
https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op333~1b97e436be.en.pdf?90e7aaae4ef927f887a787587a22adba 
https://www.ecb.europa.eu/press/blog/date/2023/html/ecb.blog230608~5cffb7c349.en.html 

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Study for a methodological framework and assessment of potential financial risks associated 
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Asset managers and asset owners tend to be globally and sectorally diversified, 
which may limit potential exposure. These financial institutions hold a variety of 
corporate bonds and listed equities, with European asset managers holding €7.0 trillion 
and €6.6 trillion in debt securities and listed equities, respectively.58 These institutions 
will be primarily affected by nature-related risks that affect the valuations of assets they 
invest in. For example, policy and legal risks may increase the cost of complying with 
regulation designed to protect nature and biodiversity, leading to lower actual or 
projected profits for exposed companies. This may in turn lead to a drop in the price of 
equities or corporate debt. Asset managers and asset owners will face risks in sectors 
directly exposed to specific nature-related (like agriculture), but could also be 
particularly exposed to the impact of risks in supply chains, which affect a broader set 
of downstream companies where they have significant exposure, like consumer goods 
companies. For instance, if prices of raw materials and goods increase as a result of an 
acute physical risk, such as crop losses due to pest outbreak, the effects of nature-
related risks could be felt by a much wider set of financial institutions. 

Insurance companies may be particularly exposed to the impact of physical 
risks, in addition to litigation risks. As providers of insurance against hazards, 
including physical hazards, insurance companies are exposed to the impact of acute 
and chronic physical risks. For example, agricultural insurance payments may increase 
due to a long-term decline in agricultural productivity (due to factors such as soil 
erosion and the loss of pollination services59) and the impact of increased frequency of 
extreme weather events on crop losses.60 Additionally, insurers that underwrite certain 
types of liability risks may be exposed to damages paid by insured entities failing to 
comply with nature-related legislation. These risks could stem from both within and 
outside of the EU, highlighting the need for an understanding of nature-related risks 
internationally and how these risks can be transferred across border through value 
chains. Potential losses in the value of financial assets as a result of nature-related 
risks could also affect insurers. Insurers invest their technical reserves in financial 
assets at risk and could experience reduced ability to face indemnification requests. 

In this report, we provide a comprehensive overview of the current frameworks 
for biodiversity and ecosystem risk identification, measurement and 
management of these, and existing gaps. Thereafter, we delve deeper into industry 
and business sectoral sensitivity. We provide an overview of all main sectors at risk, 
contextualizing it to the EU financial market and provide an overview of the main 
drivers and channels of transmission. These outputs provide the basis for the first draft 
outline of the methodological framework for financial institutions to assess their 
biodiversity related risks (Task 3).  

The ultimate aim of this study is to contribute to  increasing the resilience of the 
European financial sector against the challenges posed by environmental 
degradation and biodiversity loss. By undertaking this comprehensive analysis, the 
study seeks to contribute to the establishment of a sustainable and resilient financial 

58 EFAMA (2022). EFAMA Asset Management Report 2022. Available at: 
https://www.efama.org/newsroom/news/efama-asset-management-report-2022 
59 IEEP (2022). Environmental degradation: impacts on agricultural production. Available at: https://ieep.eu/wp-
content/uploads/2022/12/Policy-brief_Environmental-degradation.-Impacts-on-agricultural-production_IEEP-2022.pdf 
60 European Parliament (2023). The impact of extreme climate events on agricultural production in the EU. Available at:  
https://www.europarl.europa.eu/RegData/etudes/STUD/2023/733115/IPOL_STU(2023)733115_EN.pdf 

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sector that proactively addresses the risks posed by environmental degradation and 
biodiversity loss. 

This study differs from, but remains complementary to, a recent OECD study61 
since it focuses on a broader range of financial institutions. The OECD framework 
is “a four-step approach to help central banks, financial supervisors, as well as 
commercial banks, identify and prioritise, conceptualise and assess nature-related 
financial risks.” This study provides a framework designed to be applicable to a broader 
range of private financial institutions, including also asset managers, asset owners and 
insurers. 

61 OECD (forthcoming). A methodological supervisory framework for financial risks stemming from biodiversity-related 
losses: A prudent approach to nature 

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2.  Task 1 - Understanding the types of risks 

associated to nature loss 

2.1.  Introduction  

Chapter 2.1 establishes the key definitions, understandings and methodological approaches 
that shape the development of Task 1 overall. Before diving into each methodological phase, 
which financial institutions are required to undertake to understand nature-related risks 
posed to their portfolios/assets, this chapter presents an overview of what these 
methodological phases are, their objectives, and the key components within each approach. 
Figure  highlights these phases, which can be used as a reference point for the remainder of 
Task 1.  

As  the  global  financial  landscape  evolves,  the  imperative  of  comprehending  and 
addressing  environmental  risks  becomes  increasingly  evident.  Task  1  of  this  report 
serves as the cornerstone for exploring nature-related risks within the financial sector: it 
seeks  to  create  a  common  language  and  understanding  of  nature-related  risks  to 
financial institutions, leaning on the myriad of terms currently in use to depict the types 
of risks present, what drives these, and how these risks transmit into financial risks for 
these institutions. The aim is to gain a comprehensive understanding of the financial risks 
relevant  to  financial  institutions  and  their  stakeholders.  By  establishing  a  common 
understanding  and  terminology,  this  chapter  provides  the  essential  groundwork  for 
subsequent risk frameworks. 

The chapter begins with establishing common terminology and concepts which underpin 
these sequential steps from risk to financial impacts. An overview of the methodological 
approach to arrive at a common language and risk framework is presented. Central to 
the endeavors of Task 1 is to decipher the multifaceted pathways through which nature-
related risks translate into financial impacts. The intricate web of dependencies between 
nature,  biodiversity,  and  financial  institutions  necessitates  a  methodological  approach 
that  is  both  comprehensive  and  adaptable.  This  chapter  offers  an  overview  of  the 
methodological  foundations,  guiding  readers  through  the  process  of  dissecting  the 
intricate layers of risk and impact. Furthermore, the holistic exploration of nature-related 
risks extends beyond mere identification to proactive risk mitigation strategies. Task 1 
delves into the array of tools, data sources, and considerations that are instrumental in 
comprehending the intricate relationships between financial institutions and the natural 
world. 

In essence, Task 1 serves as the bedrock upon which the subsequent tasks are built. It 
underscores the importance of establishing a baseline understanding of nature-related 
risks within the broader financial risk framework. 

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Figure 2-1 The broad methodological phases outlined in Chapter 2, the objectives of each phase, and the key 
components within each phase 

2.1.1.  Key definitions  

A  number  of  aspects  are  required  to  be  clarified  for the  purpose  of this study  prior  to 
presenting  the  analysis  in  the  sections  below.  The  study  focusses  on  nature-related 
risks  rather  than  biodiversity-related  risks  in  order  to  encompass  ecosystem  structure 
and  functioning  in  addition  to  the  living  organisms  within  these  systems  (i.e. 
biodiversity).62  Specifically,  nature-related  risks  are  defined  as  the  potential  threats 
posed to financed activity linked to its dependencies and wider society’s dependencies 
on nature and nature impacts.63  

This study focusses in particular on nature-related risks posed to financial institutions. A 
key concept in this regard is materiality. This outlines how nature can affect the financial 
performance  of  such  institutions,  and  vice-versa  how  their  respective  activities  can 
impact  nature  (‘double  materiality’).  In  simple  terms,  this  outlines  the  impacts  and 
dependencies  on  and  of  nature.  Linked  to  this  terminology,  natural  capital  and 
ecosystem services can be used as terms to frame the stock of renewable and non-
renewable  natural  resources64  and  flow  of  benefits  which  stem  from  these  stocks,65 
respectively. Here, it is key to also introduce the theory of tipping points. This refers to 
a set of (ecological or social) conditions where further distress will cause rapid change 
and prevent the system from returning to its former state.66 It is imperative for financial 
institutions to understand how their investments impact nature, particularly with much of 
global biodiversity currently on a trajectory to reach many of these tipping points in the 
near future. 

Numerous key terms and concepts are used repeatedly throughout this study, yet below 
captures the predominant aspects which are important to outline from the outset:  

Ecosystem condition- The quality of an ecosystem measured by its abiotic and biotic 
characteristics.  Condition  is  assessed  by  an  ecosystem's  composition,  structure  and 
function which, in turn, underpins the ecological integrity of the ecosystem, and supports 
its capacity to supply ecosystem services on an ongoing basis.67 

Ecosystem function- The flow of energy and materials through the biotic and abiotic 
components  of  an  ecosystem.  This  includes  many  processes  such  as  biomass 
production, trophic transfer through plants and animals, nutrient cycling, water dynamics 
and heat transfer.68 

62 IPBES (n.d.) ‘nature’ and ‘biodiversity’. Available at: https://www.ipbes.net/glossary/nature; and, 
https://www.ipbes.net/glossary/biodiversity  
63 TNFD (2023) Recommendations of the Taskforce on Nature-related Financial Disclosures ; this report acknowledges 
that mitigating negative impacts on nature from activities, or conducting nature-positive activities are acknowledged as 
creating potential opportunities for actors 
64 Capitals Coalition (2016) Natural Capital Protocol 
65 IPBES (n.d.)’Ecosystem services’. Available at: https://www.ipbes.net/glossary/ecosystem-services  
66 IPBES (n.d.) ’Tipping point’. Available at: https://www.ipbes.net/glossary/tipping-point  
67 UN SEEA (2021) System of Environmental-Economic Accounting - Ecosystem Accounting: Final Draft 
68 IPBES (2019) The global assessment report on biodiversity and ecosystem services 

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Nature-positive- a high-level goal and concept describing a future state of nature which 
is greater than the current state, 69 or whereby actions are undertaken at scale to reduce 
and  remove  the  drivers  and  pressures  fuelling  the  degradation  of  nature,  actively 
improving the state of nature (natural capital) and the ecosystem services it provides.70 

Nature-related opportunities- activities that create positive outcomes for organizations 
and  nature  by  creating  positive  impacts  on  nature  or  mitigating  negative  impacts  on 
nature.71 

Nature-related risk- potential threats (effects of uncertainty) posed to an organisation 
that arise from its and wider society’s dependencies and impacts on nature.72These can 
derive from physical and transition risks.  

2.1.2.  Methodology outline 

In  order  to  develop  the  risk  typology  formulated  in  this  report,  two  predominant 
methodological  steps  were  undertaken:  1)  a  comprehensive  literature  review,  and  2) 
stakeholder consultations. Each are described in detail below.  

The literature review, as a first step, sought to identify documentation of relevance to the 
project-  with  a  focus  on  biodiversity  (financial)  risk,  assessment  approaches,  risk 
typologies and frameworks, and nature-related impacts and dependencies measurement 
approaches. In doing so, approximately 100 sources were located.  

Each  of  the  sources  were  briefly  scanned,  with  an  abstract/summary  of  the  source 
developed.  From  the  initial  brief-scan,  it  became  apparent  that  few  documents  were 
commonly  cross-referenced 
formulation  of  nature-related  risk 
frameworks. In particular, the TNFD typology was identified as being at the forefront of 
biodiversity financial risk framing.73 As such, the typology of risks from the TNFD was 
used as a ‘baseline’.  

terms  of 

the 

in 

The ‘baseline’ was used to frame the literature review analysis- providing a comparison 
point whilst also facilitating the categorization of data found within documentation. The 
baseline is further introduced in Chapter 2.2  below.  

With the framework and baseline developed, literature was inserted into an excel tool. 
The tool was developed with a primary purpose of identifying which literature significantly 
differed in the framing/categorizing of nature-related risks. This identification would then 
be  used  for  further  analysis-  so  that  the  baseline  could  be  continually  assessed, 
differentiation  noted,  and  any  changes  in  the  baseline  then  made.  Variations  in 
categorization/definitions were ranked- to allow easy identification of which publications 
offered  contrasting  interpretations.  Using  the  tool,  summaries  of  the  main  divergence 

69 Science Based Targets Network (2023) SBTN Glossary of Terms. May 2023.  
70 University of Cambridge Institute for Sustainability Leadership (CISL, 2021). Handbook for nature-related financial 
risks: key concepts and a framework for identification 
71 TNFD (2023) Glossary. Version 1. September 2023.  
72 TNFD (2023) Glossary. Version 1. September 2023. 
73 Consultations outlined that the TNFD is a consolidation of multiple frameworks and terminologies used in a range of 
other documentation and is therefore seen as the most comprehensively aligned typology 

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points  were  developed,  which  could  then  be  used  as  building  blocks  for  the  analysis 
presented in Chapter 2.2.  

for 

this 

‘Key 

stakeholders’, 

the  purpose  of 

Complementing  this  approach,  a  series  of  interviews  with  key  stakeholders  were 
undertaken. 
study,  were 
organisations/institutions/entities involved in the development and/or implementation of 
nature-related  risk  frameworks  or  methodologies  to  understand  risks.  This  included 
central  banks,  NGOs,  industry  (associations),  asset  owners,  and  others  (including 
partnerships,  such  as: the  Taskforce  on  Nature-related  Financial  Disclosures (TNFD), 
United  Nations  Environment  Programme  Finance 
(UNEP  FI),  and 
intergovernmental  organisations  such  as  the  Organisation  for  Economic  Co-operation 
and  Development  (OECD)).  As  outlined,  these    organizations  represented  a  diverse 
range of stakeholder types, but they were also chosen based upon their involvement in 
recent key documents which aligned to the objectives of this study.  

Initiative 

Consultations focused on several key discussion points: 

—  Sources of information which informed the development of 

frameworks/terminology to define and understand the financial risks posed 
by nature loss; 

—  Views on the risk categorisation formed in this study’s analysis; 

—  Approaches and methodologies undertaken to identify, understand and 

quantify these risks; 

—  Data sources and metrics used to inform risk assessments (and identification 

of any significant data gaps); 

—  Approaches by organisations/institutions/entities to mitigate identified nature-

related financial risks. 

The outputs from interviews were documented and then used to refine the synthesis of 
information presented in Chapter 2.2  below.  

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2.2.  Risk categorization 

This chapter aims to systematically categorize and define key components of risk and set a 
common understanding regarding terminology surrounding nature-related risks. 

Four key risk-related definitions were identified within literature and through consultations: 
risk type, risk driver, transmission channels, and financial risks. Each of these components 
contain various sub-components, which are assessed and defined, allowing the reader to 
finish Chapter 2.2 with a clear understanding of the terminologies and categorization of 
nature-related risks and how they propagate to potentially impact financial institutions.  

Our assessment indicates that many of the nature-related risk terminologies and frameworks 
build upon those already developed for climate-related risk. Through the literature sources 
identified and reviewed, very few points of deviation occur when framing nature-related risk 
terminology. However, one key consideration, which is treated differently in literature, is the 
notion of systemic risk. This factor is often not included due to the lack of data/agreed upon 
methodological approaches to understand the complexity of such issues. We follow this 
approach and do not propose to include systemic risk as a self-standing risk type. However, 
we suggest to take account of the systemic dimension of risk propagation in the actual 
implementation of the risk framework through a forward-looking analysis of risks and drivers, 
as well as to continue research work on methodological approaches to be able to capture 
systemic risks in the future 

As noted in the methodology outline above, a key point of origin for the risk categorization 
was  the  formulation  of  a  baseline.  The  baseline  was  used  as  a  comparison  point- 
allowing for an assessment to be made of the key similarities and departure points found 
within  literature  on  how  nature-related  risk  is  categorized.  A  starting  point  for  this 
formulation was the development of a framework. The overall framework was developed 
by this study, through the synthesis of key documentation identified during the literature 
review. As captured in Figure  below, a series of key elements of a nature-related risk 
typology are shown. Here, the baseline was used as to frame each of these elements. 
The  exercise  categorized  the  following  baseline  elements  of  the  nature-related  risk 
typology: 

1. 

2. 

3. 

4. 

Risk driver- depicting the direct factors which are (negatively) influencing 
nature and causing changes to biodiversity and ecosystems (i.e. 
pressures). 

Risk type- noting the forms of potential risk posed to organisations and 
institutions, stemming from their impacts and dependencies on nature.  

Risk category- further breaking down ‘risk types’ into sub-categories to 
outline the specific manner in which potential risks can negatively threaten 
organisations/institutions.  

Transmission channels- categorizing the manner in which nature-related 
dependencies and impacts transmit to impact the organization or financial 
institution. These channels outline the causal linkage between risk drivers 
and financial risks. Such channels can be micro (organization/entity level), 
meso (sectoral) or macro (system-wide). 

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5. 

Financial risk- outlining the broad range of risks stemming from impacts 
on earnings and cashflow due to nature loss.  

A key focal point of the figure are the transmission channels, which intersects financial 
institutions  impacts  and  dependencies  on  nature,  with  real  financial  impacts.  Many  of 
these  channels  create  feedback  loops  between  nature,  the  economy  and  financial 
systems which are significantly challenging to understand and quantify, and can impact 
at  various  magnitudes.  As  such,  given  this  complexity,  and  rather  nascent  stage  of 
understanding,  Chapter  2.3  highlights  some  of  the  challenges  faced,  the  assessment 
approaches possible to use, and the key gaps/needs.  

Figure 2-2 Overview of nature-related risk typology used in this report 

2.2.1.  Risk drivers  

Risk drivers categorise the key drivers of nature loss, both natural and human-induced. 
Such drivers, in-turn, impact the benefits we obtain from nature (ecosystem services), 
which can ultimately impact people, society and the economy.74 

Literature shows a divergent picture when it comes to classifying risk drivers. While early 
publications  only  refer  to  singular  (e.g.  physical  depletion,  climate  change)  or  a  low 
number of risk drivers (e.g. climate change and land use change), there has been greater 
convergence around the five direct drivers as defined in the IPBES Global Assessment 
Report on Biodiversity and Ecosystem Services that unequivocally influence biodiversity 
and ecosystem processes: land use change, climate change, pollution, nature resource 
use  and  exploitation,  and  invasive  species75.  Some  publications  also  capture 

74 IPBES (2019): Summary for policymakers of the global assessment report on biodiversity and ecosystem services of 
the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services 
75 IPBES (2019): Summary for policymakers of the global assessment report on biodiversity and ecosystem services of 
the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services 

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opportunities,  as  well  as  risks,  include  the  contrapositives  replenishment,  pollution 
removal and IAS removal.  

Within the context of this report, we would classify the risk drivers76 into the categories 
land  use  change,  climate  change,  pollution,  resource  use  and  invasive  alien  species, 
which also align with the five drivers highlighted in the EU’s Biodiversity Strategy, and 
coincide with the EEA’s findings in its 2020 State of Nature report77 (see figure below). 
Risk drivers are interconnected and the presence of several exacerbate negative effects 
on  nature,  which  can  be  demonstrated  by  water  use  as  an  example:  resource  use  in 
itself  can  lead  to  water  scarcity,  aggravated  through  increased  temperatures  and 
droughts caused by climate change, or modified water courses through the expansion of 
urban areas.  

Figure 2-3 - Causes of biodiversity loss: land use change (urbanisation, agriculture, modification on water 
regimes), climate change, pollution, resource use (agriculture, forestry, exploitation of species), invasive 
alien species 

Source: EEA State of Nature 2020 report 

Risk driver 1: Land use change (terrestrial and marine/aquatic) 

The  IPBES  report  summarises  land  use  change  as  the  major  human  influence  on 
habitats which can include the conversion of land cover (e.g. deforestation or mining), 
changes  in  the  management  of  the  ecosystem  or  agro-ecosystem  (e.g.  through  the 

76 Note: This report only focuses on risks and not opportunities, hence resource replenishment, pollution removal and 
IAS removal have not been further considered.  
77 EEA (2020) State of Nature in the EU. Report No. 10/2020. European Environment Agency. 

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intensification of agricultural management or forest harvesting, or through expansion of 
economic activities into protected areas) or changes in the spatial configuration of the 
landscape (e.g. fragmentation of habitats). Land use change has hence been a major 
driver for loss of biodiversity and ecosystem services in the last half century, in particular 
for terrestrial and freshwater ecosystems.  

Risk driver 2: Climate change 

Temperature  changes  and  more  frequent  extreme  weather  events  caused  by  climate 
change have a major effect on biodiversity, and can be the reason for the migration of 
species and of entire ecosystem, and even for species extinction. The IPCC in its most 
recent  synthesis  report78  warns  from  biodiversity  loss  in  land,  freshwater  and  ocean 
ecosystems, and a decrease in food production in some regions associated with climate 
hazards  in  the  near-term.  Species  extinction  or  irreversible  biodiversity  loss  is  in 
particular expected in forests, coral reefs and in Arctic regions.  

Risk driver 3: Resource use 

Overexploitation  of  natural  resources  leads  to  the  extinction  of  species  (affecting  in 
particular  marine  species),  and  to  biodiversity  loss  at  a  major  scale  such  as  through 
deforestation.  Deforestation  in  turn  negatively  impacts  the  capacity  of  the  planet  to 
absorb  CO2,  aggravating  further  the  impacts  of  climate  change.  However,  natural 
resources  are  an  input  factor  for  many  production  processes,  such  as  agriculture, 
fisheries  and  mining.  Hence  resource  depletion  is  a  driver  that  can  deprive  important 
economic sectors of their input and can even lead to the full breakdown of the sector.  

Risk driver 4: Pollution 

Pollution is a key driver of biodiversity loss and has a harmful impact on our health and 
environment.  It  is  caused  through  the  release  of  nutrients,  chemical  pesticides, 
pharmaceuticals,  hazardous  chemicals,  urban  and  industrial  wastewater,  and  other 
waste including litter and plastics. Significantly, nitrogen deposition is one of the most 
important  threats,  even  at  global  level79,  causing  through  eutrophication  ‘dead  zones’ 
where no aquatic life is no longer possible.  

Risk driver 5: Invasive alien species  

‘Invasive alien species’ means an alien species whose introduction or spread has been 
found to threaten or adversely impact upon biodiversity and related ecosystem services. 
Like  highlighted  in  the  EU  Biodiversity  Strategy, many  such  species  also  facilitate the 

78 IPCC (2023) Synthesis report of the IPCC sixth assessment report (AR6). Summary for Policy Makers. Available at: 
https://report.ipcc.ch/ar6syr/pdf/IPCC_AR6_SYR_SPM.pdf 
79 IPBES (n.d.) Models of drivers of biodiversity and ecosystem change. Available at: https://www.ipbes.net/models-
drivers-biodiversity-ecosystem-change 

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outbreak  and  spread  of  infectious  diseases.  Of  the  1,872  species  now  considered 
threatened in Europe, 354 are under threat from invasive alien species.  

2.2.2.  Risk types  

A  range  of  risks  are  posed  to  financial  institutions  from  nature  loss.  The  majority  of 
literature reviewed converges on the view of categorizing risk as either a physical risk 
or a transition risk. Further differentiations exist but are few. Literature that focuses on 
legal  or  reputational  risk  would  for  example  include  further,  sometimes  separate 
categories such as liability or litigation risk80 81 82. However, this report considers this as 
a sub-category within transition risks.  

Below is thus a full description of the suggested classification and related examples: 

Figure 2-4 Definition of physical risk83 

Physical risks, the degradation of nature and consequential loss of ecosystem services  
that  economic  activity  depends  upon,84  can  arise  due  to  natural  events/changes 
(climatic-  such  as  weather  extremes,  geologic-  such  as  seismic  events)85  or  human-
induced  conditions,86  This  type  of  risk  affects  in  particular  sectors  that  are  highly 
dependent  on  biodiversity  assets  as  input  to  their  production  processes,  for  example 
agriculture.  But  also  other  sectors  can  suddenly  be  at  risk,  such  as  real  estate 
development in an area devastated by a land slide as a consequence of soil degradation 
and erosion. Physical risks can be further sub-categorised as acute or chronic.87  Acute 

80 Commonwealth Climate and Law Initiative (2020). The emergence of foreseeable biodiversity-related liability risks for 
financial institutions: A gathering storm?  
81 NGFS - INSPIRE (2022). Central banking and supervision in the biosphere: An agenda for action on biodiversity loss, 
financial risk and system stability.  
82 OECD (2023). Assessing biodiversity-related financial risks: Navigating the landscape of existing approaches.  
83 For example: DNB (2020) Indebted to nature. De Nederlandsche Bank; OECD (2023). Assessing biodiversity related 
financial risks: Navigating the landscape of existing approaches; WWF  (2023) WWF Biodiversity Risk Filter 
Methodology Documentation 
84 TNFD (2023) Recommendations of the Taskforce on Nature-related Financial Disclosures 
85 University of Cambridge Institute for Sustainability Leadership (CISL, 2021). Handbook for nature-related financial 
risks: key concepts and a framework for identification.  
86 WWF (2023) WWF Biodiversity Risk Filter Methodology Documentation 
87 For example: NGFS - INSPIRE (2022). Central banking and supervision in the biosphere: An agenda for action on 
biodiversity loss, financial risk and system stability; Global Canopy and Vivid Economics (2020) The Case for a Task 
Force on Nature-related Financial Disclosures; University of Cambridge Institute for Sustainability Leadership (CISL, 
2021). Handbook for nature-related financial risks: key concepts and a framework for identification. 

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physical risk describe event-driven impacts which result in sudden consequences (e.g. 
an earthquake or the spread of a disease due to invasive species).88 Chronic physical 
risk describes a situation where such interruptions happen over time with its effect slowly 
accumulating (e.g. chemical pollution through wastewater discharges).  

Figure 2-5 Definition of transition risk89 

Transition risks  stem from  a  misalignment  of  economic  actors  with  actions  aimed  at 
protecting, restoring, and/or reducing negative impacts on nature. Such risks could be 
prompted by new or emerging policies, legislation or technology, but also stemming 
from  changes  in  (consumer)  demand  or  from  an  alteration  in  public  perception  for 
certain products. As such, transition risks are mainly a reaction to an entity’s impact on 
nature. These numerous transition risks are often intrinsically interlinked, and can also 
link to the aforementioned physical risks. As an example- the introduction of stringent 
regulation to tackle land use changes (for example, which negatively impact biodiversity 
and physical assets reliant on a functioning ecosystem) can not only impact a commodity 
provider through restrictions on their production processes, but also through changes in 
consumer  demand  due  to  negative  connotations  on  the  products  provided  by 
organisations.90  Often  economic  activities  which  are  highly  dependent  upon  fully-
functioning, intact nature are likely to be exposed to greater physical risks. In turn, the 
greater 
in 
a 
policy/legislation/technology/demand  becomes- ultimately  causing  increased  transition 
risks.91 

expected 

become, 

changes 

stronger 

need 

risks 

for 

Public policy is hence a key determining factor for assessing potential future transition 
risks,  and  whether  or  not  public  policy  would  disrupt traditional  production  processes. 
The EU Green Deal for example has been instrumental in redirecting the EU’s policies 
and legislation towards the objectives of climate neutrality and biodiversity conservation 
in an accelerated manner. This has benefitted sectors that have already been heading 
into  this  direction,  but  has  also  put  pressure  on  those  which  are  not  aligned  to  these 

88 University of Cambridge Institute for Sustainability Leadership (CISL, 2021). Handbook for nature-related financial 
risks: key concepts and a framework for identification; OECD (2023). Assessing biodiversity related financial risks: 
Navigating the landscape of existing approaches.  
89 NGFS (2021) Biodiversity and financial stability: building the case for action 
90 Chatham House (2016) Managing the Risk of Stranded Assets in Agriculture and Forestry  
91 EIOPA (2023) EIOPA Staff paper on nature related risks and impacts for insurance 

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ambitions.  The  introduction  of  new  policies  which  place  stricter  restrictions  upon 
economic activities which negatively impact nature can also increase the risk of stranded 
assets- whereby activities which do not abide to new restrictions (for example, through 
upgrading  technologies)  can  be  prohibited  from  proceeding  with  their  activities.  For 
example, in the Netherlands, regulations and measures to tackle the ongoing nitrogen 
crisis- whereby nitrogen disposition in Natura 2000 areas surpassed thresholds - were 
imposed to comply with EU nature legislation, resulting in significant delay/revoking of 
permits  for  construction.  This  has  resulted  on  the  one  hand  in  wide-spread  and  still 
ongoing resistance among the farmer community; on the other, there are also farmers 
that are transitioning to technologies which assist in reducing nitrogen application- such 
as precision farming practices and sustainable land use practices.92  

Technological  changes  can  often  be  in  response  to  policy/regulatory,  but  also  in 
response to market  changes.93  For  example, the use  of  mycelium-based construction 
materials  has  shown  promise  in  replacing  more  conventional  materials.  With  further 
regulation implemented globally to restrict deforestation and limit emissions, the use of 
concrete  and  wood  could  be  foreseen  to  be  placed  under  strain-  with  other  materials 
sought to align with policy goals and consumer needs, and ultimately reduce the impact 
and/or dependency on nature.  

Multiple examples of consumer preferences (in-turn leading to fluctuations in demands 
for certain products) exist, which can be influenced by the transition risks outlined above. 
Within the EU, the Green Deal and push towards enhanced sustainability is projected to 
shift consumer demand for meat products- reducing per capita consumption from 69.8kg 
in 2018 to 67kg by 2031.94 Such shifts in behaviour can be expected to place enhanced 
demand on protein substitutes to fulfil dietary needs, which in-turn could pose nature-
related risks.  

It is key to note that when assessing nature-related risks, in addition to the direct effects 
of impacts and dependencies on an individual actor / a part or segment of ecosystems / 
the  real  economy  /  the  financial  system,  the  financial  sector  should  take  into  account 
their systemic dimensions which relates to the indirect impacts that arise from feedback 
loops, contagion and cascading effects within or between those systems. Such systemic 
dimensions,  through  three  augmentations,  can  present  risk  through  indirect  causal 
chains listed below. For financial institutions, the pathways or reactions taken to address 
these issues can present further risks in itself- through amplifying stress placed on the 
ecological  and  financial  system.  1)  compounding  effects-  whereby  the  collapse  of  an 
ecosystem or ecosystem service could result in the degradation or a collapse of others.95 
An example of this kelp forests decline associated with the extinction of sea otters in the 
Alaskan  Aleutian  Islands96.  2)  Cascading  effects-  whereby  physical  and/or  transition 
risks can cascade and amplify through value chains, resulting in ‘tipping points’ where 

92 DNB (2020) Biodiversity Opportunities and Risks for the Financial Sector 
93 See, for example: OECD (2023) Assessing biodiversity related financial risks: Navigating the landscape of existing 
approaches; CISL (2021), Handbook for nature-related financial risks: key concepts and a framework for identification;  
94 EC (2021) EU agricultural outlook 2021-31: consumer behaviour to influence meat and dairy markets. Available at: 
https://agriculture.ec.europa.eu/news/eu-agricultural-outlook-2021-31-consumer-behaviour-influence-meat-and-dairy-
markets-2021-12-09_en 
95 NGFS (2023) Nature-related Financial Risks: a Conceptual Framework to guide Action by Central Banks and 
Supervisors. Network for Greening the Financial System. 
96 WWF, Deloitte (2022). Nature is Next. Integrating nature-related risks into the Dutch Financial Sector.  

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damage  to  biodiversity  and  ecosystem  functioning  becomes  irreversible.  When  such 
points  are  crossed,  they  can  produce  ‘large  failures  and  cascading  interactions  of 
physical and transition risks, one loss triggers a chain of others and stops systems from 
recovering  their  equilibrium  after  a  shock.’97  One  way  of  depicting  tipping  points  is 
through the Planetary Boundaries model conceived in 2009 by Johan Rockström et. al. 
Scientists  at that time set  quantitative  planetary  boundaries  within  humanity  would  be 
save  to  operate  without  risking  irreversible  environmental  changes.  Since  2009,  the 
model has been updated several times, and in January 2022 it was found that another 
planetary boundary related to environmental pollutants and other novel entities including 
plastics  has  been  exceeded98.  In  a  further  advancement  of  the  model  together  with 
others and integrating earth system resilience and human well-being, Rockström et. al 
established in 2023 quantified safe and just Earth system boundaries (ESBs) for climate, 
the biosphere, water and nutrient cycles, as well as aerosols at subglobal level, finding 
that  seven  of  eight  that  were  defined  as  “globally  quantified  safe  and  just”  ESBs  are 
already exceeded (including phosphorus, nitrogen, water and ecosystems)99. 

Figure 2-6 – Planetary Boundaries; Azote for Stockholm Resilience Centre, based on analysis in Persson et 
al 2022 and Steffen et al 2015 

Finally, through 3) contagion effects- these depict the impacts of physical or transition 
risks on individual financial institutions which can in-turn spread throughout the entirety 
of  the  financial  system,  potentially  impacting  the  economy  as  a  whole.100  The  figure 
below captures a simplified view of how systemic risks can impact financial institutions. 

97 TNFD (2023). Glossary of key terms. Version 1. September 2023.  
98 Persson et al., (2022). Outside the safe operating space of the planetary boundary for novel entities.  
99 Rockström, J., Gupta, J., Qin, D. et al. (2023). Safe and just Earth system boundaries. Nature 619, 102–111. 
https://doi.org/10.1038/s41586-023-06083-8 
100 NGFS (2023) Nature-related Financial Risks: a Conceptual Framework to guide Action by Central Banks and 
Supervisors. Network for Greening the Financial System. 

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Figure 2-7 – Interaction of cascading effects and contagion effects with the financial system. Adapted from 
OECD (2023)101 

While the TNFD for example includes systemic risk as an individual risk type,102 such 
risks are often not included in frameworks, as methodologies to further understand the 
details of these risks are still nascent in their development103 104. While it might be difficult 
to incorporate systemic risk as a self-standing risk type in a nature-related risk typology 
(challenges  in  identifying  tipping  point  thresholds,    methodological  and  capacity 
challenges in identifying and assess the dimensions and impacts of systemic risks), it is 
highly  relevant  to  consider  these  types  of  most  extreme  risk  manifestations  in  risk 
assessment  framework,  through  a  forward-looking  analysis  of  risks  and  drivers.  We 
therefore  regard  systemic  risk  as  a  transversal  risk  that  can  appear  in  various  forms 
throughout the assessment framework, that need to be considered and accounted for as 
such.  

2.2.3.    Transmission channels  

The risks outlined in the above sections can transmit and manifest to the economy in 
various  forms-  to  organizations  (micro-impacts),  sectors  (meso-impacts),  or  financial 
institutions who invest in these sectors and organisations (macro-impacts). Interviewees 
confirmed that transmission channels are important to capture supply chain effects and 
intersectoral  connectivity.  This  information  is  required  to  capture  the  macroeconomic 
impacts.  Each  of  these  transmission  channels  can  be  presented  with  specific 
economic risks related to nature loss. For example, micro-/meso-economic transmission 
channels  affect 
the  organisations/sectors  who  conduct  business  with  financial 
institutions,  directly  and  indirectly-  whereby  nature  loss  could  disrupt  their  operations 

101 OECD (2023). Assessing biodiversity-related financial risks: Navigating the landscape of existing approaches.  
102 TNFD (2023) Recommendations of the Taskforce on Nature-related Financial Disclosures 
103 Banque de France (2021). A “Silent Spring” for the Financial System?  
Exploring Biodiversity-Related Financial Risks in France.  
104 OECD (2023). Assessing biodiversity related financial risks: Navigating the landscape of existing approaches.  

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which  in-turn  impacts  the  assets  financed  by  financial  institutions.  Nature-related  risk 
drivers can impact factors such as inflation, labour productivity and the overall economy 
in  which  financial  institutions  operate  through  macroeconomic  transmission  channels. 
These factors can not only be grouped based upon their scale (micro, meso, macro-), 
but also upon the manner in which they can propagate to specific financial impacts: 

—  Changing demand  

—  Raw material price volatility  

—  Asset value  

—  Change in profitability/increased litigation  

—  Disruption of activities/value chains  

It  should  be  noted  here  that  each  of  the  risks  depicted  above  can  be  transmitted  to 
physical, financial and societal assets- as these are often interlinked with each other. 105 
However, the focus of this study is predominantly on the financial risks associated with 
nature-loss, as highlighted in the next section. Furthermore, it is important to consider 
that  the  various  transmission  channels  can  lead  to  drivers  of  biodiversity  loss  being 
exacerbated  through  endogenous  risk,  whereby  financed  activities  can  exacerbate, 
such as can be observed in specific agricultural finance transactions106.  

2.2.4.  Financial risk  

A final stage in the risk framework outlines how nature-related risks manifest to impact 
financial  systems.  These  financial  risks  can  stem  from  multiple  risk  drivers 
simultaneously, transmit at varying scales can generally be categorized as five distinctive 
types: credit risk, market risk, liquidity risk, underwriting risk and operational risk.107 Each 
of  these  are  introduced  below  along  with  examples  of  how  these  risks  can  impact 
financial institutions. 

Credit  risk  relates  to  the  deterioration  of  credit  quality  of  fixed  income  holdings 108, 
whereby  an  issuer,  borrower  or  counterparty  is  not  able  to  fulfil  its  obligations  due  to 
defaulting.109  As 
households, 
financial 
businesses/organisations, sectors, or sovereign wealth. Through physical drivers, credit 
risk can be impacted through the damage/destruction of assets- which can decrease its 
related  value,  or  negatively  impact  cash  flows  to  these  damaged/destroyed  assets.110 

impact 

such, 

can 

risk 

this 

105 Chatham House (2016) Managing the Risk of Stranded Assets in Agriculture and Forestry 
106 NGFS-INSPIRE (2022) Central banking and supervision in the biosphere: An agenda for action on biodiversity loss, 
financial risk and system stability. 
107 See, for example, CISL, 2021, Handbook for nature-related financial risks: key concepts and a framework for 
identification, University of Cambridge Institute for Sustainability Leadership; TNFD (2023) Recommendations of the 
Taskforce on Nature-related Financial Disclosures. 
108 Sustainable Insurance Forum (2021) Nature-related risks in the global insurance sector  
109 Cambridge Centre for Sustainable Finance (2016) Environmental risk analysis by financial institutions: a review of 
global practice. 
110Bank for International Settlements (2021) Climate-related risk drivers and their transmission channels   

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Transition  risks  can  also  impact  credit  through  increasing  credit  costs  in  polluting 
industries following the implementation of legislation which seeks to tackle, for example, 
greenhouse gases (which could lead to stranded assets). At a macroeconomic level, the 
loss  of  nature  and  subsequent  increased  sovereign  risk  through  reduced  economic 
performance111 will make it more challenging for countries to service debt, resulting in 
strained government budgets.112 Businesses can also be exposed to credit risk through, 
for example, overextraction of/ failure to protect regulating services provided by nature 
such as flood control, storm protection or wildfire protection due to loss of forested areas, 
mangroves or due to incorrect land management practices.  

Market risks stem from changes in market prices. A decline in the market value of an 
investment  can  occur  if  biodiversity  tipping  points  are  encountered  which  negatively 
impact the values of shares/bonds, or production processes. 113 In turn, these (adverse) 
changes in market prices risk losses to company/financial institutions’ balance sheets. 
Beyond the depicted physical risks posed by nature loss, markets can also be intrinsically 
linked to some of the risks outlined in section 0. For example, consumer preferences for 
goods/services which are not deemed environmentally damaging can result in shifts in 
the supply/demand of such products. Furthermore, environmental disasters such as oil 
spills  can  impact  social  sentiment,  which  can  translate  to  negative  stock  market 
reactions.  

Liquidity  risk  can  be  posed  to  financial  institutions  by  their  necessity  to  draw  down 
deposits and/or credit lines in order to meet current and future cash flow and collateral 
needs. Changes in these current and future needs can be resultant of volatile markets, 
the need to withdraw money to finance damage repairs or due to non-compliance with 
regulations. For example, the ongoing drought witnessed in southern Europe (May 2023) 
has  negatively  impacted  crop  yields  in  large  areas.  This  is  likely  to  result  in  price 
increases  of  crops  impacted  by  drought  due  to  decreased  harvesting,  which  can 
ultimately impact the liquidity of crop commodity markets due to challenges in predicting 
harvest  volumes  moving  forward.  In  the  event  of  an  activity  causing  environmental 
damage, an organisation’s license to operate may be withdrawn- such as the (temporary) 
shut  down  of  the  3M  plant  in  Belgium  due  to  environmental  regulators  banning  the 
emission of PFAS chemicals. In turn, this can be expected to impact the ability of such 
organisations to refinance debt.  

Underwriting risks can also stem from nature loss, particularly in relation to insurance 
lines such as flood, agriculture, life and health. These risks can lead to mispricing and/or 
increasing  claims.114  For  example,  deforestation  could  result  to  increased  flooding 
events in a region, which causes physical damage to (insured) assets, whilst pollinator 
extinction,  water  scarcity  or  soil  erosion  could  negatively  impact  crop  yields-  causing 
higher insurance risks. Similarly, the condition of ecosystems and their intrinsic link to 
human health, could result in higher mortality and morbidity rates amongst the population 

111 Bank for International Settlements (2021) Climate-related risk drivers and their transmission channels   
112 Bennett Institute for Public Policy, Cambridge (2022) Nature Loss and Sovereign Credit Ratings.  
113 The Sustainable Finance Platform (2020) Biodiversity Opportunities and Risks for the Financial Sector; CISL, 
(2021), Handbook for nature-related financial risks: key concepts and a framework for identification, University of 
Cambridge Institute for Sustainability Leadership; NGFS-INSPIRE (2022) Central banking and supervision 
in the biosphere: An agenda for action on biodiversity loss, financial risk and system stability. 
114 EIOPA (2023) EIOPA Staff paper on nature related risks and impacts for insurance. European Insurance and 
Occupational Pensions Authority.  

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if  ecosystems  continue  to  be  degraded-  substantially  increasing  health  costs  and 
subsequently health insurers.  

Finally,  operational  risks-  the  changes  to  the  operations  of  financial  institutions  or 
businesses  due  to  nature-related  loss,  present  complex  interlinkages  with  to  the  risks 
outlined in section 0. Operational constraints can be encountered during resource over-
extraction  (for  example,  when  not  aligning  with  sustainable  forest  management 
practices) which could impact the financial viability of a business, or alternatively, if an 
investor  is  connected  to  a  major  negative  environmental  effect  (for  example, 
deforestation in previously pristine areas), this could result in the withdrawal of deposits 
or  negative  impacts to  share  values.  Such  operational  risks  can  also  lead  to  broader, 
strategic issues for organisations- who may require to change their business models in 
order to address these operational issues.  

Each of these outlined financial risks present potential feedback loops to the risk types 
outlined in section 2.2.2, which in turn can lead to and/or exacerbate the aforementioned 
systemic dimensions.  

2.3.  Approaches to identify, assess and mitigate risk 

The aim of this chapter is to assess the approaches that currently exist to identify, 
understand and mitigate nature-related risks. The assessment builds upon terminology and 
concepts determined in the during the risk categorization, while also delving deeper into 
methods for evaluating exposure to nature-related risks and the resulting financial impacts 
across different risk types.  

Exposure assessments provide insights into a financial institution's impacts and 
dependencies on nature, while materiality assessments inform about the extent of financial 
implications stemming from these impacts and dependencies. Our assessment found that 
sources of variability (like geographical heterogeneity, amplifiers and mitigants) are 
important factors that can influence the likelihood and severity of the impacts and 
dependencies, but are at this stage not commonly incorporated into assessment frameworks 
due to their complexity. Both exposure and materiality assessment tools are difficult to 
develop and apply due to the multidimensional and overly specific nature of biodiversity 
loss's financial risks and the associated data limitations. However, materiality assessments, 
as they draw closer to quantifying nature-related financial risks, present significant 
challenges. Consequently, alternative methods such as heatmaps, asset tagging, and 
scenario analysis are often employed to gauge the magnitude of financial risks. 

Finally, we found that risk mitigation approaches at individual company and across financial 
institutions are important, to reduce impact of nature and biodiversity loss related risks. 
Mitigating risks involves strategies at both project/program and institutional levels. However, 
current risk mitigation practices, based on limited risk assessments, mostly address direct 
impacts and dependencies, overlooking a holistic understanding of risks. This limitation 
points to a need for institutional transformation to better integrate information into decision-
making processes. 

In the preceding sections, we introduced how nature-related physical and transition 
risks can affect the economy at micro-, meso- and macro levels, and subsequently can 

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affect a financial institution (see also Figure 2-8). In this chapter, we delve into the 
approaches that currently exist to identify, understand and mitigate these nature-
related risks and financial consequences.  

To effectively evaluate and mitigate nature-related financial risks, risk assessment tools 
including models and scenarios, are required to capture the interlinkages and 
transmission channels between nature, the economy, and the financial sector. Nature 
risk assessment tools help financial institutions to assess the impacts and 
dependencies of their finance activities on biodiversity and ecosystem services and 
inform about the magnitude of the financial implications. We identify two steps in 
assessing nature-related financial risks:  

1. 

Exposure assessments to identify the financial institution’s impacts and 
dependencies on nature, and their materiality. 

2.  Materiality assessments to assess the (extent of) financial implications  

Figure 2-8 Overview of nature-related risk framework, including approaches to assess, materialise and 
mitigate risks  

2.3.1.  Exposure assessment approaches 

A  financial  institution’s  exposure  to  nature-related  financial  risks  is  determined  by  its 
impacts and dependencies on nature.  

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2.3.1.1. 

Impacts 

Under impact, it is considered what impact a financial institution’s investment activities 
may have on nature. In the context of this study, we refer mainly to negative impacts 
as  those  are  related  to  transition  (including  reputational)  risks,  and  more  indirectly  to 
physical risks. Tools that capture the negative impacts are often referred to as footprint 
tools.  These  tools  encompass  various  drivers  (e.g.,  emissions,  resource  use)  and 
associated  biodiversity  impacts  throughout  the  entire  value  chain,  including  both 
upstream and downstream aspects.115 

Figure 2-9 Relation between dependencies & impacts risks types 

Investment activities may also have a positive impact on nature, often referred to as 
nature-positive activities.116 Clear examples of such activities are investments in nature 
conservation and restoration, yet discussions continue as to whether the concept of ‘net 
positive  impact’  can  lead  to  greenwashing  when  offsetting  is  allowed  to  derive  a  net 
positive  impact  (Figure  2-10).  Another  discussion  point  concerns  the  inclusion  of 
biodiversity mainstreaming and/or co-benefits activities and how those activities should 
be treated in the tracking and reporting process.  

2.3.1.2.  Dependencies  

Financed activities often depend on nature and its ecosystem services (e.g., pollination 
and clean air and water). If nature and ecosystem services are vulnerable, it could pose 
a risk to the activity or operations that rely on those services. This risk is mostly linked 

115 Finance for Biodiversity Foundation (2022). Act Now! The why and how of biodiversity integration by financial 
institutions. Available here: https://www.financeforbiodiversity.org/wp-content/uploads/FfB-Foundation_Act-now_Guide-
on-biodiversity-integration.pdf 
116 Defined by the Nature Positive Initiative as actions which ‘Halt and Reverse Nature Loss by 2030 on a 2020 
baseline, and achieve full recovery by 2050’. Available at: https://www.naturepositive.org/app/uploads/2024/02/The-
Definition-of-Nature-Positive.pdf  

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with  physical  risk,  and  can  be  measured  by  a  tool  that  translates  the  impact  of  direct 
drivers  (e.g.  land  use  change  or  overexploitation)  on  species  and  habitats  (e.g.,  local 
extinctions  of  insects),  and  translates  these  impacts  into  consequences  caused  by 
declines in ecosystem services (e.g., loss of pollination services leading to declines of 
fruit harvesting or reduced fish stocks).117  

Note that on a global scale, dependency and impacts are two sides of the same coin as 
one company’s or project’s harm to nature can lead to financial loss for another company 
or project due to its dependence on that nature.118  

2.3.1.3.  Exposure assessment tools 

To  date,  there  are  several  exposure  assessment  tools  available,  as  well  as  helpful 
studies reviewing these tools to understand their applicability119  120  121  122. Despite the 
progress  made  in  the  last  years,  the  development  and  application  of  those  tools  are 
relatively new.  

In  the    Table  2-1  we  give  an  overview  of  the  several  well-known  and  used  exposure 
assessment tools, their underpinning economic models and biodiversity indicators. The 
table tracks the assessment tool’s inclusion of impacts and dependencies, temporal (i.e. 
use of scenarios) and spatial (i.e. use of location-specific data), as well as intersectorality 
(inclusion of interaction between sectors e.g. along the value chain). A long list of the 
assessment tools and related models and databases is presented in Annex A. Most of 
the tools analysed in Table 2-1 are free and open to the public.  

The review of the assessment tools is based on the reports by Finance for Biodiversity 
Initiative  (2020)  123  and  Business  @  Biodiversity  Platform  (2022)124,  as  well  as  the 
authors’ judgement. For a full list of available assessment tools, we refer to the report by 
the  European  Commission  and  EU  Business  @  Biodiversity  Platform  (2022).125  This 
report also offers the biodiversity Navigation Wheel which can be used to select the right 
assessment approach, depending on one’s needs and available data.  

2.3.1.4.  Unfolding the assessment tools 

Exposure assessments can be done at investment portfolio, sector, company or activity 
level. Moreover, the focus can be on direct operations or upstream and/or downstream 
in the value chain. The exposure assessment tools, often include primary data (e.g. IUCN 

117 Finance for Biodiversity Initiative (2022). Guide on biodiversity measurement approaches. Second Edition.  
118 Ibid.  
119 EU Business @ Biodiversity Platform (2022). Assessment of Biodiversity Measurement Approaches for Business 
and Financial Institutions 
120 Finance for Biodiversity Pledge (2022). Guide on biodiversity measurement approaches 
121 Almeida, E., C. Senni Colesanti and N. Dunz (2023), INSPIRE Sustainable Central Banking Toolbox Policy Briefing 
Paper 
122 NGFS - INSPIRE (2022), Central banking and supervision in the biosphere: An agenda for action on biodiversity 
loss, financial risk and system stability 
123 Finance for Biodiversity Initiative (2020). Aligning Development Finance with Nature’s Needs. Protecting Nature’s 
Development Dividend 
124 Business @ Biodiversity Platform (2022) Assessment of Biodiversity Measurement Approaches for Business and 
Financial Institutions 
125 See Assessment of Biodiversity Measurement Approaches for Businesses and Financial Institutions: Update Report 3 

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red list of threatened species, protected areas) and secondary data (e.g., published and 
peer-reviewed data), and modelled data (applying modelling techniques).  

Methodologies 
assessments of dependencies and positive impacts are emerging.126  

for  assessing  negative 

impacts  are  most  progressed,  whereas 

Most  assessment  tools  aim  to  translate  the  drivers  of  biodiversity  loss  of  IPBES  into 
impacts and dependencies. While some tools – like ENCORE – include all drivers, others 
focus on a few drivers. At this stage, the coverage of overexploitation and invasive alien 
species  has  not  been  widely  applied.  Some  models  such  as  GLOBIO  are  used  as 
underpinning models for nature-related risk assessment assessments. At the same time, 
there are also ecosystem service models and assessment tools, which translate the state 
of  ecosystem services  into  ecosystem service  flows127.  An  example  is InVEST,  which 
also assesses the economic impact (in GDP) of nature loss.  

Apart  from  ENCORE,  most  of  these  assessment  tools  focus  on  the  assessment  of 
companies’ (negative) impacts on biodiversity but do not cover target setting or providing 
a scoring of the identified risks per economic sector or industry.    

The  tools  specifically  mentioned  in  the  interviews  were  ENCORE  &  IBAT. In  addition, 
EXIOBASE was often mentioned in the interviews as a tool deployed to describe supply 
chain dependencies. However, it was also mentioned that banks do not select one tool, 
but rather base the selection of various tools on the specific needs of the assessment.  

The multidimensionality and over-specificity of the issue of financial risks of biodiversity 
loss are the main limiting factors to the development of a comprehensive framework, as 
it requires a lot of location-specific data per company and to track value chains which are 
often limited available. In addition, it required complex modelling approaches to capture 
the non-linearity of biodiversity loss, ecosystems degradation, and feedback loops with 
climate  change.  Given  the  complexity,  non-linearity  and  location-specific  nature  of 
biodiversity and ecosystem data, nature risk assessment tools often provide a simplified 
overview of impacts and dependency. This makes it important to consider the challenges 
and  limitations  of  applying  these  tools  when  interpreting  the  results.  This  cautious 
approach  was  further  underscored  during  the  interviews.  Whether  utilizing  an MSA  or 
PDF approach, the varying assumptions can lead to distinct outcomes. And although the 
footprint  number  may  appear  precise,  it's  important  to  acknowledge  the  underlying 
assumptions that influence its calculation.  

126 Finance for Biodiversity Foundation (2022). Act Now! The why and how of biodiversity integration by financial 
institutions. Available here: https://www.financeforbiodiversity.org/wp-content/uploads/FfB-Foundation_Act-now_Guide-
on-biodiversity-integration.pdf 
127 NGFS - INSPIRE (2022), Central banking and supervision in the biosphere: An agenda for action on biodiversity 
loss, financial risk and system stability 

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Exploring Natural 
Capital 
Opportunities, 
Risks and Exposure 
(ENCORE)128 

Biodiversity 
Footprint for 
Financial 
Institutions 
Methodology 
(BFFI)129 

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

Table 2-1 Overview of nature-related risk assessment approaches  

Tool 

Description 

S
p
a
t
i
a
l

T
e
m
p
o
r
a
l

a
l
i
t
y

I

n
t
e
r
s
e
c
t
o
r

I

m
p
a
c
t

e
s

D
e
p
e
n
d
e
n
c
i

Exposure assessment tools 

A tool and database to help users better understand and visualise the impact and dependencies of environmental change on the 
economy. By focusing on the goods and services that nature provides to enable economic production, it guides users in 
understanding how businesses across all sectors of the economy potentially depend and impact on nature, and how these 
potential dependencies and impacts might represent a business risk using qualitative materiality ratings. 

X 

X 

X 

✔

✔

The tool provides a biodiversity footprint of the economic activities in which a financial institution invests and hence can be used 
as an investment criterion or monitoring progress.  The methodology is based on Life Cycle Assessments and allows the calculation 
of the environmental pressures and the biodiversity impact of investments within an investment portfolio, an asset class, a 
company, or a project. The BFFI combines a quantitative footprint calculation (e.g. the number of ha where biodiversity loss 
occurs) and a qualitative analysis. In the absence of company-specific data, the environmental data in the EXIOBASE input/output 
database (see further below) is applied for the assessment of land use, water use, emissions, etc. (pressures). EXIOBASE takes into 
account worldwide trade flows between countries and between sectors.130 

Integrated 
Biodiversity 
Assessment Tool 
(IBAT)131 

IBAT offers visual geolocated data on global biodiversity by offering access to biodiversity datasets on 1) key biodiversity areas 2) 
protected areas and 3) distribution maps for IUCN Red List species. If the location of an investment activity is known, IBAT data 
can be helpful to inform the early-stage biodiversity risk screening and due diligence process. Ultimately, it can help to avoid 
investing in harmful activities in high biodiversity areas.  

Global Biodiversity 
Score for Financial 
Institutions 
(GBSFI)132 

The tool is based on the GBS® and hence provides information on the measured by the Mean Species Abundance. In summary, the 
GBSFI provides an overall and synthetic vision of the biodiversity footprint of financial assets (e.g., listed equity) considering the 
full value chain of underlying economic activities (associated companies and businesses). 

The Biodiversity 
Risk Filter134 

The Biodiversity Risk Filter is a tool that enables companies and financial institutions to Inform (i.e. providing an overview of the 
industry-specific dependencies and impacts on biodiversity), Explore (i.e. collection of spatially explicit maps of the importance 

X 

X  

✔

✔

✔

X 

X 

X 

✔

✔

✔

X 

✔
133 

✔

✔

✔

✔

✔

✔

✔

128 ENCORE is developed by the Natural Capital Finance Alliance in partnership with UNEP-WCMC and was financed by the Swiss State Secretariat for Economic Affairs (SECO) and the MAVA Foundation. 
129 Developed together with ASN Bank, PRé and CREM 
130 Finance for Biodiversity Pledge (2022). Guide on biodiversity measurement approaches 
131 IBAT is developed by BirdLife International, Conservation International, IUCN and UNEP-WCMC.  
132 Developed by CDC Biodiversité 
133 Indirect via Globio model 
134 The BRF is developed by WWF  

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

and local integrity of biodiversity), Assess (i.e. physical and reputational risks description), and Respond (identifying suitable 
actions to respond to the identified risks (under development)) to biodiversity risks. 135  

GLOBIO Model136 

Underpinning environmental and economic models 

GLOBIO is a model used to simulate the impact of different human pressure scenarios on biodiversity, in the form of the Mean 
Species Abundance (MSA). It also has derivations: GLOBIO-Aquatic, GLOBIO-Species and GLOBIO-ES. All these were designed to 
inform and support decision-makers by quantifying global human impacts on biodiversity. The various anthropogenic pressures 
included are infrastructure, hunting, nitrogen deposition, habitat fragmentation, land use and climate change. The GLOBIO model 
calculated changes in MSA due to increasing environmental pressures over time which can be attributed to different responsible 
economic sectors. The model is closely connected to PBL’s IMAGE model: an integrated assessment model that simulates the 
global environmental consequences of human activities by assessing the impacts on Impacts on climate change, land-use change, 
biodiversity loss, modified nutrient cycles, and water scarcity. Globio assesses the consequences of three of the Shared Socio-
economic Pathways (SSPs) for terrestrial biodiversity intactness.137 

✔

✔ 

a
g
r
i
c
u
l
t
u
r
e

I

m
a
g
e
:

e
n
e
r
g
y
&

✔ 

X

Exiobase138 

EXIOBASE is a global, detailed Multi-Regional Environmentally Extended Supply-Use Table (MR-SUT) and Input-Output Table (MR-
IOT). It was developed by harmonizing and detailing supply-use tables for a large number of countries, estimating emissions and 
resource extractions by industry. The MR-IOT can be used for the analysis of the environmental impacts associated with the final 
consumption of product groups. E.g. BFFI applies the environmental data in the EXIOBASE input/output database to assess what 
land use, water use, emissions, etc. (pressures) are linked to the economic activities unless more accurate data (like company 
data) is available. EXIOBASE takes into account worldwide trade flows between countries and between sectors.  

X 

X

✔

X

✔ 

Biodiversity Metrices and Indexes

Species Threat 
Abatement and 
Restoration (STAR) 
Metric 139 

The (STAR) Metric allows quantification of the potential contributions that species threat abatement and restoration activities 
offer towards reducing extinction risk across the world (drawing from the IUCN Red List of Threatened Species). As such, STAR 
helps identify actions that have the potential to bring benefits for threatened species, and it supports the establishment of 
science-based targets for species biodiversity, and commitments relevant to the post-2020 biodiversity framework. STAR is one of 
the derived data layers in IBAT.  

Mean Species 
Abundance (MSA)  

The Mean Species Abundance (MSA) metric is an indicator of local biodiversity intactness. The MSA values range from 0% to 100%, 
where 100% represents an undisturbed pristine ecosystem. (ratio between the observed biodiversity and the biodiversity in its 
pristine state). 140 The MSA is applied in the GLOBIO Model.  

n/
a 

n/
a 

✔

✔

X 

X 

i

m
p
a
c
t

P
o
s
i
t
i
v
e

✔

X 

X 

135 WWF (2023) Tackling Biodiversity Risk – A biodiversity risk assessment guide for companies and financial institutions, WWF Switzerland and WWF Germany in cooperation with Climate & Company, 
January 2023. 
136 The GLOBIO model was developed by PBL Netherlands Environmental Assessment Agency. 
137 See GLOBIO  
138 See https://www.exiobase.eu/index.php/about-exiobase 
139 STAR is developed by BirdLife International, Conservation International, IUCN and UNEP-WCMC. 
140 GLOBIO 

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

Potentially 
Disappeared 
Fraction of Species 
(PDF) 

The Potentially Disappeared Fraction (PDF) metric quantifies the proportion of species richness that may face loss or extinction as 
a result of various environmental pressures, including land use changes, climate change, and other factors.  

The PDF can have a max value of 1 (or 100%), and all species disappeared or zero, meaning that all species are still there. Loss of 
species is calculated in a certain terrestrial area (hence m2) or marine/freshwater area (hence m3), during a certain time (hence 
the addition of years).141 PDF is applied in the ReCipe model.  

✔ 

✔

X 

✔

X 

141 https://pre-sustainability.com/articles/biodiversity-one-our-impact-on-biodiversity/ 

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2.3.1.5.  Applying exposure assessments tools  

The TNFD introduces the use of heatmaps as one of three risk assessment methods, in 
particular,  to  identify  (potential)  exposure  per  sector.  Heatmaps  are  used  to  apply  a 
rating, often from low, medium to high impact or dependency on nature. 142 For instance, 
research by World Economic Forum (and updated by PWC) suggests that more than half 
of the world's total GDP, amounting to approximately US$ 58 trillion, depends moderately 
or highly on nature and its ecosystem services.143  In 3.3.2 we share the findings of our 
sector materiality assessment based on the publicly available ENCORE tool. Other tools 
like  the  WWF  Biodiversity  Risk  Filter  (see  Table  above)  are  also  used  by  financial 
institutions  to  allocate  a  qualitative  rating  to  each  sector  concerning  various  nature-
related categories, similar to the SBTN Materiality Matrix.144 In their estimations, banks 
can  define  and  apply  a  threshold  to  determine  what  can  be  regarded  as  ‘high  risk’ 
(stakeholder consultation).  

Despite  the  practical  applicability  of  heatmaps,  it  is  important  to  note  that  existing 
heatmaps  remain  a  static  tool  to  express  exposure  rather  than  financial  implications. 
Moreover,  they  do  not  consider  any  forward-looking  aspects  as  there  is  no  scenario 
modelling  involved  and  they  often  provide  a  simplistic  view  of  sectors  and  omit  any 
nuance about unconventional sectors and subsectors.145 

To  complement  heatmaps  approach,  financial  institutions  (and  other  entities)  often 
include  other  methods  like  asset  tagging  and  scenario-based  risks  method,  the 
remaining  two  methods  for  assessing  nature-related  risks  as  per  the  TNFD.  The 
scenario-based risks approach is introduced in the materiality assessment section 2.3.2, 
as  a  dynamic  approach  to  quantify  the  financial  risks,  whereas  heatmaps  and  asset 
tagging are more static approaches, introducing an order of magnitude.  

Asset tagging adds specific company or asset information to the heat-mapping exercise, 
allowing it to move from the sector level to the portfolio or asset level. It leads to the use 
of detailed quantitative or qualitative data (at the process, product, geography and/ or 
physical  asset  level),  providing  a  more  granular  and  specific  understanding  of  (the 
magnitude of the) risk. In 2020, it was the Dutch Central Bank (De Nederlandsche Bank, 
DNB)  that  for  the  first  time  quantified  the  extent  to  which  the  financial  institution  was 
exposed to the risks of biodiversity loss at the portfolio level (DNB, 2020). DNB found 
that  36%  of  assets  held  by  the  Dutch  financial  system  were  highly  or  very  highly 
dependent  on  one  or  more  ecosystem  services146.  In  addition,  the  European  Central 
Bank  recently  (2023)  assessed  dependence  on  the  nature  of  more  than  4.2  million 
individual companies accounting for over €4.2 trillion in corporate loans. Based on this 

142 TNFD (2023) Guidance on the identification and assessment of nature-related issues - The LEAP approach. Version 
1.1 October 2023. 
143 Updated numbers by PwC (2023). ‘Managing nature risks: from Understand to action’, based on the work of the 
World Economic Forum (2020). Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the 
Economy, conducted in collaboration with PwC 
144 See: https://sciencebasedtargetsnetwork.org/wp-content/uploads/2020/09/SBTN-initial-guidance-for-business.pdf 
145 TNFD (2023) Guidance on the identification and assessment of nature-related issues - The LEAP approach. Version 
1.1 October 2023. 
146 Van Toor, J., Piljic, D., Schellekens, G., van Oorschot, M., & Kok, M. (2020). Indebted to nature Exploring 
biodiversity risks for the Dutch financial sector. De Nederlandsche Bank (DNB) and Planbureau voor de Leefomgeving 
(PBL). https://www.pbl.nl/en/publications/indebted-to-nature . 

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bottom-up approach, they found that nearly 75 per cent of all bank loans in the euro area 
are to companies that are highly dependent on at least one ecosystem service.147   

The  EU  Taxonomy148  can  inform  the  asset  tagging  assessment  tools,  as  assets  (or 
investments  in  economic  activities)  aligned  with  the  Taxonomy  and  the  associated 
criteria should have a limited negative impact on biodiversity and, consequently, a low 
nature-related  transition  risk.  With  the  Environmental  Delegated  Act149,  assets  in 
economic  activities  aligned  with  these  technical  screening  criteria  would  make  a 
significant contribution to biodiversity. 

While  the  asset  tagging  approach  is  rather  flexible  and  has  been  used  by  financial 
institutions in various ways (see two examples above), there are also some drawbacks 
as data availability limits the specificity of the assessments. Due to a lack of (location) 
specific data on companies, many reports from banks apply sector averages to portfolio 
improve 
companies.  This  can  be 
(stakeholder  consultation).  To  address  the  variety  of  companies  within  the  sector 
(locations and sustainability of operations) banks often assume that on the portfolio level, 
there will be a representative average. One can also differentiate between companies 
through the use of case studies (stakeholder consultation). 

improved  as  corporate  disclosure  practices 

2.3.1.6.  Sources of variability  

The  likelihood  and  severity  of  the  climate-  and  nature-related  financial  risks  can  be 
affected  by  various  factors,  also  called  ‘sources  of  variability’.150  The  Bank  for 
International  Settlement  (BIS,  2021)  identifies  three  types  of  variables:  geographical 
heterogeneity,  amplifiers  and  mitigants.  In  addition,  the  type  of  sector  influences  the 
likelihood and severity of the manifestation of nature-related risks. Sector sensitivity to 
nature-related risks is explained and discussed in detail in Chapter 3 of this report.  

Geographic heterogeneity: The geographical location determines to what extent direct 
risk drivers are affecting the state of nature and biodiversity, and hence the exposure of 
financial  institutions to those  risks.  It  depends  per  location to  what  extent  e.g.  climate 
change results in increased and intensified drought events. Moreover, the jurisdiction is 
important as there can be structural differences in regulations, technological innovations, 
and public opinion, as well as differences in economies and financial systems that affect 
the likelihood of risks and the relative importance of various transmission channels.  

Risk  can  be  amplified  through  interactions  and  interdependencies  between  risk  types 
(e.g.,  physical  and  transition)  risk  drivers  (e.g.  climate  change  and  land  use  change), 
feedback loops between the transmission channels (e.g., interaction between micro and 
macroeconomic channels) and the financial impacts151. Behavioural actions within the 
financial system and its interaction with the real economy can further exacerbate risks, 

147  ECB (2023). Interview with the Financial Times (8 June 2023). Why is the ECB concerned about the risks of biodiversity 
loss.  
148 See :https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en 
149 European Commission (2023). Commission Delegated Regulation,,,,. SWD(2023) 239 final. Available here: 
https://finance.ec.europa.eu/system/files/2023-06/taxonomy-regulation-delegated-act-2022-environmental_en_0.pdf 
150 Bank for International Settlements (2021). Climate-related risk drivers and their transmission channels 
151 Bank for International Settlements (2021). Climate-related risk drivers and their transmission channels 

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leading  to  additional  financial  losses.  Insurers  often  need  to  reduce  their  coverage  or 
increase the prices after the materialisation of physical risks, which further amplifies the 
costs as well as the availability of getting new loans approved e.g. farmers.    

In  addition,  financial  Institutions’  mitigation  measures  may  reduce  the  financial  risks, 
which  in turn  affect the severity  and  likelihood  of  the financial  risk to  materialise.  Pro-
active  measures  like  disinvestments  in  controversial  sectors  or  diversification  of 
investments, as well as reactive measures using financial products to transfer climate 
risk, are examples of mitigation strategies. Mitigation measures are further discussed in 
Chapter 2.3.3. 

The sources of variability drive the exposure and vulnerability of financial institutions to 
be impacted by nature-related risks and the likelihood of this these risks to materialize.  

Scenario analysis (discussed further below) is a useful tool in projecting the likelihood of 
financial risks materializing, considering one or multiple sources of variability against a 
baseline in various future scenarios. 

2.3.2.  Materiality assessment  

While most of the risk assessment approaches discussed in the previous section aim to 
inform  and  increase  understanding  about  the  exposure  of  a  financial  institution’s 
investment  portfolio  or  assets  to  biodiversity  loss,  these  assessments  often  do  not 
include  information  on  how  this  exposure  manifests  itself  in  terms  of  financial  and 
economic risks. This exercise of translating exposure (both impact and dependencies) 
into financial risks is also referred to as materiality assessment. Materiality assessments 
help  a  financial  institution  to  assess  how  and  to  what  extent  certain  impacts  and 
dependencies  are  important to  a financial  institution.  As  such,  materiality  assessment 
informs about the magnitude of nature-related dependencies and impacts and can be a 
helpful tool to prioritise nature-related risks. 

The  concept  of  materiality  is  applied  in  a  wide  variety  of  contexts  (e.g.,  accounting, 
reporting,  etc.),  but  becoming  increasingly  important  in  the  context  of  sustainability 
standards  and  disclosure.152  Indeed,  the  concept  of  double  materiality  (how  nature 
impacts the  organisation’s  immediate  financial  performance  and  how the  organisation 
impacts  nature)  is  used  in  the  European  disclosure  policy.  The  TNFD  introduced  an 
approach that accommodates the different approaches to materiality now being applied 
in  jurisdictions  around  the  world,  including  the  double  materiality  one.153  The  EU 
Corporate  Sustainability  Reporting  Directive  (CSRD)  applies  a  double  materiality 
approach  so  that  companies  have  to  report  how  sustainability  issues  might  create 
financial risks for the company (financial materiality), but also on the company’s impacts 
on people and the environment (impact materiality).154 

152 WWF (2023). Tackling Biodiversity Risk – A biodiversity risk assessment guide for companies and financial institutions, 
WWF Switzerland and WWF Germany in cooperation with Climate & Company, January 2023.  
153 TNFD (2023). Recommendations of the Taskforce on Nature-related Financial Disclosures. September 2023.  
154 EU DG – FISMA (2022.) Newsroom – Sustainable finance. 26/07/2022 

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The magnitude of the financial risks can be assessed through scenario analysis. This 
approach aims to translate the findings of the previous approaches (exposure at sector-
,  company-  or  asset  level),  introduced  in  section  2.3.1)  into  financial  implications  for 
financial institutions. To do so, several steps are required, summarised by the TNFD as 
follows155: 

1)  Develop a narrative- defining the purpose/type of scenario, and the risk drivers; 

2)  Conduct  specification-  deciding  upon  desired  outputs,  treatment  of  risks,  tools 

used in analysis, assumptions used, and level of granularity; 

3)  Produce  outputs-  outline  variables  produced,  requirements 

for  scenario 

calibration/adjustment, outline scenario timeline. 

Macroeconomic156 and Microeconomic157 Assessment Approaches are important tools 
to  translate the  biodiversity  and  nature  impacts and  dependencies  into economic  and 
ultimately financial  risks at Marco-  (e.g.,  national  or  global  level)  and  micro  level  (i.e., 
company-level) respectively. The use of these models is further discussed in Chapter 4 
as part of Task 3.  

Beyond the limitations mentioned for the heat mapping and asset tagging approaches, 
we have identified the following limitation for scenario-based approaches, based on 
literature review and stakeholder consultation:  

1)  Difficulty  to  develop  scenarios  due  to  the  complexity  of  biodiversity,  limited 
available data and limited legally binding targets to predict potential changes 
to  nature  policy  and  technologies  (transition  risks)158.  While  scenario-based 
methodologies  are  already  employed  to  address  climate-related  risks,  they 
have  not  yet  fully  encompassed  broader  nature-related  risks.  The  readily 
available  scenario  of  ‘IPR  Forecast  Policy  Scenario  +  Nature159’,  focuses on 
transition  risk;  despite  the  challenges  associated  with  the  development  of 
scenarios reflecting biodiversity and ecosystems degradation risk, there does 
not seem to be an alternative approach providing tractable inputs for the related 
financial risk assessment; 

2)  Another  challenge  is  to  capture  the  climate–nature  interactions  in  scenarios. 
Understanding  dependencies  and  (climate) feedback  loops  in  ecosystems  is 
crucial for assessing their impact on the global economy. While estimations of 
the impact of the collapse of a single ecosystem service, such as pollination, 
are possible, the existence of cascading effects and interconnections with other 
ecosystems,  like  the  Brazilian  forest’s  climate  effects,  makes  isolated 
estimation  impractical.  Incorporating  trade-offs  and  synergies  (e.g.  nature-

155 TNFD (2023) Discussion paper on conducting advanced scenario analysis. December 2023.  
156 Such as Integrated Assessment Models (IAMs) developed by the International Institute for Applied Systems Analysis 
(IIASA), provide policy-relevant insights by offering quantitative descriptions of the interactions between physical earth 
systems and human or economic system. The modelling approach is integrated, including information from both the 
biophysical and the economic systems. It is a partial-equilibrium model which represents the primary land-use sectors, 
including agriculture and forestry. 
157 Such as the UN System of Environmental Economic Accounting (SEEA) Ecosystem Accounting (EA) that offers an integrated and 
comprehensive statistical framework for organizing data about habitats and landscapes, measuring the ecosystem 
services, tracking changes in ecosystem assets, and linking this information to economic and other human activity 
158 Compared to the climate change targets (e.g. limiting global warming to 1.5°C above pre-industrial levels). 
159 See https://www.unpri.org/inevitable-policy-response/ipr-forecast-policy-scenario--nature/10966.article 

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based solution) with climate change into risk assessment tools is challenging.  
This  is  due  to  complexity  of  these  interactions  and  calls  for  a  more 
comprehensive and holistic approach to risk assessment and policy-making. 
3)  On  the  financial  risk  side,  it  is  the  modelling  that  presents  challenges, 
particularly  in  terms  of  substitution  within  a  CGE  (computable  general 
equilibrium)  framework.  The  substitution  can  occur  between  ecosystems  or 
between  natural  capital  and  produced  capital.  Additionally,  there  could  be  a 
third  dimension  of  substitution  involving  consumer  choices,  like  shifting 
between products, which can impact risk assessments. 

To address the challenges, interviewees promote a mix of quantitative and qualitative 
approaches, using available data for quantification and exploring qualitative methods to 
fill in the information gaps. In addition, it is important to improve data quality and connect 
assessments  with reporting  data,  so that  legislation  on  disclosure  may  accelerate the 
collection of relevant data. 

2.3.3.  Mitigation approaches  

As environmental risks become increasingly apparent, various mitigation approaches to 
reduce  the  impact  of  nature  related  risks  have  been  adopted.  The  majority  of  the 
approaches  outlined  in  this  section  apply  to  organisations,  yet  a  disaggregation  of 
approaches is offered: from organization- to financial institute-level.    

A  proactive  approach  to  risk  management  has  emerged  as  a  guiding  principle, 
emphasizing the importance of anticipating and addressing potential risks before they 
escalate.  EU  legislation,  such  as  the  EU  Sustainable  Finance  Taxonomy  identifies 
environmentally  sustainable  activities,  but  it  does  not  prescribe  exact  mitigation 
strategies for biodiversity and nature loss. It defines criteria that economic activities must 
meet to be considered environmentally sustainable, leaving it up to financial institutions 
to  align  their  investments  accordingly.  Similarly,  the  Sustainable  Finance  Disclosure 
Regulation  (SFDR)  mandates  disclosure  of  sustainability  risks,  but  it  does  not  dictate 
precise mitigation measures. Financial market participants are required to disclose how 
they  integrate  sustainability  risks,  but  the  exact  strategies  are  left  to  their  discretion. 
While the EU legislations lay the foundation for sustainable finance practices, the specific 
implementation of mitigation strategies is often left to financial institutions.  

Risk  mitigation  is  a  critical  component  of  risk  management,  and  links  directly  to 
associated risk opportunities. Organisation’s risk management needs to combine both 
nature related risks and opportunities into existing processes and understand how these 
tie  together  and  can  affect  investment  decisions160.  Risk  mitigation  itself  can  be 
multifaceted, and financial institutions can approach it from different angles. We identify 
two levels at which various mitigation action can be taken: project/programme level and 
institutional level.  

160 TNFD (2023). Guidance on the identification and assessment of nature-related issues: the LEAP approach. V1.1 
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Study for a methodological framework and assessment of potential financial risks associated 
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On  the  one  hand,  risk  mitigation  can  be  approaches  at  a  project  or  programme  level 
where  specific  measures  are  taken  to  address  risks  associated  with  individual 
investments  or  initiatives.  This  approach  focuses  on  identifying  and  managing  risks 
within each project to minimize potential negative impacts on nature and biodiversity at 
a more focused level. Here, financial institutions work directly with investees to reduce 
their risks.  

On  the  other  hand,  financial  institutions  can  also  work  on  creating  a  more  resilient 
environment, adopting strategies and establishing frameworks that promote sustainable 
practices  throughout  the  institution's  operations.  This  broader  approach  goes  beyond 
solely  considering  nature  and  biodiversity-related  risks  and  encompasses  a  more 
comprehensive sustainability agenda. The institutional approach focuses on building a 
more resilient and sustainable foundation within the financial institution and can in fact 
go  beyond  pure  nature  and  biodiversity  related  risks.  By  embedding  sustainability 
principles within their structures, financial institutions can better safeguard their portfolios 
against a wide range of risks, including those related to climate change, social issues, 
and governance. Such a proactive and resilient setup ensures that the institution is better 
equipped to handle various challenges and uncertainties in the long run. 

2.3.3.1.  At Project/Programme level 

There  have  been  plenty  of  efforts  to  introduce  practice  guidelines  to  operationalize 
mitigation at company. Most of the existing guidance on mitigation hierarchy models lean 
on the Mitigation and Conservation Hierarchy as its core161, and follow the same basic 
principles of avoid, reduce impact, restore and regenerate (Figure 2-10). The concept of 
mitigation hierarchy has been introduced, elaborated and further developed by various 
international institutions in order to promote mitigation at project level: the Cross-Sector 
Biodiversity  Initiative162,  SBTN  AR3T  163  which  sets  out  the  International  Financial 
Corporation’s  (IFC)  Performance  Standards  (#6)164,  and  the  TNFD165  all  include 
mitigation measures as a key component to avoid impacts on biodiversity and nature. 
The Commission has also released guidance documents on integrating ecosystem and 
their  services  into  decision  making166,  which  clearly  delineate  the  mitigation  hierarchy 
model  as  key  step.  These  frameworks  allow  companies  to  plan  for  and  address  their 
impacts on biodiversity at a project level, and thus can be directly beneficial to financial 
institutions  when  making  investment  decisions.  Some  frameworks  include  offsetting 
within their recommended mitigation strategies. However, as discussed in section 1.5.1 
offsetting is a controversial practice that has over the years received a lot of criticism for 

161 https://conservationhierarchy.org/ 
162 The Biodiversity Consultancy (2015). A cross-sector guide for implementing the mitigation hierarchy. Available at: 
http://www.csbi.org.uk/our-work/mitigation-hierarchy-guide/  
163 Science-based Target for Nature (2020) Initial Guidance for Business. Available at: 
https://sciencebasedtargetsnetwork.org/wp-content/uploads/2020/09/SBTN-initial-guidance-for-business.pdf 
164 International Finance Corporations (2012). Biodiversity Conservation and Sustainable Management of Living Natural 
Resources. Available at: https://zeroextinction.org/wp-content/uploads/2018/05/Performance-Standard-
6_English_2012.pdf 
165 TNFD (2023). Recommendations of the Taskforce on Nature-related Financial Disclosures. September 2023.  
166 EC (2023). EU guidance on integrating ecosystems and their services into decision making. SWD (2019) 305 final. 

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enabling  greenwashing167.  Nonetheless,  we  discuss  offsetting  as  a  form  of  mitigation 
strategy as we see potential positive impacts if conducted transparently and correctly. 

Figure 2-10 Schematic overview of the mitigation hierarchy mitigate and the transition to net-positive 

The first stage represents a business-as-usual scenario, whereby no actions are taken 
to  reduce  impacts  on  nature  and  biodiversity.  As  such,  all  economic  developments 
remain at a net-negative impact on nature which would over time exponentially increase 
the  associated  risks  and  transmissions  to  financial  institutions.  The  following  stages 
gradually present mitigation actions that together and cumulatively can lead to an overall 
no-net-loss of biodiversity and nature: 

—  Avoid: prevents impacts from happening in the first place. This eliminates the 

impact entirely and is the most cost-efficient and effective form of mitigation 

—  Minimize: reduces the overall impact, but without necessarily eliminating them 

entirely.  

—  Restore: is focused on recovery of the ecosystem with respect to its health, 

integrity and ecosystem services and values generation. Restoration actions are 
designed to regenerate and recover the ecological productivity of an ecosystem, 
or specific components 

—  Offset: introducing and encouraging offsetting, increases the investments into 
conservation and restoration finance, thus providing development support for 
nature restoration and recreation. 

Offsetting  can  be  a  valuable  tool  for  promoting  environmental  restoration  and 
conservation,  but  its  effectiveness  hinges  on  its  proper  application  within  a  broader 

167 Kotiaho (2022). Analysis: Environmental degradation and its offsetting, or ecological compensation. Green 
European Foundation. Available at: https://ajatuspajavisio.fi/wp-content/uploads/2022/07/GEF_Environmental-
degradation.pdf 

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hierarchy of actions. It is essential that companies prioritize avoidance and minimization 
of  environmental  impacts  as  the  initial  steps  in  their  sustainability  efforts.  Only  then 
should they consider offsetting as a lever to invest in the restoration and recreation of 
ecosystems.  Using  offsetting  as  a  last  step  ensures  that  companies  are  genuinely 
committed to reducing their ecological footprint and invest in the actual increase of nature 
and biodiversity. It should not be used as a mere excuse to continue business as usual 
while attempting to create an illusion of green practices. This approach undermines the 
true  potential  of  offsetting  and  fails  to  achieve  the  desired  no-net-loss  goal.  To  yield 
meaningful  results,  offsetting  must  be  considered  in  conjunction  with  precautionary 
approaches and within the context of restoration. 

Financial institutions can drive companies towards taking actions across the spectrum of 
the  hierarchy  and  ensure  that  the  borrowers  prioritize  avoidance  and  minimization. 
Minimization  can  be  encouraged  through  the  incorporation  and  investment  into,  for 
example,  nature-based  solutions168  169.  In  addition,  financial  institutions  can  leverage 
restoration investments, where offsetting efforts can be included, in order to reduce the 
overall net-negative impact of the investee.  

The  European  Bank  for  Reconstruction  and  Development  (EBRD)  has  developed  a 
Performance  Requirement  #6  that  sets  an  example  on  how  financial  institutions  can 
adapt  their  policies  (see  institutional  operations)  to  ensure  that  new  projects  take  a 
precautionary  approach  to  biodiversity  conservation  and  oblige  investees  to  take 
appropriate  actions to  mitigate their  impacts170.  In order  to  be  able to  avoid, minimize 
and take mitigation actions, an environmental appraisal process in implemented in which 
clients  are  required  to  identify  and  characterize  the  potential  impacts  on  nature  and 
biodiversity  and  associated  risks.  The  EBRD  applies  additional  requirements  to 
development  proposals  affecting  protected  areas,  involve  the  management  of  living 
natural resources, and/or have supply chains that may adversely impact biodiversity and 
ecosystem  services.  Similarly,  the  European Investment  Bank  (EIB)  has  implemented 
the  Environment  and  Social  Sustainability  Framework  (ESSF)  which  acts  as  a  critical 
tool to ensure environmental, climate and social risks are integrated into aspects of EIB-
financed  projects.  As  other  institutions,  the  ESSF  relies  on  the  mitigation  hierarchy, 
providing an implementing framework for the different phases of the project investment 
cycle,  access-to-information  requirements,  and  different  forms  of  guidance  to  the 
clients171 

To  effectively  implement  the  steps  of  avoidance,  minimization,  and  restoration  in 
first  gain  a 
addressing  biodiversity  and  nature-related  risks,  companies  must 
comprehensive understanding of their impacts and dependencies on nature. This entails 
a thorough mapping of risks to develop a robust risk management plan. At this crucial 
juncture,  engagement  activities  with  clients  become  pivotal  for  financial  institutions. 

168 IPBES. (2019). Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-
Policy Platform on Biodiversity and Ecosystem Services. E. S. Brondizio, J. Settele, S. Díaz, and H. T. Ngo (editors). 
IPBES secretariat, Bonn, Germany. https://ipbes.net/global-assessment 
169 Science-based Target for Nature (2020) Initial Guidance for Business. Available at: 
https://sciencebasedtargetsnetwork.org/wp-content/uploads/2020/09/SBTN-initial-guidance-for-business.pdf 
170 EBRD (2022). EBRD Performance Requirement 6: Biodiversity conservation and sustainable management of living 
natural resources – Guidance Note. 
171 European Investment Bank (EIB) (2022). The EIB Environment Framework. Accessible at: 
https://www.eib.org/attachments/lucalli/20220213_eib_environment_framework_en.pdf 

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Engagement programmes have emerged as a powerful method for financial institutions 
to actively manage and reduce the financial risks, in particular in their existing investment 
portfolios.  Stakeholder  interviews  revealed  that  due  to  the  number  of  underlying 
assumptions that risk assessments currently make, institutions feel that the most efficient 
approach  at  this  stage  was  to  raise  awareness  with  clients.    Through  engaging  with 
investee companies, financial institutions can exert influence and drive positive changes 
in  risk  management  practices,  thereby  promoting  sustainability  and  long-term  value 
creation.  Financial  institutions  can  initiate  broader  communication  and  feedback 
activities with clients within their portfolios, in order to assess targeted risks and together 
establish  how  to  best  manage  these.  As  part  of  their  programmes,  institutions  can 
engage through direct dialogue, discussion forums and conferences, and questionnaires 
to gain insights on company’s impacts and risks and give tailored recommendations of 
needed improvements172.  

Based on findings and outcomes from engagement activities, financial institutions can 
take  various  actions  and  request  additional  measures  from  their  investees  in  order  to 
better comprehend environmental (and social) aspects of their clients’ operations, assist 
in  identifying  risks  and  opportunities,  and  ultimately  enables  the  institutions  to  offer 
tailored solutions and guidance. Examples include: 

—  Due Diligence and environmental impact assessments (EIA): financial 

institutions can require companies and project they invest in to conduct EIAs 
to assess potential biodiversity risks and impacts, informing the institutions 
investment decisions. The scope of the EIA can be defined on a case-by-case 
basis depending on the business model and context of the asset, as well as 
the data needs of the institution. However, it should be acknowledged that 
EIAs are often rather complex, comprehensive and costly processes- and are 
therefore more appropriately applied at larger-scale physical investments, 
when required by law.  

—  Biodiversity Action plans (BAP): financial institutions can encourage or 
even mandate companies to develop and implement BAPs as part of their 
sustainability commitments. This helps ensure that biodiversity protection 
measures are in place. 

—  ESG integration, data disclosure and enhanced reporting requirements: 

Financial institutions can require investee companies to improve their ESG 
reporting with a particular focus on biodiversity and nature impacts and 
request further disclosure of nature related impacts. This increases 
transparency and enables better risk assessment and decision-making. 

— 

Incentives and rewards: Financial institutions can provide incentive 
structures that reward investee companies for achieving specific biodiversity 
and nature-related goals, or showing efforts to avoid or minimize, thus 

172 AXA (2021). Active ownership and stewardship Report -Highlights. Available at: https://www.axa-
im.nl/document/3569/view 

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financing a nature positive path. This can include access to additional capital 
for companies demonstrating strong environmental performance173. 

—  Formalize and integrate new strategies and policies: Financial institutions 

can request that investees formalize and introduce climate, biodiversity and 
nature strategies and policies at various levels of the organization. This helps 
bring about operational transformations within individual businesses. 

The power of engagement lies in its ability to foster collaborative efforts towards a shared 
commitment  to  sustainability.  Financial  institutions  can  actively  partner  with  clients  in 
developing  innovative  strategies  that  not  only  address  biodiversity  and  nature-related 
risks  but  also  unlock  new  business  opportunities.  This  collaborative  approach  drives 
positive change and contributes to a more resilient and sustainable financial ecosystem. 
By  taking  these  steps,  financial  institutions  can  support  companies  in  significantly 
reducing  their  risk  profiles,  enhancing their creditworthiness/insurability and  prospects 
for lending. 

2.3.3.2.  At Institutional level 

At  an  institutional  level,  the  financial  sector  can  implement  various  measures  to 
effectively mitigate  some  of their risks. In  this  context,  three main  areas for  mitigation 
actions  are  particularly  relevant:  operational  transformation,  risk  assessment,  and 
finance-focused mitigation. 

Finance-focused  mitigation  involves  leveraging  financial  mechanisms  and  tools  to 
encourage investments in sustainable practices that support biodiversity conservation, 
as  well  as  reducing  the institutions  own  portfolio  risk.  Financial  institutions  can  create 
and promote nature-positive financial products that direct capital towards projects with 
tangible  biodiversity  benefits174.  By  channeling  funds  into  activities  that  protect  and 
restore  ecosystems,  financial  institutions  play  a  pivotal  role  in  driving  positive  change 
and supporting sustainable development (e.g. green bonds175, impact investment176 or 
nature positive financing177). Finance-focused mitigation therefore directly link on the one 
hand  to  having  impact  at  a  project/programme  level,  and  on  the  other  hand  to  new 
investment opportunities. Green bonds for climate resilience are already well established 
and integrated into the market. HSBC utilizes green bonds dedicated to climate-positive 
finance  and  is  planning to  expand their  fund  operations to  a  broader  range  of  natural 
capital178. The Nature Conservancy’s ‘Green Bonds’ provides the same accessibility but 
focused  on  ecosystem  restoration,  in  particular  reforestation  and  land-use  change 
recovery179. 

173 European Banking Federation (2019). Encouraging and rewarding sustainability – accelerating sustainable finance 
in the banking sector. Available at: https://www.ebf.eu/wp-content/uploads/2019/12/ENCOURAGING-AND-
REWARDING-SUSTAINABILITY-Accelerating-sustainable-finance-in-the-banking-sector.pdf 
174 Triodos Bank (2022). Beyond the risk and return: The role of finance in preserving and fostering biodiversity. 
175 OECD (2017). Green Bonds: utilizing the debt capital markets for a low-carbon transition. 
176 NatureVest (2014). Investing in conservation: a landscape assessment of an emerging market. 
177 UNEPFI (2021). Nature positive finance guidance.  
178 HSBC (2022). Green Bond Insights. Available at: https://www.research.hsbc.com/C/1/1/320/KHPkbSm 
179 TNC (2023).Green Bonds Annual Impact Report. Available at: 
https://www.nature.org/content/dam/tnc/nature/en/documents/TNC_Green_Bond_Impact_Report_2023.pdf 

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The  Natural  Capital  Finance  Alliance  (NCFA)  aims  to  support  financial  institutions  in 
incorporating  finance-focused  mitigation,  by  integrating  natural  capital  considerations 
into  their  decision-making  process180.  Examples  of  financial  institutions  current 
application of these mitigation measures include the Land Degradation Neutrality (LDN) 
Fund  Mirova,  a  subsidiary  of  Natixis  Investment  Managers,  created  the  fund  in 
partnership  with  the  Secretariat  of  the  UN  Convention  to  Combat  Desertification 
(UNCCD) to promote sustainable land use practices that result in positive biodiversity 
and socio-economic impacts and financial returns through a blended finance model181.  

Operational transformation is another critical approach to risk reduction. This involves 
integrating  environmental,  social,  and  governance  (ESG)  considerations  into  the  core 
operations  of  financial  institutions.  This  may  include  reducing  resource  consumption, 
implementing  eco-friendly 
infrastructure,  and  actively  supporting  biodiversity 
conservation efforts on the institution's premises. In addition, by adhering to voluntary 
reporting, disclosure, and target setting in line with international initiatives such as the 
Principles of Responsible Investment, The Principles of Sustainable Investment, Green 
Bond  Principles,  and  Natural  Capital  Declarations,  Corporate  Social  Responsibilities, 
Task  Force  on  Nature-related  Financial  Disclosures  (TNFD),  financial  institutions 
demonstrate  their  commitment  to  sustainability  and  biodiversity  conservation.  By 
participating in these initiatives, financial institutions commit to transparently disclosing 
their environmental and sustainability-related performance. This transparency not only 
demonstrates their dedication to biodiversity conservation but also fosters accountability 
and  builds  trust  with  stakeholders.  Transformation  of  day-to-day  operations  has  also 
been considered as a crucial step in the TNFDs adaptation of the mitigation hierarchy, 
whereby businesses must transform the way they see and value nature, and thus their 
relationship  with  it182.  Our  stakeholder  interviews,  in  particular  with  national  banks, 
revealed  that  major  financial  institutions  have  already  taken  steps  to  set  and  adhere 
voluntarily to various ESG related targets, and are actively participating in discussions 
on how best to integrate nature into their risk assessments, contributing to developments 
of the TNFD. Operational transformations are therefore already underway especially in 
the largest players on the market. Operational transformation thus directly influences an 
institution’s  impacts  at  a  project/programme  level  and  can  further  help  achieve  net-
positive nature impacts. 

As  part  of  the  operational  transformations,  risk  assessments  are  essential  tools  for 
financial  institutions  to  identify  and  manage  their  exposure  to  biodiversity  and  nature-
related  risks  (see  section  2.4.1).  These  assessments  involve  analyzing  the  potential 
impact of biodiversity loss and ecosystem degradation on the institution's portfolio and 
operations. By conducting stress tests and scenario modeling, financial institutions can 
better understand the vulnerabilities they face and develop proactive risk management 
their  decision-making 
strategies. 

Integrating  biodiversity  risk  assessments 

into 

180 NCFA (2020). Beyond ‘Business as Usual’: Biodiversity targets and finance. Available at: 
https://naturalcapital.finance/wp-content/uploads/2020/06/Beyond-Business-As-Usual-Full-Report.pdf 
181 Natixis (2020). First investment for the Land Degradation Neutrality fund. Available at: https:// 
www.natixis.com/natixis/jcms/rpaz5_74454/en/ first-investment-for-the-land-degradation-neutrality-fund. 
182 TNFD (2023). Guidance on the identification and assessment of nature-related issues: the LEAP approach. V1.1 
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processes  ensures  that  these  institutions  are  better  prepared  to  navigate  potential 
challenges arising from nature-related risk. 

As financial institutions embrace operational transformations to mitigate biodiversity and 
nature-related  risks,  risk  assessments  emerge  as  indispensable  tools  in their  arsenal. 
These  assessments  play  a  crucial  role  in  helping  financial  institutions  identify  and 
manage  their  exposure  to  the  potential  impacts  of  biodiversity  loss  and  ecosystem 
degradation. Through risk assessments, financial institutions conduct in-depth analyses 
of  how  biodiversity  and nature-related risks may  affect their  portfolios  and  investment 
strategies, in the short and long-term. By using stress tests and scenario modeling, they 
simulate various scenarios to gauge the vulnerabilities they may face in terms of nature-
related risks.  

foresight  and  a  deeper  understanding  of 

A  number  of  European  institutions  have  begun  integrating  risk  assessments.  Front-
runners include Banque du France183, the DNB and the ECB184  who have conducted a 
risk  assessment  across  different  scaled  portfolios ,  which  we  discuss  in  detail  in  later 
sections (2.4.1, 2.4.2). Interviews with stakeholders revealed that while there are active 
efforts  to  implement  biodiversity  risk  assessments,  limitations  in  the  current  tools  are 
hindering 
intersectoral  connectivity. 
Stakeholders also noted that, as stated above, due to the underlying assumptions made 
during  risk  assessments,  instead  of  concrete  actions  the  most  common  mitigation 
approach taken is that of engagement with clients. In addition, interviewed stakeholders 
noted that they struggle with questions from clients on how they can effectively manage 
the identified risks in particular when bound to EU policies, which remain challenging to 
answer when data is insufficient to properly inform impacts of specific actions. Hence the 
focus remains with actually developing robust risk assessments, improving the available 
data and integrating it, rather than on mitigation steps per se.  

Integrating  biodiversity  risk  assessments  into  decision-making  processes  enables 
financial  institutions  to  proactively  manage  potential  challenges  and  uncertainties.  By 
understanding their exposure to nature-related risks, they can develop risk management 
strategies  that  take  into  account  the  complexities  of  biodiversity  loss  and  ecosystem 
degradation.  This  proactive  approach  empowers  financial  institutions  to  align  their 
investments  and  operations  with  sustainable  practices  and  leverage  new  investment 
opportunities that contribute to biodiversity conservation and resilience. 

2.4.  Key conclusions and data gaps 

2.4.1.  Identifying risks 

Proper categorization and definition of risks is important, as it not only serves as a tool 
for  alignment  in  understanding  and  terminology,  but  also  for  increasing  awareness. 

183 Svartzman et la (2021). A silent spring for the financial system? Exploring biodiversity-related financial risks. Banque 
du France. 
184 Elderson (2023). The economy and banks need nature to survive. Available here: 
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However, our research found that this can sometimes fall short due to the intricate nature 
of biodiversity-related challenges leading to oversimplification. For instance, the intricate 
interplay  of  impacts  and  dependencies  might  not  be  adequately  captured,  as  well  as 
systemic dimensions of risk propagation, potentially leading to misconceptions about the 
genuine extent of impacts, dependencies, and the corresponding mitigation strategies. 
Furthermore,  our  research  found  that  the  usage  of  terminology  can  vary  is  often 
characterized by nuances. The terminology for specific aspects can vary, encompassing 
slightly  broader  or  narrower  scopes,  thereby  influencing  the  understanding  and  the 
manner  in  which  risks  are  evaluated  or  subsequently  addressed.  In  the  future,  the 
Commission  will  continue  to  dedicate  resources  to  building  up  this  knowledge,  for 
example  through  the  Horizon  Europe  Framework  Programme  call  topic  ‘Biodiversity, 
economics and finance: Understanding macro-financial risks associated with biodiversity 
loss’185. 

2.4.2.  Conducting risk assessment 

Within  the  domain  of  biodiversity  risk  assessment,  a  landscape  characterized  by  a 
multitude  of  international  frameworks  and  tools  exists;  however,  a  standardized 
approach is notably absent. Although the Taxonomy proves valuable in appraising the 
sustainability of activities, it is primarily not intended to assist in conducting nature-related 
risk assessments. Initiatives like the TNFD provide essential conceptual frameworks, yet 
the lack of quantitative tools and especially data hampers a comprehensive assessment 
of risks, particularly concerning interdependencies and interconnectedness, essentially 
creating difficulties in fully capturing double-materiality. 

The  current  landscape  of  risk  assessment  leans  heavily  on  tools  such  as  ENCORE, 
which  predominantly  assess  direct  exposure  to  dependencies  and  impacts.  However, 
these tools fail to support the materiality assessment, informing about the (magnitude) 
of financial implications. In addition, these tools reveal significant gaps when it comes to 
evaluating sectoral interconnectedness essentially creating difficulties in fully capturing 
double-materiality. Stakeholder interviews have underscored the need to utilize a range 
of tools to overcome varied limitations; for instance, employing IBAT for location-specific 
risks and considering the Global Biodiversity Framework for transition risks that tie into 
regulatory  dynamics.  This  complexity  underscores  the  current  intricate  nature  of  risk 
assessments. 

The complexity of this risk assessment landscape therefore also requires a solid grasp 
of tools and methodologies, but interviews with stakeholders reveal additional hurdles 
such as data accessibility and resources. Notably, smaller banks, constrained by limited 
resources,  encounter  barriers  such  as  paywall  data  for  assessments  and  data 
procurement. In addition, an absence of location data, vital for gauging dependencies 
and impacts, emerges as a significant gap during interviews. The dimension of consumer 

185 Under the call HORIZON-CL6-2024-BIODIV-01-4; https://ec.europa.eu/info/funding-tenders/opportunities/portal/screen/opportunities/topic-details/horizon-cl6-2024-biodiv-
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choice,  which  is  not  captured  quantitatively  at  this  stage  within  existing  tools,  further 
complicates comprehensive risk assessments. 

To address these multifaceted challenges requires a blended quantitative and qualitative 
approach,  leveraging  available  data  for  quantification  while  embracing  qualitative 
methods to bridge information gaps, report stakeholders. The overall risk assessment 
landscape is also hindered by general data gaps, which is directly linked with a lack of 
corporate  reporting  currently.  Literature  and  stakeholder  interviews  reveal  that  best-
practices in reporting of related risks is still only occurring in larger, international financial 
institutions  and  companies,  but  even  here  the  data  on  supply-chain  transmission  risk 
remains sparse. Capturing transmission channels is of utmost importance, particularly to 
comprehend  supply  chain  effects  and  intersectorability,  crucial  for  macroeconomic 
assessments.  So  far,  these  macro-level  approach  have  mainly  found  traction  among 
National  and  Central  Banks,  although  sector-specific  transmission  channels  remain 
relatively underexplored.  

An  integrated  approach  emerges  as  paramount  in  interviews  and  literature  reviews, 
stressing  the  interplay  between  nature-related  and  climate-related  risks.  This  synergy 
underscores the need for seamless collaboration between nature risk assessment and 
established  climate  risk  evaluations,  facilitating  a  comprehensive  risk  management 
approach that maximizes risk mitigation efforts. 

2.4.3.  Mitigation approaches 

Risk  mitigation  practices  based  on  risk  assessments  are  currently  limited  in  their 
application. This is primarily due to the current level of risk assessment, which tends to 
focus  on  direct  impacts  and  dependencies,  while  overlooking  a  more  comprehensive 
understanding of risks. 

The prevailing nature-related risk mitigation strategy for financial institutions centers on 
institutional transformations. This involves reshaping governance structures, enhancing 
reporting mechanisms, and promoting greater disclosure. Engagement activities are key 
to achieving a general risk reduction in financial institutions portfolios, and is often a more 
feasible approach than divestment. Furthermore engagement activities also ensure that 
transformation  changes  are  happening  at  individual  company  level.  Hence  mitigation 
steps  are  focused  on  establishing  better  understanding  of  risks,  through  reporting, 
disclosing and first steps in risk assessments. These initial steps are crucial for gaining 
a deeper insight into the true extent of nature and biodiversity risks faced by financial 
institutions and individual companies.  

Nevertheless,  the  practical  implementation  of  on-the-ground  mitigation  measures 
remains deficient. This is particularly evident when examining the hierarchical approach 
to risk mitigation, where limited evidence suggests significant emphasis on avoidance 
and  proactive  mitigation  strategies.  While  offsetting  is  a  prevalent  approach,  as 
previously  highlighted,  its  efficacy  hinges  on  the  preceding  measures  taken  to  avert 
degradation. In the absence of such pre-emptive actions, the attainment of a net-positive 
impact becomes improbable.  

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Consequently, the progression of mitigation efforts seems to be situated within a phase 
of institutional transformation. At this stage, the integration of information into decision-
making processes is still an ongoing endeavor, primarily contributing to the increase of 
data collection practices.  

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3.  Task 2 - Industry/business sector sensitivity to 

biodiversity loss and ecosystem degradation risks 

3.1.  Introduction  

This chapter develops a systematic approach towards integrating sectoral sensitivity 
analysis in the financial institutions’ nature (including biodiversity) related risk assessment 
and management approaches, to address some of the key gaps and needs identified 
through Task 1 and highlighted at the end of Chapter 2. The introduction therefore sets out 
with a brief explanation of how and why sectoral approaches can help financial institutions 
assess and manage nature related risks more effectively and efficiently. It then introduces 
the main outcomes and methodology of a sectoral sensitivity analysis that was carried out 
within the framework of the study to illustrate the steps that financial institutions could take to 
do their own analysis. Figure  identifies the key methodological steps and their respective 
outcomes that underpin the structure of the remaining part of Chapter 3.  

While  every  sector  is  to  some  degree  dependent  upon  and  has  an  impact  on  nature, 
some  (sub)sectors  or  industries  are  more  exposed  to  biodiversity  and  nature 
related risks than others, with implications on the financial institutions that loan, insure, 
or invests to entities from these sectors. Agriculture, food and beverage manufacturing, 
and construction are, for example much more exposed to nature-related risks such as 
deforestation,  than  other  sub-sectors.  Investments  in  or  loans  offered  to  entities  from 
these  sectors  can  then  translate  into  risks  to  financial  institutions  as  well,  as  the 
materialization of nature related risks could interfere with the ability of businesses from 
these sectors to generate returns or service debt-repayments. Deforestation is, however, 
only one of the drivers that exposes some sectors and industries to greater dependence 
and/or  impact  risk  than  others,  and  several  stakeholders  interviewed  for  this  study 
highlight  the  complexity  of  accurately  assessing  and  prioritizing  (sub)sectors  that  are 
more exposed to BES related risks. 

Nonetheless,  financial  institutions  will  have  to  adopt  a  more  systematic  approach  to 
address the significant source of variation in exposure to biodiversity and nature related 
risks  across  (sub)sectors  by  continuously  monitoring  sectors/industries  that  are 
especially  sensitive  to  it,  assessing  the  materiality/financial  implications  of  these 
exposure,  and  by  integrating  this  information  into  their  risk  management  approaches. 
This  is  especially  important  at  the  current  stage  where  relevant  micro  level  is  often 
lacking,  as  confirmed  by  all  stakeholders  interviewed,  and  more  accurate  risk 
assessment is not feasible, even when significant financial and personal resources could 
be mobilized by financial institutions. With the increased use of nature-related financial 
risk assessment and disclosure frameworks like the TNFD or through the implementation 
of the EU Corporate Sustainability Reporting Directive, a more bottom-up approach to 
effective  biodiversity  and  nature  related  financial  risk  assessment  and  mitigation 
measures  might  become  attainable,  as  reliable,  and  comparable  micro-level  data  on 
biodiversity-related risks becomes more available. In the meanwhile, the integration of 

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sectoral considerations can play a particularly important role to ensure that exposure to 
biodiversity and nature related risks is properly assessed, their transmission to financial 
institutions is adequately considered and the effective mitigation measures are adopted. 

This  chapter  contributes  to  the  development  of  a  systematic  approach  towards 
integrating  sectoral  aspects  in  the  assessment  and  management  of  biodiversity  and 
nature related risks related risk to financial institutions, that will be the primary focus of 
Chapter  4,  in  three  important  ways,  that  are  explained  in  sub-section  3.1.1  (Key 
contributions).  These  seek  to  address  at  least  some  of  the  gaps  in  current  risk 
assessment approaches identified through Task 1 and highlighted in section 2.3.4 (Key 
gaps/needs).  The  methodological  approach,  outlined  in  sub-section  3.1.2.,  also  relies 
heavily  on  Task  1,  in  two  important  ways.  Firstly,  it  expands  the  review  of  the  same 
sources and uses the same interviews, to identify how sectoral sensitive approaches are 
generally  approached  in  relevant  references.  Secondly,  it  is  also  informed  by  the  risk 
typology,  materiality  assessment,  transmission  channels  and  mitigation  approaches 
analysis from Chapter 2. 

3.1.1.  Key contributions 

Firstly, it identifies (sub)sectors that are exposed to biodiversity and nature related 
risk types identified in Chapter 2 (essentially physical and transition risk). This part of 
the analysis, however, does not simply list the exposed (sub)sectors and industries, but 
also sheds light on how this identification is currently used by relevant risk assessment 
and  management  approaches.  Additionally,  it  also  examines  the  methodological 
approaches they relied on to identify the exposed (sub)sectors, that could then inform 
the recommendations given to financial institutions to assess their own exposure. In this 
study, the terminologies of (sub)sectors and industries are used interchangeably to refer 
to economic activities at more disaggregated levels of sectoral classification in general. 

Secondly,  based  on  the  overview  of  methodological  assessment,  the  study  also 
develops  and  implements  an  approach  to  assess  the  significance  of  exposure  to 
biodiversity and nature related risk and prioritize (sub)sectors accordingly, from the 
perspective of the EU economy. The analysis provides a general understanding of which 
(sub)sectors are most exposed to biodiversity and nature risk in the EU context. As such, 
the  (sub)sectoral  prioritization  carried  out  in  this  step  also  aims  to  inform  the  sectoral 
considerations of the methodological framework that is developed as part of Chapter 4. 
Instead  of  providing  a  deterministic  prioritization  list,  it  also  aims  to  exemplify  a 
methodological approach that could be used as a starting point by financial institutions 
to  evaluate  the  exposure  of  their  business  activities  and  portfolios,  with  additional 
adjustments  that  are  necessary  for  that  purpose.  The  list  of  EU-relevant  materially 
exposed (sub)sectors might also change as technologies and value chains evolve, and 
as we are able to acquire further detail about exposure of various sectors. The emphasis 
is therefore more on the illustrative role of the materiality assessment. 

Thirdly, the analysis examines how these risks in significantly exposed (sub)sectors are 
transmitted  to  financial  institutions,  and  what  approaches  can  be  adopted  to  mitigate 
them. Transmission channels and mitigation measures are generally discussed at a high 

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level of abstraction and constitutes a key gap in existing nature-related risk assessment 
frameworks.186  The  emphasis  in  this  chapter  is  therefore on  providing some  empirical 
insights  into  how  these  manifests  in  key  sectors  and  industries  that  are  particularly 
relevant  from  the  European  perspective,  that  can  provide  the  basis  for  some  general 
guidelines for all sectors and types of financial institutions.  

3.1.2.  Methodological outline 

Addressing  these  key  objectives  was  based  on  a  three-step  approach,  that  also 
underpins the structure of the chapter, and is summarized by Figure 3-1.  

Figure 3-1 Methodological outline for analyzing industry sensitivity to biodiversity loss and ecosystem 
degradation risk 

In  Step  1,  a  systematic  overview  of  relevant  frameworks,  tools  and  reports  was 
carried  out  to  assess  exposure  of  (sub)sectors  to  physical,  transition  (and  systemic 
dimensions), continuing and expanding on literature review from Task 1. Through this 
comprehensive review, it was sought to:  

•  Acquire an initial understanding of (sub)sectors that are exposed to nature related 
risks (long-list of subsectors and relevant classification to use) that will provide 
the starting point for a prioritization based on the materiality of their exposures 
(the focus of Step 2).  

•  Analyse  key  patterns  in  their  relevance  and  methodologies  used  for  their 
identification, to highlight key weaknesses in terms of risks considered, levels of 
analysis, and methods used that is also relevant for the guidelines provided to 
EU financial institutions. 

Step  2  consisted  of  the  further  refinement  and  implementation  of  a  quantitative 
analysis of the materiality of exposures of various (sub)sectors from the perspective 
of  the  EU  economy.  This  was  done  by  assessing  the  significance  of  materiality  of 
exposure to biodiversity and nature related risks of the exposed (sub)sectors identified 
in  Step  1,  as  well  as  evaluating  the  severity  of  their  potential  economic/financial 
implications  on  the  EU.  The  prioritization  was  based  on  a  multiplicative  assessment 
score indicating the significance of exposure to biodiversity and nature related economic 
risk,  focusing  on  (sub)sectors  in  the  top  quartile.  The  analysis  relied  on  the  use  of  a 

186 See also OECD study, but confirmed by our own analysis as well. OECD (forthcoming). A methodological 
supervisory framework for financial risks stemming from biodiversity-related losses: A prudent approach to nature 

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common nature-related risk assessment tool, ENCORE, and of secondary statistics on 
investments,  value  added  and  employments  at  (sub)sectoral  levels  obtained  from 
Eurostat.  

Finally,  step  3  consisted  of  a  series  of  industry  case  studies  to  analyse  the 
transmission  channels  of  these  risks  to  financial  institutions  and  of  the  mitigation 
approaches that can be adopted to address them. This part of the analysis focused on 
three (sub) sectors identified to be most materially exposed to biodiversity and nature 
risk through Step 2, while also addressing some of its methodological limitations. More 
specifically, in this part of the analysis greater consideration will be given to inter-sectoral 
(value  chain)  linkages  and  locational  aspects  that  are  currently  not  factored  in  a 
systematic  manner  by  most  biodiversity  and  nature  risk  exposure  assessment 
methodologies. Additionally, to the extent possible, this part of the analysis also seeks 
an improved understanding of how exposure to biodiversity and nature risks translates 
into  financial  risks  and  of  mitigation  measures  that  can  be  adopted,  thus  addressing 
another key gap identified through Step 1.  

The subsequent sections are organized around these three key parts of the analysis, as 
illustrated also by Figure 3-1, but further methodological details and considerations that 
are relevant for the understanding of key results will be provided at the beginning of each 
section.  The  chapter  concludes  with  some  final  considerations  of  key  gaps  and 
limitations of sectoral approaches in the assessment of biodiversity and nature related 
financial risk assessment and management. 

3.2.  Identification of (sub)sectors exposed to 
biodiversity and nature related risks 

Consistent with the methodological outline introduced, this section proceeds with an 
analysis of sectoral sensitivity approaches used by relevant references and with the 
identification of a long list of exposed (sub)sectors identified by the reviewed sources. 
As such, this section: 

•  Explains how the literature review initiated as part of Task 1 was expanded 
upon  for  this  purpose:  a)  the  types  of  references  considered,  b)  key 
dimensions of evaluation, and c) the benchmark used (the TNFD and some 
extent TCFD) to identify key differences and similarities.  

•  presents the 30 sub-sectors that the reviewed sources identify as exposed to 
biodiversity and nature risk. These sub-sectors, as can be seen in Table 3-2, 
span  across  primary,  secondary,  and  even  tertiary  sectors,  including 
agriculture,  mining,  manufacturing,  utilities,  construction,  real  estate,  and 
other services.  

•  Examines how sectoral exposure is assessed across relevant references and 
integrated  in  nature-related  risk  management  approaches  of  financial 
institutions.  

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This  section  presents  some  of  the  key  findings  of  a  comprehensive  analysis  of 
studies/reports,  frameworks  and  tools  that  are  relevant  for  the  identification  of  sector 
exposure  and  transmission  channels,  complemented  by  some  additional  insights 
obtained through the interviews with stakeholders.  

Overall,  the  systematic  overview  of  these  various  resources  available  reveal  some 
differences  in  terms  of  which  sectors/industries  are  identified  as  being  exposed  to 
biodiversity  and  nature  risk  and  sectoral  classifications  used,  the  methodologies  they 
relied  on  to  assess  exposure  to  biodiversity  and  nature  risk,  and  the  way  that  these 
sectoral differences are integrated into their approaches. The channels through which 
these exposures translate into financial risk and mitigation measures that could be used 
to address them are considered by a relatively few sources. 

Before exploring further these differences and similarities, to eventually allow us to draw 
some  conclusions  regarding  the  relevance  of  sectoral  considerations  for  the  final 
framework, key strengths, and weaknesses that the recommendations should factor in, 
the next subsection first presents the methodology used to conduct this overview. It then 
proceeds with the key findings regarding how sectoral considerations were used by the 
different resources reviewed, and the methodologies that they relied on to identify highly 
exposed sectors. 

3.2.1.  Methodology 

The overview of the resources that are relevant for the assessment of sectoral exposure 
to  biodiversity  and  nature  risk  and  their  transmission  into  financial  risks  considered 
several  types  of  materials.  While  these  were  based  primarily  on  the  literature  review 
conducted  for  the  first  part  of  the  analysis  (Chapter  2),  the  identification  of  relevant 
resources  to  be  included  within  the  scope  of  the  analysis  was  also  informed  by  the 
sectoral-sensitivity assessment methodologies used by the Taskforces on Climate and 
Nature-related  Financial  Disclosures  (TCFD/TNFD).  As  such,  the  analysis  considered 
the following types of resources187: 

●  Authoritative reports – Reports published by intergovernmental, 

governmental, or other international organizations, which although do not 
provide a comprehensive framework, they discuss and analyse the issue of 
financial risks from biodiversity loss. An example in this regard is the Global 
Assessment Report on Biodiversity and Ecosystem Services published by the 
Intergovernmental Platform for Biodiversity and Ecosystem Services.  

●  NGO and industry reports – i.e. Reports published by NGOs and other 

industry-specific organisations. These refer to various reports published by the 
United Nations Environment Programme, World Wildlife Fund, United Nations 
Development Programme, OECD, World Economic Forum, Sustainable 
Finance Platform (Biodiversity Working Group), but also industry associations 

187 For a full list of the references reviewed and their classification, please consult the Tool that accompanies this 
Interim Report. 

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like Finance for Biodiversity Foundation, EU Business and Biodiversity Platform, 
etc.  

●  Risk management and disclosure frameworks – i.e. frameworks that provide 

guidance to companies and financial institutions on the disclosure of their 
biodiversity impacts, dependencies, and their financial implications. The primary 
focus of the study was on the disclosure frameworks with a strong focus on 
financial risk and/or dedicated to financial institutions, especially the 
recommendations of the Taskforce on Nature-related Financial Disclosures 
(TNFD). The overview also considered the guidelines of the Task Force  on 
Climate-related Financial Disclosures (TCFD), that the TNFD also builds on, 188 
and of the Sustainability Accounting Standards Board (SASB) that is now 
integrated into the International Sustainability Standards Board (ISSB). 
Additionally, the analysis also reviewed other global and EU specific 
sustainability frameworks with broader materiality approach and/or for broader 
audience, such as the Global Reporting Initiative (GRI), as well as the 
European Sustainability Reporting Standards (ESRS) and the Corporate 
Sustainability Reporting Directive (CSRD).  

●  Risk assessment approaches – i.e. Comprehensive frameworks developed 

by or for financial institutions to assess their risk to ecosystem degradation and 
biodiversity loss. A significant part of these frameworks in our literature review 
were developed by central banks, such as the pioneering work of the Bank of 
the Netherlands, the Bank of France, the Central Banks of Brazil and Malaysia. 
But it also includes guidelines developed specifically for financial institutions by 
international organizations such as the Natural Capital Finance Alliance, 
Finance for Biodiversity Initiative, Cambridge Institute for Sustainability 
Leadership (CISL), etc. 

●  Assessment tools and databases – i.e. assessment tools referenced by the 
financial risk assessment and disclosure frameworks for companies to assess 
their biodiversity loss and ecosystem degradation related impacts, 
dependencies and risk exposure. Some examples in this regard include the 
Science-Based Targets Network sector materiality matrix, ENCORE tool, 
EXIOBASE input-output datasets, the Integrated Biodiversity Assessment Tool 
(IBAT), etc. 

The content of the different types of resources included within the scope of the literature 
review  were  then  evaluated  across  a  set  of  dimensions  considered  relevant  for  the 
assessment  and  identification  of  sectoral  exposure  and  materiality  to  biodiversity  and 
nature and related financial risks. These dimensions were organized around three main 
areas  including:  1)  sectoral  sensitivity  aspects  considered,  2)  sectoral  sensitivity 
assessment  methodology,  and  3)  sectoral  aspects  of  the  transmission  channels  and 
mitigation measures. 

The  dimensions  included  under  sectoral  aspects  covered  areas  such  as  exposed 
(sub)sectors  identified,  sectoral  classification  used,  and  the  relevance/role  of  the 
identification of the exposed (sub)sectors. The second area, focused on methodological 
considerations,  has  examined  the  extent  to  which  methodological  clarifications  are 

188 The long-term objective is to have an integrated sustainability disclosure framework that covers both climate and 
nature. 

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provided within the resource, the risk drivers considered for the assessment, the type of 
risks factored in, the overall assessment approach including information about the extent 
to which inter-sectoral (value chain) linkages, locational aspects and scenario analysis 
were used, and the metrics used to assess the significance of biodiversity and nature 
risk exposure. Finally, under the third area, the reviewed references were evaluated in 
terms  of  including  any  relevant  content  with  respect  to  channels  through  exposure  to 
biodiversity and nature risk at the sectoral level affected financial results, the types of 
financial  risks  considered,  metrics  of  quantifying  financial  risks,  and  any  mitigation 
measures identified to address them, at the (sub)sectoral level.  

An  overview  of  the  scope  and  dimensions  of  the  literature  review  methodology  is 
provided in Table 3-1. For most of the dimensions examined, the evaluation used as a 
point of reference the comparable content provided by the TNFD and to some extent 
TCFD frameworks. This is primarily due to the key relevance of the TNFD and TCFD as 
these two important international initiatives to assess and disclose exposure to nature 
(and climate) related financial risks and opportunities, that also serves as a starting point 
for the development of the guidelines, that will be discussed in Chapter 4. 

Table 3-1 Key aspects of the literature review methodology 

Types of references 
considered 

• 
• 

• 

• 

• 

Authoritative reports 
NGO and industry 
reports 
Risk assessment 
approaches 
Disclosure 
frameworks 
Assessment tools  

Dimensions evaluated  

Sectoral sensitivity aspects 

Assessment 
methodology 

Transmission and 
mitigation 

• 
• 
• 

• 
• 

• 

Prioritized sectors 
Sectoral classification 
used  
Sectoral 
sensitivity/exposure 
relevance 

Risk drivers  
Types of risks 
Assessment 
approach 
Inter-
o 
sectorality 
Locational 
aspects 
Scenario 
analysis  

o 

o 

Transmission 
mechanisms 
Types of financial risks 
Metrics of quantification 
Mitigation measures 

•  Metrics of 

quantification  

The following sub-sections discuss key findings regarding the exposed (sub)sectors that 
were identified through the literature review (section 3.2.2.), an analysis regarding their 
relevance  for  biodiversity  and  nature  related  financial  risk  approaches (section  3.23.), 
and  the  methodological  approaches  used to  identify them (section  3.2.4). Most  of the 
reviewed sources provide very limited and merely very general information regarding key 
transmission  channels  and  mitigation  measures.  These  issues  will  therefore  be 
approached  under  Section  3.4.  with  an  empirical  focus  on  the  EU  economy’s  most 
exposed (sub)sectors. 

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3.2.2.  Exposed (sub)sectors 

The sub-sectors/industries that are commonly identified as exposed to biodiversity and 
nature  related  risk  in  the  relevant  literature  are  summarized  in  Table  3-2.  These 
approximately thirty industries were identified by consulting several references, that 
often  relied  on  different  sectoral  classification  systems.  The  sectoral/industry 
prioritization  is  sometimes  based  on the  Global or  Sustainable  Industry Classification, 
but most often the classification system is not specified. As can be seen from the list, the 
industries are not limited only to primary sectors, but expand beyond it, as a significant 
part of these references also considered inter-sectoral (value chain) linkages, at least in 
an  ad-hoc  manner.  These  industries  cover  the  entire  agriculture,  forestry,  and  fishing 
sector,  but  also  include several  industries  from manufacturing,  energy, transportation, 
construction and even services. 

This list is relatively consistent with the sectors and industries that have been prioritized 
by the TNFD and TCFD frameworks, illustrated by Table 3-3. 

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Table 3-2 Industries exposed to biodiversity and nature risk by reviewed references 

Industries Exposed to Biodiversity Loss and Ecosystem Degradation Risk 

Agriculture and Farming 

Electronics 

Water and Waste Services / Water Utilities 

Forestry 

Food and Beverages 

Construction and Engineering 

Fishing and Aquaculture 

Machinery and Equipment 

Retail Sale 

Metals and Mining 

Medical Equipment and Supplies 

Air Transportation 

Oil and Gas 

Metals Processing 

Water Transportation 

Automobile and 
Components 

Biotechnology and 
Pharmaceuticals 

Oil and Gas - Mid and Downstream 

Hospitality, Food and Beverage Services 

Pulp and Paper Production 

Hotels and Lodging / Accommodation 

Chemicals (and Biofuels) 

Textiles, Apparels, Footwear and 
Accessories 

Media and Communication / Digital 
Communication 

Household and Personal 
Products 

Construction Materials 

Energy Production 

Real Estate Services 

Energy Transmission and 
Distribution 

Health Care Delivery 

Source: Trinomics, based on comprehensive review of relevant references addressing nature-related risk 

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As can be seen from Table 3-3, there is a significant convergence across the TCFD and 
TNFD  in  terms  of  the  financial  sectors  that  they  focus  on,  including  banks,  insurance 
companies, asset managers and owners. Development institutions were included in the 
TNFD  due  to  their  important  role  in  nature-related  financing,  particularly  in  emerging 
markets,  including  key  areas  that  are  of  great  relevance  for  biodiversity  and  their 
ecosystem  services,  and/or  associated  risks.  Financial  institutions  provide  lending, 
grants and hybrid financing, etc to various entities in emerging economies. 

There  is,  however,  greater  divergence  across  the  two  frameworks  with  respect  to  the 
non-financial sectors and industries prioritized. Both TNFD and TCFD identify energy, 
transportation, materials and building, and agriculture, food, and forestry as key affected 
areas, with only minor distinctions, related to a great extent to the different classification 
systems used. While the TCFD relies on the Global Industry Classification system, the 
TNFD  uses  the  Sustainable  Industry  Classification  System  (SICS).  The  SICS  was 
developed  by  the  Sustainability  Accounting  Standards  Board  (SASB)  and  will  provide 
the  classification  of  the  International  Sustainability  Standards  Board  (ISSB)  –  the 
emerging  global  baseline  for  sustainability  disclosure  –  that  the  TNFD  also  seeks 
alignment  with.  There  are  however  some  additional  differences  related  to  intrinsic 
differences across the types of risks that they seek to address. In the case of the TNFD, 
for example, there are some additional industries – as for example alternative energy, 
water utilities, health care and biotechnology and pharmaceuticals, in the list of affected 
sectors. 

Overall, the sectors and industries highlighted by key studies overlap relatively well with 
the  ones  identified  by  the  TNFD  framework  as  industries  exposed  to  nature-related 
physical,  transition  risks  (and  systemic  dimensions).  Relative  to  the  list  based  on  the 
literature  review,  the  only  industries  that  are  missing  in  the  TNFD  are  some 
manufacturing  related  industries  such  as  household  products,  electronics,  machinery 
and equipment, medical equipment, and supplies. There is also some divergence with 
respect to an explicit emphasis on fishing and aquaculture, water transportation that are 
perhaps indirectly captured by the prioritization of biomes – rivers and streams, but also 
marine shelf – as part of the TNFD. 

Table 3-3 Exposed sectors identified by the TCFD and TNFD 

Supplemental Guidance for Financial and Non-Financial Sectors 

TCFD (Global Industry 
Classification) 

TNFD (Sustainable Industry 
Classification) 

Financial  

Insurance Companies 

•  Banks 
• 
•  Asset Owners 
•  Asset Managers 

Insurance Companies* 

•  Banks* 
• 
•  Asset Owners* 
•  Asset Managers* 
•  Development Institutions* 

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Supplemental Guidance for Financial and Non-Financial Sectors 

Non-Financial 

•  Energy 
•  Oil and Gas 
•  Coal 
•  Electric Utilities 
•  Transportation 
•  Air Freight 
•  Passenger Air 
Transportation 

•  Maritime Transportation 
•  Rail Transportation 
•  Trucking Services 
•  Automobiles and 
Components 

•  Materials and Buildings 
•  Metals and Mining 
•  Chemicals 
•  Construction Materials 
•  Capital Goods 
•  Real Estate Management 

and Development 
•  Agriculture, Food and 
Forest Products 

•  Beverages 
•  Agriculture 
•  Packaged Foods and 

Meats 

•  Paper and Forest Products 

•  Aquaculture* 
•  Food* and Beverage 
•  Agriculture and Farming* 
•  Food and Beverage Retail* 
•  Renewable Resources and Alternative 

Energy 

•  Forestry and Paper* 
•  Alternative Energy 
• 
Infrastructure 
•  Utilities 
•  Water Utilities 
•  Electric Utilities and Power 

Generators* 

•  Extractive and Minerals Processing 
•  Construction Materials 
•  Metals and Mining* 
•  Oil and Gas* 
•  Health Care 
•  Biotechnology and Pharmaceuticals* 
•  Resource Transformation 
•  Chemicals* 
•  Consumer Goods 
•  Apparel and Textiles 
•  Transportation 
•  Marine Transportation 

Source: Trinomics, based on review of the sectoral approach of the TCFD and TNFD. 

Note: * - refers to those sectors/industries for which TNFD (version 1) already developed additional sector-specific 
guidance, sometimes with light changes in the overall classification.  

3.2.3.  Relevance for biodiversity and nature risk 

assessment and management 

The (sub)sectors exposed to biodiversity and nature related risks are considered by or 
integrated into relevant references in different ways. Some references, mostly reports, 
use  them  as  cases  to  illustrate  and/or  examine  exposure  to  biodiversity  and  nature 
related  risks  and/or  their  transformation  into  financial  risk.  Other  studies  integrate 
sectoral  considerations  primarily  to  approximate  the  significance  of  exposure  to 
biodiversity  and  nature  related  risks  of  their  financial  portfolios,  in  the  absence  of 
comparable  data  at  the  micro  level.  Financial  risk  assessment  disclosure  frameworks 
and sustainability reporting frameworks in general, often use them to develop additional 
(or in some cases separate) standards or implementation guidelines to otherwise sector 
agnostic requirements and/or recommendations.  

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3.2.3.1. 

Illustrative cases and case studies  

NGO publications and authoritative reports often adopt a sectoral focus describing how 
specific sectors are affected by nature-related risks. These reports are broadly aimed at 
raising awareness or deepening understanding of how physical and transition risks are 
relevant  to  different  sectors.  More  specifically,  UNDP  SIF  (2021)189  analysed  the 
dependence of the global insurance sector on nature, how nature-related risk can affect 
the sector and whether these risks are financially material to the sector’s underwriting 
and investment business. In addition, UNEP (2022)190 analysed the main dependencies 
and impacts for 10 high-risk sectors as priorities for initial action, aiming to assist financial 
institutions  with  developing  a  sectoral  focus  when  assessing  nature-related  risks  and 
developing potential tools and data collection methodologies. Lastly, ShareAction (2020) 
published  a  report  that  explores  how  major  asset  managers  address  challenges  of 
biodiversity loss and ecosystem degradation; however, this report only presents current 
practices and asset managers’ perceptions and does not provide a methodology or an 
assessment  approach  for  integrating  such  considerations  in  the  processes  of  asset 
management companies.  

A significant part of the reports of industry associations includes references to sectors to 
also analyse exposure to biodiversity and nature risk through dependence and/or impact 
within a specific sector. For instance, CISL, Deutsche Bank, & UBP (2022)191, Robeco & 
CISL  (2022)192  and  CISL  &  AON  (2022)193  are  all  case  studies  that  present  an 
assessment  of  a  specific  type  of  financial  risk  focusing  on  a  specific  sector  (or  value 
chain)  with  the  aim  to  enable  and  promote  further  such  risk  assessments  across  the 
financial system. CISL, Deutsche Bank,  UBP (2022) assess the transition risk of fertiliser 
companies due to the adoption of the Farm to Fork Strategy in the EU; Robeco & CISL 
(2022) analyse the physical risks of companies in the agriculture value chain due to soil 
degradation; and CISL & AON (2022) map the dependencies of different industry sectors 
on a variety of ecosystem services.  

3.2.3.2.  Assessment proxy to substitute micro-level 

evaluations 

Financial  institutions  generally  lack  quantitative  and  qualitative  information  from  non-
financial  corporates  that  their  businesses  depend  on,  so  they  are  constrained  in  their 
abilities to conduct a detailed analysis. They often rely on external databases indicating 
impact, dependence and risk associated with them to evaluate their own exposures, that 
are often at the (sub)sectoral level.  

189 UNDP Sustainable Insurance Forum (SIF) (2021). SIF scoping study: Nature-related risks in the global insurance 
sector. United Nations Development Programme, New York. 
190 UN Environment Programme (2022). Prioritising nature-related disclosures. Considerations for high-risk sectors. 
UNEP-WCMC, Cambridge, UK. 
191 University of Cambridge Institute for Sustainability Leadership (CISL), Deutsche Bank and Union Bancaire Privée 
(UBP) (2022). Nature-related financial risk: use case. The EU Farm to Fork Strategy and Fertiliser Companies. 
192 Robeco and University of Cambridge Institute for Sustainability Leadership (CISL) (2022). How soil degradation 
amplifies the financial vulnerability of listed companies in the agricultural value chain. 
193 University of Cambridge Institute for Sustainability Leadership (CISL) and AON (2022). Nature-related financial risk: 
use case. Mapping exposure to nature-related risks across financial indices 

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Most of the risk assessment frameworks of major central banks incorporate sectoral 
considerations  into  their  methodologies.  As  described  above,  the  risk  of  financial 
institutions to biodiversity loss and ecosystem degradation is ultimately determined by 
the nature-related impact and dependencies of the companies they finance. Therefore, 
the first step in the implementation of the risk assessment framework is to assess the 
impacts  and  dependencies  of  these  companies  and  link  them  to  the  financial 
products/assets  financial  institutions  have  in  their  portfolios.  Since  focusing  on  each 
company  separately  would  require  a  wealth  of  data  currently  not  available  to  most 
financial institutions, to determine companies’ exposure, frameworks examine the impact 
and dependencies of the whole sector (or sub-sector) these companies belong to, using 
assessment tools or more generic qualitative information. As a result, all risk assessment 
frameworks have to rely at least to some extent upon sectoral exposure information to 
determine the risk of financial institutions. More specifically, in the framework developed 
by  the  Dutch  Central  Bank  (De  Nederlandsche  Bank,  DNB),  the  sectors  of  the  Dutch 
economy  are  assessed  for  their  exposure  to  physical  and  transition  risks,  and 
subsequently the risk of the Dutch financial institutions is calculated based on the shares 
and  corporate  bonds  of  the  exposed  sectors  these  institutions  hold  in  their  portfolio. 
Similarly,  the  framework  developed  by  the  French  Central  Bank  (Banque  de  France) 
focuses on company securities194 that financial institutions hold in their portfolios, and 
their risk is estimated based on the exposure of the sectors of these companies and their 
location. In other (more qualitative) frameworks, such as the one described in the Bank 
of Mexico & UNEP (2020)195 or in BfN (2022)196 and in NCFA (2018)197, assessment of 
risk focuses on the extent “priority sectors” contribute to financial institutions’ portfolios. 
Under this approach, financial institutions identify priority sectors – by either using impact 
and dependency assessment tools or through qualitative analysis – to address the bulk 
of their exposure to ecosystem degradation and biodiversity loss before moving on to 
sectors with lower impacts or dependencies on nature. 

The  sectoral  approach  is  not  specific  only  to  the  risk  assessment  of  the  financial 
institutions  but  is  also  connected  to  the  recommendations  formulated  by  risk 
assessment  and  disclosure  frameworks,  such  as  the  TNFD,  as  part  of  its  LEAP 
approach (Locate, Evaluate, Assess and Prepare). The LEAP approach also includes 
guidance for financial institutions. In this respect, it is clarified that sectors are an entry 
point for integrated risk and opportunity assessment for financial institutions, as entities 
from  the  financial  sector  are  encouraged  to  explore  their  capital  allocation  to  sectors, 
which asset classes/financial products do they have and how they interact with nature in 
those sectors, which locations (biomes/ecosystems) are they connected to. LEAP also 
recommends the use sectoral level data and analysis that is most feasible as a starting 
point.  These  steps  often  rely  on  the  use  of  specific  tools  and  data  sources  that  were 
generally  developed  by  third  parties.  Some  examples  in  this  regard  are  the  sector 

194 Refers to listed shares, short-term debt securities and long-term debt securities 
195 Bank of Mexico & UNEP (2020). Climate and environmental risks and opportunities in Mexico’s financial system 
from diagnosis to action 
196 BfN (2022). Biodiversity and finance: Managing the double materiality. Bundesamt für Naturschutz 
197 Natural Capital Finance Alliance and PricewaterhouseCoopers (2018). Integrating Natural Capital in Risk 
Assessments: A step-by-step guide for banks. Geneva, Oxford and London 

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materiality  matrix  of  the  Science-Based  Targets  Network  (SBTN),  the  ENCORE 
database, as well as the TNFD sector and biome guidance that is discussed below. 

3.2.3.3.  Sector specific implementation guidelines  

The TNFD and TCFD exemplify the approach whereby additional guidelines are provided 
for  the  implementation  of  otherwise  sector-agnostic  assessment  and/or  disclosure 
metrics for entities from exposed (sub)sectors. The supplemental guides for the affected 
sectors  highlight  important  considerations  that  should  be  factored  in  and  provide 
suggestions for implementing the general disclosures to obtain a fuller picture of potential 
financial  impacts  in  those  sectors.  As  can  be  seen  from  Table  3-3,  supplemental 
guidance is provided for the financial and non-financial sectors that are greatly affected 
by biodiversity and nature risk. These materials will also help to improve comparability 
within  sectors.  Draft  disclosure  metrics  for  the  apparel  and  textiles;  coal,  metals  and 
mining;  construction  materials;  oil  and  gas;  financial  institutions;  food  and  agriculture; 
biotechnology and pharmaceuticals; electric utilities and power generators; infrastructure 
and real estate; forestry and paper; and chemicals sectors have been issued already by 
the TNFD.198 There is also additional guidance on the use of the LEAP approach that 
covers  other  sectors  such  as,  agriculture  and  food,  mining  and  metals,  and  energy. 
Additional guidance and disclosure metrics will be released for further priority sectors, 
as they are developed by the Taskforce. 

In the case of the TNFD, the additional guidance for financial institutions, for example, is 
to  be  applied  at  the  level  of  the  financial  entity  rather  than  at  the  level  of  financial 
products, as is the case with the TCFD. The TNFD financial sector guidance has also 
taken a sub-sector neutral approach, unlike the TCFD approach that produces tailored 
guidance  for  banks,  insurance  companies,  asset  owners  and  managers.  The 
supplemental guidance for financial institutions includes recommendations with respect 
to governance, strategy, risk and impact management, as well as metrics and targets.  

With  respect  to  risk  and  impact  management,  for  example,  the  additional  guidance 
provides some further information regarding the description of processes for identifying, 
assessing and prioritizing nature-related dependencies, impacts, risks and opportunities 
in their value chains (eg. focus on downstream value chains) and of their integration into 
the  organization’s  overall  risk  management  processes  (eg.  considerations  of  credit, 
market,  operational,  underwriting  and  investment  risks).    Similarly,  the  TNFD  also 
includes additional recommendations regarding particular metrics to be used along with 
global  disclosure  metrics,199  exemplified  by  Table  3-4.  The  specificities  of  the 
recommendations is expected to increase, as practices and standards develop further. 

Table 3-4 Examples of TNFD supplemental guidance provided to the financial sector 

198 TNFD (2023) Discussion paper on Draft sector metrics. December 2023. 

199 TNFD (2024) Recommendations of the Taskforce on Nature-related Financial Disclosures, 

September 2023. 

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TNFD Supplemental Guidelines for Financial Institutions regarding Metrics 

Core Metrics to be used 

Exposure 
to defined 
set of 
sectors200 

Exposure 
to 
sensitive 
locations
201 

For banks: absolute amount or percentage of lending 
volume. 

For asset owners and managers: absolute amount or 
percentage of invested or owned assets. 

For insurers: absolute amount or percentage of net 
premiums written or total sums insured. 

Risk metrics already in use by financial institutions  

Physical 
risk 

Transition 
risk 

Risk 
measures 

Financial exposure (in terms of assets under management, 
lending, financing, or insurance activities) to material 
physical risks (in absolute volume or %) 

Financial exposure (in terms of assets under management, 
lending, financing, or insurance activities) to material 
transition risks (in absolute volume or %) 

Impacts on specific risk parameters or portfolio measures, 
such as expected loss 

Source: TNFD Sector Guidance:Additional guidance for financial institutions - Version 1.0.  – 
September 2023 

In the case of agriculture and food sector, the additional metrics guidance refers primarily 
to impact drivers, including various metrics for climate change, land/freshwater/ocean-
use  change,  pollution,  resource  use;  and  changes  to  the  state  of  nature,  including 
indicators and metrics related to ecosystem condition and extent, and species.202 

Not  all  biodiversity-relevant  management  and  disclosure  frameworks  use  sectoral 
aspects to provide additional guidelines with respect to core management and disclosure 
recommendations.  Some  frameworks  take  an  additional  step  further,  and  develop 
separate sector-specific standards and metrics, that generally complement the general 
cross-sectoral standards. 

200 The TNFD identified a set of sectors that should be considered for this disclosure, as specified in Annex I of TNFD 
(2023) Sector guidance: Additional guidance for financial institutions. Version 1.0. These include: oil, gas and 
consumable fuels; chemicals; construction materials; containers and packaging metals and mining; paper and forest 
products; construction services; sewerage, waste collection, treatment and disposal, transport and associated services; 
automobiles; textiles, apparel and luxury goods; beverages and food products (includes agriculture); personal care 
products; pharmaceuticals; semiconductors and semiconductor equipment; and utilities.  
201 These are locations where the assets and/or activities interface with nature in areas: (i) of important biodiversity; (ii) 
of high ecosystem integrity; (iii) of rapid decline in ecosystem integrity; (iv) of high physical water risks; and/or (v) of 
importance for ecosystem service provision, including benefits to Indigenous Peoples, Local Communities and affected 
stakeholders. 
202 TNFD (2023): The TNFD Nature-Related Risk and Opportunity Management and Disclosure Framework - Version 1 
-  Annex 1. Sector specific disclosure metrics – Food and agriculture, December 2023. 

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3.2.3.4.  Sector specific assessment approaches 

Developing of sector-specific assessment and/or disclosure metrics for exposed sectors, 
associated with other risk disclosure and management approaches, such as SASB, GRI 
and even the ESRS.  

Industry  based  sustainability  disclosure  standards  is  a  key  feature  of  the  SASB, 
integrated into ISSB since August 2022, designed to meet investor information needs 
and enable companies to share relevant information for global capital markets, that is 
now becoming integrated into the ISSB Standards. The ISSB standards will retain this 
industry focus, spanning across 77 industries, believed to ensure a focus on the drivers 
of risk that are most relevant to business models within a given industry, but including 
also  some  cross-industry  standards  to  ensure comparability.  The  SASB  standards  for 
financial  sector  included  specific  standards  for:  asset  managers,  commercial  banks, 
consumer finance, insurance, investment banking and brokerage, mortgage finance, and 
security  and  commodity  exchanges.  Most  of  these  standards  included  some  generic 
requirements with respect to description of approach to incorporate environmental, social 
and governance (ESG) factors in their credit analysis. Biodiversity and ecosystem related 
aspects played a somewhat greater role for example in the industry specific standards 
for  agriculture,  but  still  related  primarily  to  climate  change  and  the  use  of  genetically 
modified organisms (GMOs) rather than in a direct and independent manner. This might 
change as the SASB standards are improved and adjusted through the ISSB revision 
process. 

The emphasis on biodiversity is much greater in the framework of the Global Reporting 
Initiative  (GRI)  standards,  with  a  specific  disclosure  section  dedicated  to  this 
dimension.  The  recommended  disclosure  requirements  –  if  biodiversity  is  a  material 
issue to disclose on for an entity refers to the operational sites owned, leased, managed 
in, or adjacent to protected areas and areas of high biodiversity value; significant impacts 
on activities, products, and services on biodiversity; habitats protected or restored; and 
IUCN species and national conservation list species with habitats in areas affected by 
operations.  Additionally,  however,  the  GRI  also  releases  sector-specific  supplemental 
standards  to  sectors  associated  with  high  sustainability  impact,  including  oil  and  gas; 
coal; agriculture, aquiculture, and fishing; mining; textiles and apparel. Sector standards 
project  for  financial  services  will  commence  in  2023.  In  the  case  of  agriculture, 
aquaculture  and  fishing  sector,  the  supplemental  sectors  also  cover  biodiversity,  with 
additional  disclosure  requirements  for  aquaculture  (e.g.  key  information  regarding  the 
aquatic organisms produced, juvenile seeds stocks used as inputs, and the use of fishing 
products in feed) and fishing (e.g. key characteristics and information for each species 
of aquatic organisms caught or harvested). 

Similarly, the recently adopted European Sustainability Reporting Standards (ESRS) 
associated with the EU’s Corporate Sustainability Reporting Directive (CSRD) combine 
a set of detailed disclosures on biodiversity for entities across sectors, with additional, 
sector-specific  disclosure  requirements,  to  be  developed  over  the  next  few  years. 
Somewhat similar to the TNFD approach, the biodiversity and ecosystem section of the 
cross-sectoral  ESRS  includes  disclosure  requirements  regarding  the  consideration  of 

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biodiversity  and  ecosystems  in  strategy  and  business  model;  policies,  actions  and 
resources related to biodiversity and ecosystems; the processes to identify and assess 
material  biodiversity  and  ecosystem-related  impacts,  risks  and  opportunities;  and  key 
metrics and targets. The latter include disclosure requirements regarding targets, impact 
metrics,  and  anticipated  financial  effects  associated  with  biodiversity  and  ecosystem 
change.  The  implementation  of  the  CSRD  and  the  ESRS  follows  a  gradual  phase-in 
approach, both in terms of the companies with specific characteristics (companies with 
less than 750 employees do not have to report on biodiversity during the first two years) 
and some of the metrics (initial reporting on the anticipated financial effects of biodiversity 
and ecosystem-related impacts, risks and opportunities). 

With  the  increasing  use  of  these  management  and  disclosure  frameworks,  financial 
institutions should have at their disposal direct and relevant micro-level data to assess 
their  exposure  to  biodiversity  and  nature  risks.  In  the  meantime,  however,  financial 
institutions will continue to rely on external datasets and various proxies at the sectoral 
level  to  evaluate  their  exposure.  But  the  disclosure  frameworks  also  exemplify  that 
sectoral considerations could be used to collect additional data from or impose additional 
mitigation requirements upon entities in highly exposed sectors, or at least implement 
their sectoral agnostic due-diligence approaches with further attention to detail.  

3.2.4.  Sectoral sensitivity assessment approaches 

The references reviewed for the identification of (sub)sectors exposed to biodiversity and 
nature  related  risk  reveal  considerable  heterogeneity  in  their  overall  approaches, 
especially with respect to the methods used. To the extent that the references rely on a 
more  systematic  approach  to  identify  (sub)sectors  exposed  to  biodiversity  and  nature 
related risks, these tend to convergence around one of two key approaches. The first 
one refers to the review of relevant resources, often validated through consultations with 
market  participants.  The  second  main  approach  relies  primarily  on  the  use  of 
assessment tools like ENCORE to assess materiality of exposure of specific (sub)sectors 
and on environmentally extended multi-regional input-output databases to consider inter-
sectoral (value chain) and locational aspects. 

3.2.4.1.  Risk drivers and types considered 

As  already  explained,  nature-related  financial  risks  encompass  both  physical  and 
transition  risks.  Drivers  of  physical  risks  relate  to  the  dependence  of  companies  on 
ecosystem services to produce goods and services, while drivers of transition risks relate 
to the impacts companies have on ecosystems and biodiversity. A significant part of 
the nature-related risk assessment frameworks reviewed under this study, included 
both  physical  and  transition  risk  drivers  in  their  methodologies  to  assess  the 
exposure  of  (sub)sectors  and  industries  to  biodiversity  and  nature  related  risks.  More 
specifically, in most of these sources, physical risk drivers for financial institutions are 
represented  by  the  dependencies  of  sectors  or  production  process  on  a  range  of 
ecosystem services. In term of the transition risk drivers, the reviewed sources focused 

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on the IPBES drivers of ecosystem degradation and biodiversity loss. The idea is that 
financial institutions that invest in sectors that, through their operations, contribute to the 
five major drivers of biodiversity loss, increase their transition risks because of the policy 
and societal changes that aim to halt and reverse these damages. There has been less 
consideration given to systemic risk/dimensions, even though sectors and sectoral 
linkages are expected to play a considerable role in case of the emergence of ecosystem 
collapse, contribute to aggregated risk and and conduct contagion risk.203  

3.2.4.2.  Assessment and identification approach 

In the case of the TNFD, the identification of exposed sectors and industries, was based 
on  a  review  and  consolidation  of  existing  sector-specific  research  and  assessment 
focused on nature-related dependencies, impacts, risks, and opportunities. These were 
then used to assess and prioritize the exposure of sub-sectors to the five key risk drivers 
either through dependence or impact. Their research and assessment included studies 
by UNEP, World Economic Forum and PwC, Finance for Biodiversity Initiative, and EU 
Technical Expert Group on Sustainable Finance. The evaluation based on this review 
was then aligned with the SICS classification scheme to identify the thematic sectors, 
sub-sectors, and industries for prioritization, that are summarized by Table 3-2. This was 
then  validated  through  consultation  and  engagement  with  the  public,  as  the  TNFD 
adopted an open innovation approach that encourages market participants to co-create 
the TNFD framework. In alignment with this approach, the first set of draft sector and 
biome guidance has also been developed through consultation with market participants 
in each sector, including several organisational members of the TNFD Forum and TNFD 
Knowledge Partners. 

The TCFD also relied on a similar approach to identify exposed sub-sectors, based on 
an  initial  ranking  of  various  sectors  and  industries  in  function  of  their  likelihood  to  be 
affected  by  three  factors  associated  with  both  physical  and  transition  risk  –  GHG 
emissions,  energy  usage,  and  water  usage.  As  in  the  case  of  the  TNFD,  the  initial 
assessment was done based on the revision of various sources that provided relevant 
information and was used to identify affected industries, organized into four main groups. 
The selection was then validated through 1) public consultations, 2) additional review of 
numerous sector-specific disclosure guidance documents, 3) consultation of the analysis 
provided by the Intergovernmental Panel on Climate Change (IPCC), and 4) examination 
of relevant research and documentation from non-governmental organizations (NGOs) 
and industry organizations. 

Sector  level  proxies  and  considerations  used  by  quantitative  risk  assessment 
frameworks are often integrated into specific assessment tools that these rely on and 
whose use is recommended by the TNFD FI guidance  as well. These assessment tools 
were already introduced by Table 2.1. that provides a comprehensive overview of nature 
related risk-assessment approaches, including exposure assessment tools and relevant 
databases. Both DNB (2020) and the Banque de France (2021), for example, also rely 

203 TNFD (2023): Definition of ecosystem collapse, aggregated and contagion risks refer to entire sectors being affected 
(ecosystem collapse risk) or constituting the main transmission channel (aggregated and contagion risk). 

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on sectoral level analysis for the assessment of their exposure to physical and transition 
risks. To gauge the physical risks, the study analysed the dependencies of the Dutch 
financial institutions on 21 ecosystem services using the ENCORE tool, while, for the 
transition risks, the report used the GLOBIO model to calculate the biodiversity footprint 
of  these  institutions  because  of  changing  land  use  and  GHG  emissions.  A  similar 
approach is used in the study of the French central bank. To calculate the dependency 
score  of  the  companies  that  French  financial  institutions  have  invested  in,  the  study 
obtains levels of dependency of production processes on ecosystem services using the 
ENCORE  tool  and  then  calculates  dependence  on  these  ecosystem  services.  To 
estimate  the  biodiversity  footprint  of  the  companies  in  the  portfolios  of  the  French 
financial institutions, the study used the BIA-GBS methodology, covering most of the 
IPBES drivers. A more recent study prepared by the Central Bank of Malaysia, analyses 
the biodiversity impacts and dependencies of banking and economic sectors using the 
ENCORE  tool  for  both  nature-related  physical  and  transition  risk.204  As  an  additional 
element  for  the transition  risk  assessment,  the  study  also considered  the  exposure  of 
banks loans for the purchase of commercial real estate, infrastructure and construction 
in areas considered as key biodiversity areas was also quantified. 

While  an  exhaustive  analysis  of  all  these  assessment  tools  that  rely  on  sectoral 
approaches is beyond the scope of the study, Boxes 1 and 2 discuss some of the most 
relevant ones that could be further improved upon and integrated in recommendations 
given to financial institutions as well.  

204 World Bank and Bank Negara Malaysia (BNM). An Exploration of Nature-Related Financial Risks in Malaysia. Kuala 
Lumpur. World Bank. (2022); ENCORE. 

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3.2.4.1. 

Box 1: The main assessment tool used to assess 
materiality of nature related risk for industries 

The ENCORE tool constitutes the predominant approach to assess the materiality of sectoral 
exposure to nature related physical and transition risk. Its use allows for the assessment of 
materiality of exposure on an ordinal scale, ranging from “very low” to “very high”. This evaluation 
is possible across 11 sectors and 157 sub-industries, through 86 production processes that can 
be linked to various sub-industries and sectors.  

The ENCORE rating is based on a comprehensive review of the current body of relevant 
information on ecosystem services dependencies and impacts on key drivers for all economic 
sectors. For the assessment of exposure to dependence risk, literature reviews were carried out 
for each ecosystem service class and production process combination using a systematic search 
approach. The evaluations are also informed by expert interviews carried out with sector 
specialists to validate information for some dependencies given the existence of some gaps. This 
resulted in a comprehensive assessment of dependencies of each of the 167 economic sub-
industries upon 21 ecosystem services. As with the approach for dependencies, literature reviews 
and expert interviews were also carried out for each impact driver and production process 
combination. 

For each of this link between production process and impact drivers and production process and 
ecosystem service, ENCORE provides a rating from “Very low” to “Very high” according to the 
level of impact or dependency each process has on impact drivers or ecosystem services, 
respectively. The synthesis of the rating of each production process employed by a sub-industry 
produces the overall rating of the sub-industry.  

To assess the potential importance of the contribution an ecosystem service makes to a 
production process, the materiality evaluation considered two key aspects. Firstly, it assessed the 
significance of the loss of functionality if the ecosystem service is disrupted, leading to a potential 
evaluation of limited, moderate, and severe loss of functionality. Secondly, it also considers the 
significance of the financial loss due to the loss of functionality, focused primarily on the 
companies’ profits, and allowing for limited, moderate, and severe financial loss as possible 
outcomes. The dependency materiality rating reflects both considerations, whereby a “very high” 
rating means that both the loss of functionality and the financial impact is severe. 

The evaluation of the significance of a potential impact of a production process follows a similar 
approach, considering three aspects. These include an evaluation of the frequency with which the 
impact is expected to occur (ranging from high to low), of the speed at which it might affect the 
natural capital (with less than a year, between one and three years, and more than three years as 
possible responses), and the severity of the expected impact (high to low). These evaluations are 
then consolidated to derive the final evaluation of materiality, on a scale from very low to very 
high. 

The ENCORE tool, however, does not consider inter-sectoral linkages, locational aspects, or the 
role of mitigation measures in its overall assessment approach. 

Source: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) 

3.2.4.2. 

Inter-sectoral considerations 

Although  almost  all  publications  reviewed  in  this  study  and  stakeholder  interviewed 
highlight the importance of considering physical and transition risks at value chain level, 
not all assessment approaches look beyond first-order impacts and dependencies 
and considers inter-sectoral (value chain) linkages in an explicit manner.  

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TNFD’s LEAP approach specifically mentions the importance of analysing organisations’ 
value chains, involving both upstream (including third-party suppliers) and downstream 
(including final product use and disposal) considerations. This refers to mostly “locating” 
the corporations’ interface with nature, which of course relates to the evaluation of the 
size and scale of dependencies and impacts. SBTN Initial Guidance as well suggests 
that organisations assess physical and transition risks at value chain level along sector- 
and  company-level  to  produce  an  extended  list  of  dependencies  and  impacts.  Using 
information on geolocation of business activities together with sophisticated assessment 
tools, corporations, and financial institutions by extension, can produce more accurate 
and robust impact and dependency assessment results. A comprehensive value chain 
analysis is one of the future avenues of research of nature-related physical and transition 
risks, as it is a quite complex exercise that requires a wealth of data and information to 
be collected and shared by companies. BfN (2022) proposes using a similar four-step 
approach  that  is  used  for  climate  risk  analysis,  moving  from  the  analysis  of  direct 
impacts, to impacts of acquired or consumed production inputs, to impacts from sources 
not  owned  by  the  company  up-  and  downstream,  to finally  spatial footprint  of  existing 
facilities. These approaches are still in their infancy; however, DNB (2020) did consider 
the  impact  made  through  companies’  supply  chains  and  Banque  de  France  (2021) 
considered upstream dependencies, both using input-output models. 

3.2.4.3.  Box 2: Input-output databases used to consider inter-sectoral 

and locational aspects at industry level 

Environmentally extended multi-regional input-output tables allow to trace 
consumption and production patterns linked to a specific (sub)sector throughout 
its supply chain and across nations, that is then used to assess environmental 
pressures associated with them. This can then be used to integrate inter-
sectoral (value chain) and locational considerations in biodiversity and nature 
related risk assessments at the (sub)sectoral level. The EXIOBASE input-
output database constitutes one commonly used input-output table for this 
purpose, that provides harmonized and detailed supply-use tables for several 
countries, estimating emissions and resource extractions by sector and 
industry.205 This dataset can then be used to assess environmental impacts, 
including impacts on ecosystem services and biodiversity, associated with the 
final consumption of goods. Another example in this regard is the EORA Global 
MRIO database that matches multi-regional IO tables that allows for the 
assessment of inter-sectoral linkages across 15,909 sectors across 190 
countries. The IO tables, moreover, extend to environmental indicators covering 
GHG emissions, air pollution, energy use, water requirements, land occupation, 
N and P emissions, and primary inputs to agriculture (covering 172 types of 
crops). 

Source: EXIOBASE 206, EORA Global Supply Chain Analysis207 

205 https://www.exiobase.eu/ 
206 Accessible through: https://www.exiobase.eu/ 
207 Accessible through: https://worldmrio.com/ 

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3.2.4.4.  Considerations of locational aspects 

Unlike  greenhouse  gases,  which  do  not  have  different  effects  on  climate  change 
depending on where they are emitted, locational aspects are particularly important when 
assessing  nature-related  financial  risks,  as  economic  activities  directly  affect  the 
ecosystems in which they take place. For example, textile manufacturing, that is a water-
intensive  production  process,  that  takes  place  in  a  drought-prone  area  would  entail  a 
substantially higher magnitude of dependency and impact on the freshwater ecosystem 
of  that  area  than  if  it  took  place  in  a  water-abundant  area.  Therefore,  while  similar 
economic  activities  would  give  rise  to  similar  types  of  impacts  and  dependencies  in 
different  locations,  the  size  and  scope  will  be  location-specific.208  As  such,  for  a 
comprehensive identification, assessment, and management of nature-related physical 
and transition risks, a thorough consideration of (sub)sector’ interface with nature both 
directly and through its upstream and downstream value chains is necessary. For that 
reason,  the  first  stage  of  the  LEAP  approach  of  the  TNFD  refers  to  “Locating”  the 
interface of corporations with nature, that also entails a filtering and prioritization based 
on  geography,  as  the  ultimate  sources  of  risk  and  opportunities  are  location 
specific.209This would entail identifying and prioritizing areas and ecosystems with high 
integrity or biodiversity significance or experiencing rapid decline or important pressure, 
to then also identify the sectors, business units, value chains or asset classes that are 
interfacing  with  these  sensitive  locations.  .  Apart  from  TNFD,  several  assessment 
frameworks reviewed in this study have integrated in their approaches at least some 
location-specific  considerations  when  analysing  physical  and  transition  risks  of 
corporations, sectors, and financial institutions.  

3.2.4.5.  Time horizons and scenario analysis 

Time  horizons  can  also  be  important  for  the  identification  and  assessment  of  nature-
related financial risks. Time horizons come into play when considering physical risks, as 
these can be acute or chronic (see Section 2.3.1), which have implications in terms of 
the time of their materialisation. Acute physical risks become apparent in the short term, 
while chronic risks emerge in the longer term. In addition, the condition of the ecosystems 
that  (sub)sectors  interact  with  can  change  in  different  points  in  time,  that  should  be 
considered  when  assessing  the  current  and  future  integrity  and  significance  of  these 
ecosystems.    Although  the  time  horizon  of  the  materialisation  of  the  physical  and 
transition risks at the (sub)sectoral level should be considered, most of the assessment 
frameworks reviewed here did not integrate this into their methodologies. Similarly, 
none of the reviewed resources has relied on any scenario analysis for the identification 
and prioritization of exposed sectors.  

208 TNFD (2023). Guidance on the identification and assessment of nature-related issues: The LEAP approach. Version 
1.1. October 2023. 

209 TNFD (2023) Guidance on the identification and assessment of nature-related issues: the LEAP approach. October 
2023. 

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3.3.  Prioritization of exposed (sub)sectors from the EU 

perspective 

In this section a methodology is developed and applied to contextualize the exposed 
sectors within the EU and to prioritize them according to their nature-related and 
economic/financial materiality. The results indicate that within the EU, real estate and 
construction, agriculture, and health care and pharmaceuticals are the most exposed to 
the potential economic/financial impact of nature-related risks. Our assessment also 
reveals, however, that data limitations remain significant even at the sectoral level and 
highlights the importance of more systematic consideration of inter-sectoral (value chain) 
linkages and of locational aspects to understand transmission channels and inform 
mitigation measures. 

The list of (sub)sectors and industries exposed to biodiversity and nature risk, identified 
through the literature review, and summarized by Table 3-2, constitute a significant part 
of  the  European  Union  economy.  In  2021,  for  example,  approximately  half  of  the 
companies  from  the  27  EU  Member  States  (corresponding  to  15  million  companies) 
operated  in  these  (sub)sectors  and  industries  through  their  main  activities.210  A 
significant part of these companies was active in the construction and engineering sector 
(25%), retail sale (22%), health care delivery (13%), followed by hospitality, food, and 
beverages services (9.97%), real estate and services (9.75%), agriculture, farming, and 
fishing (4.5%), metal processing (2.78%). The sectoral distribution of these companies 
is presented in Figure 3-2.  

Figure 3-2 Sectoral distribution of companies with main activities in (sub)sectors exposed to biodiversity 
and nature risk 

Source: Eurostat Structural Business Statistics, 2021 

210 Estimation based on company statistics from the Eurostat Structural Business Database. 

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Dependence and impact on biodiversity and ecosystem services of the companies from 
these sectors could translate into significant financial risk for them and for the financial 
institutions  that  invest  in  or  loan  to  them,  underwrite  their  insurance  policies  and/or 
manage their assets. According to statistics collected by the European Commission and 
the European Central Banks’s as part of their survey on access to finance of enterprises 
(SAFE)211, approximately 2.3 million companies from the affected sectors – about 7% of 
all EU companies - have used loans over the past 6 months. This corresponds relatively 
well  with  the  estimated  3  million  companies  financed  by  Euro  area  banks  that  were 
estimated  by  the  European  Central  Bank  to  be  highly  dependent  on  at  least  one 
ecosystem service.212 

The companies from these sectors would necessitate additional measures to manage 
the  exposure  of financial  institutions to  biodiversity  and  nature  degradation  risk  in  the 
future in an effective manner, as for example through adjustments in their due diligence 
procedures. Such measures would affect not only those companies that currently rely on 
bank  loans  or  equity  as  external  financing,  but  those  that  apply  for  external  forms  of 
financing. According to the SAFE survey statistics, the average share of companies that 
applied  for  bank  loans  in  the  past  six months from these sectors,  and  thus  had to  go 
through  the  initial  evaluation  process  was  21%  (3.1  million  companies).  The  share  of 
companies  that  consider  using  loans  in  the  future  from  these  sectors  is  even  more 
substantial, at 46% or close to 7 million companies, or 22 % of all companies from the 
EU. 

Adopting  adequate  biodiversity  and  nature  related  governance,  strategy,  and  risk 
management  measures,  however,  might  require  significant  resources  by  financial 
institutions, and as such, would benefit from a prioritization of affected (sub)sectors 
in function of the significance of the risk that they are exposed to.  

The current sub-section provides an illustration of an approach to measure and prioritize 
the significance of exposure to biodiversity and nature risk from the perspective of the 
EU  economy,  that  could  serve  as  a  starting  point  for  similar  exercises  by  financial 
institutions as well. It is important to note, however, that this methodology would have to 
be  adjusted  to  the  specific  business  models  and  portfolios  of  the  specific  financial 
institution in question.  

In what follows, this sub-section proceeds with an outline of the methodological approach 
used  to  prioritize  the  affected  sectors  and  identify  those  industries  that  are  most 
materially exposed from the perspective of the EU economy. It then presents step-by-
step the implementation of this approach, indicating also partial results. The sub-section 
then concludes with a discussion of the results and of key limitations of the approach, 
that will be addressed in the next sub-section. 

211 European Commission (2022) Survey on the Access to Finance of Enterprises (SAFE): Analytical Report for 2022. 
Available at: https://single-market-economy.ec.europa.eu/access-finance/data-and-surveys-safe_en 
212 Elderson, Frank (2023) The economy and banks need nature to survive, ECB Blog published on 8 of June 2023. 
Available at: https://www.ecb.europa.eu/press/blog/date/2023/html/ecb.blog230608~5cffb7c349.en.html 

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3.3.1.  Methodology 

The methodology to assess and prioritize (sub)sectors from the perspective of the EU 
economy  relied  as  a  starting  point  on  the  list  of  30  industries  identified  through  the 
literature review but entailed several additional stages. The approach uses the following 
metrics:  

Biodiversity and nature/ecosystem related risk (BES) exposure metrics, based on nature 
related dependencies and impacts, that is often assessed through heat maps, evaluating 
in  relative  terms  the  severity  of  exposure  in  terms  of  very  low  to  very  high  levels  of 
exposure; and 

Metrics  assessing  the  magnitude  of  potential  economic/financial  implications.  While 
these are often difficult to quantify, this is generally based on an assessment of potential 
for damages to the economic/financial performance, sometimes integrating also forward-
looking analysis. 

These two components can also be understood proxies of 1) the scale and severity of 
the  dependence  and  impact  on  biodiversity  and  ecosystem,  and  2)  of  the  scale  and 
severity of its implications for society from these dependencies and impacts. Factoring 
in  these  two  components  allows  for  the  computation  of  summary  metrics  of  the 
significance of the exposure associated with each (sub)sector and a prioritization among 
them.  This  can,  therefore,  be  understood  as  a  proxy  for  the  financial/economic 
importance of the exposure to material/elevated physical and transition risks.  

The key components of this overall approach are summarized by Figure 3-3, that also 
structures the analysis undertaken in this study into three key stages. 

Figure 3-3 Assessment and prioritization of exposure to BES risk 

In a first stage, the severity of the potential negative implications of biodiversity 
and nature-related dependency and impact were evaluated for each sub-sectors and 
industries identified through the literature review was assessed, as a proxy of the severity 
of the exposure to BES risk.  

This was done primarily with the use of the ENCORE tool – that is commonly used by 
financial institutions (and systems) to better understand, assess, and integrate the risks 
that  environmental  degradation  and  biodiversity  loss  causes  for  their  activities,  as 

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explained in Section 3.2. In essence, ENCORE provides scores, ranging from “very low” 
to  “very  high”,  for  the  materiality  of  dependence  and  impact  of  economic  activities, 
considering  the  specific  industrial  processes  that  they  entail.  For  a  more  detailed 
explanation of the methodological approach of the ENCORE tool, please see Box 1. In 
this essence, ENCORE relies on various types of resources to assess the materiality of 
dependence  upon  21  ecosystem  services  and 
impact  on  11  drivers,  across 
approximately  157  sub-industries.  The  latter  is  classified  into  11  sectors,  25  industry 
groups, and 74 industries.  

However, the sub-industry classification used by ENCORE, based on the Global Industry 
Classification Standards (GICS), does not follow the classification of sectors found in the 
long list of sub-sectors of this study, informed by several references using divergence 
sectoral classification systems. Therefore, the first step of our approach was to link each 
sub-sector in the long list to the ENCORE production processes it involves. For example, 
the sub-sector “Textiles, Apparels, Footwears and Accessories” of the long list was linked 
with  the  ENCORE  production  processes  of  “Natural  fibre  production”,  “Synthetic  fibre 
production”, and “Footwear production”. Upon an alignment of the affected sub-sectors 
and industries identified through the literature review with these 86 activities, the affected 
industries  identified  through  the  literature  review  were  ranked  on  an  ordinal  scale  of 
significance of dependence and impact. This provided the basis for an evaluation of the 
severity of the exposure to physical and transition risk at a general level, that is explained 
in greater detail under section 3.3.2. For an overall biodiversity and nature related risk 
assessment score, the scoring for exposure to biodiversity and nature related physical 
and transition risk were added. 

The second stage entailed the evaluation of the economic significance of these sub-
sectors  and  industries,  that  approximated  the  significance  of  the  potential 
economic/financial  implications  that  the  materialization  of  biodiversity  and  nature  -
related  risks  assessed  in  Stage  1  could  bring  about.  In  other  words,  this  evaluation 
captures the vulnerability of the EU economy to the potential disruptions and financial 
implications of biodiversity loss and ecosystem degradation.  

This  part  of  the  analysis  first  relied  on  matching  the  list  of  30  affected  sectors  with 
corresponding NACE codes. This was necessary because the list was compiled from the 
revision of several resources, that often used very different classification system. NACE 
(Nomenclature  of  Economic  Activities)  is  the  European  statistical  classification  of 
economic activities, that is commonly used by Eurostat and by relevant EU regulations. 
Considering the emphasis on the EU economy in the study, it made sense to converge 
all the alternative classification systems towards NACE. Another significant advantage 
of NACE is that it uses four hierarchical levels of classification, from 21 sections (level 1) 
to 615 classes (level 4), thus allowing an adequate fit across all the affected (sub)sectors 
and industries.  

Secondary  statistics  were  then  collected for  all  the  NACE  codes  associated to  the  30 
(sub)sectors and industries, to assess their overall significance for the EU economy. This 
included  data  on  gross  capital  formation  (often  used  as  a  proxy  for  investments), 
employment, and value added as they constitute key dimensions of the EU economy. 
These were then used to compute an economic relevance indicator, that conferred equal 

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importance to the three economic dimensions. This was used as a proxy of the likelihood 
that the severity of the exposure to BES risk assessed in Stage 1 will materialize and 
affect the EU, given the specifics of the EU economy. In the case of financial institutions, 
however, it will suffice to focus on their portfolio data to acquire an assessment of the 
extent or likelihood of their exposure to BES risk. 

Finally, in the last/third stage, an overall assessment score was computed, using 
the integrated dependence and impact materiality score, on one hand, and an indicator 
of economic relevance, on the other. This significance of exposure score can therefore 
be considered the ultimate materiality score that allows for a prioritization of sub-sectors 
both  in  terms  of  the  extent  of  risk  of  its  financial  performance  being  affected  by 
biodiversity loss and ecosystem degradation, and the extent of economic damage that 
this could result in. This materiality or significance of exposure score was then used to 
rank and prioritize the 30 sub-sectors and industries in function of the significance of their 
BES risk exposure. 

3.3.2.  Biodiversity and nature related risk assessment 

The first stage of the prioritization consisted of the evaluation and ranking of the severity 
of the exposure of sub-sectors to nature related impact and dependence, relying on the 
use of the ENCORE tool.  

The  analysis  started  with  aligning  of  all  affected  sub-sectors  with  their  corresponding 
industrial  processes.  This  then  allowed for  a  rating  of the materiality  of  nature  related 
impact  and  dependency  of  the  individual  processes  for  each  (sub)sector,  using  the 
average of the rating across all industrial processes associated with them. To do that, 
the qualitative description of impacts and dependencies was substituted by a quantitative 
score  between  1  and  5,  with  “Very  low”  corresponding  to  1  and  “Very  high”  to  5.  For 
example, the process of “Natural fibre production” has a “Very high” impact on “Water 
use” and “Synthetic fibre production” and “Footwear production” have a “High” impact on 
“Water use”, which translates into “High” impact on water use on average for the “Textile, 
Apparels,  Footwears  and  Accessories”  sub-sector  ((5+4+4)/3=  4).  This  process  was 
followed for each sub-sector, assigning an average score for each ecosystem service 
and impact driver, as can be in Figure 3-4 that constitutes an excerpt from the workbook 
used for our estimations. 

Figure 3-4 Excerpt from the workbook used for the estimation of the impact and dependency scores of the 
affected (sub)sectors  

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To estimate the overall dependency and impact scores of each sub-sector in the long 
list,  we  considered  both  the  scores  of  the  affected  impact  drivers  and  ecosystem 
services, as well as the number of the affected drivers and services. This allowed for the 
score  to  capture  both  the  “depth”  and  “breadth”  of  impacts  and  dependencies.  The 
formulas used for the estimation of the overall scores for each sub-sector were : 

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 = 𝛼𝛼 ∗

∑ 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆 𝑑𝑑𝑆𝑆𝑑𝑑𝑑𝑑𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆
𝑁𝑁𝑆𝑆𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜 𝐼𝐼𝑜𝑜𝑜𝑜𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑 𝑑𝑑𝑆𝑆𝑑𝑑𝑑𝑑𝑆𝑆𝑆𝑆𝑆𝑆

+ 𝛽𝛽 ∗ �

𝑁𝑁𝑆𝑆𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜 𝐼𝐼𝑜𝑜𝑜𝑜𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑 𝑑𝑑𝑆𝑆𝑑𝑑𝑑𝑑𝑆𝑆𝑆𝑆𝑆𝑆
11

∗ 5�

α

∑ 𝐷𝐷𝑆𝑆𝐼𝐼𝑆𝑆𝐷𝐷𝑑𝑑𝑆𝑆𝐷𝐷𝑆𝑆𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆
𝑁𝑁𝑆𝑆𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜 𝐼𝐼𝑜𝑜𝑜𝑜𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑 𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑𝑑𝑑𝑆𝑆𝑆𝑆𝑆𝑆

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐷𝐷𝑆𝑆𝐼𝐼𝑆𝑆𝐷𝐷𝑑𝑑𝑆𝑆𝐷𝐷𝑆𝑆𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 = 𝛼𝛼 ∗
The weights (
) used in the derivation of the impact and dependency scores serve 
 and 
primarily illustration purposes. A specific set of weights, as we foresee, might require an 
inclusive consultation process with a broad group of stakeholders, which is beyond the 
scope  of 
the  preliminary 
sensitivity/robustness  test,  that  we  have  carried  out,  there  was  no  strong  impact  on 
ranking of the sectors when changing from 70-30 to 50-50 weights: only one of the seven 
top-ranked sectors was exchanged for another sector.  

the  project.  However,  according 

the  results  of 

+ 𝛽𝛽 ∗ �

to 

β

𝑁𝑁𝑆𝑆𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜 𝐼𝐼𝑜𝑜𝑜𝑜𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑 𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑𝑑𝑑𝑆𝑆𝑆𝑆𝑆𝑆
21

∗ 5�

 = 
Figure 3-5 below presents the results corresponding to a weight of 0.7 for the depth (
 =0.3) for the breadth of the impact and dependence scores. 
0.7) and a weight of .3 (
This  scatterplot  allows  for  the  classification  of  the  affected  industries  into  four  main 
groups.  

α

β

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Those with an overall score of dependency and impact score below 2.5 each, situated 
in the bottom left quadrant, could be considered the least exposed industries to BES risk. 
This group includes: Hotels and Lodging; Media and Communication; Hospitality, Food 
and  Beverage  Services;  Chemicals  (and  Biofuels);  Automobile  and  Component 
manufacturing, that are not very materially exposed to BES related risks through their 
direct industrial processes.  

The  second  group  is the  dependent  industries  group,  including  those  subsectors  with 
higher than 2.5 dependence score, but below 2.5 impact score. This is composed of only 
the Energy Transmission and Distribution. More numerous is the impact industries group, 
consisting  of  Health  Care  Delivery,  Air  Transportation,  Electronics,  Household  and 
Personal  Products,  Metal  Processing,  Real  Estate  and  Services,  Machinery  and 
Equipment, Biotechnology and Pharmaceuticals, Oil and Gas, and Energy Production.  

All the other industries belong to the high impact and high dependence group, with their 
respective scores above the 2.5 midpoint. This group includes Energy Production, Oil 
and Gas – Mid and Downstream, Construction and Engineering, Water Transportation, 
Metals and Mining, Fishing and Aquaculture, Forestry, Agriculture and Farming, Food 
and Beverages, Textiles and Apparels, and Water and Waste Services. 

Figure 3-5 Subsector dependence and impact score 

4,5

4

3,5

3

2,5

2

1,5

e
r
o
c
S

t
c
a
p
m

I

r
o
t
c
e
s
b
u
S

1

1

Energy Production

Oil and Gas - Mid 
and Downstream

Oil and Gas

Pulp and Paper 
Production

Chemicals 
(and biofuels)

Hospitality, Food 
and Beverage 
Services

Automobiles and 
Components

Construction and 
Engineering

Metals and Mining

Construction 
Materials

Fishing and 
Aquaculture

Agriculture and 
Farming

Forestry

Water and Waste 
Services

Food and Beverages
Textiles, Apparels 
and Footwear

Water 
Transportation

1,5

2

2,5

3

3,5

4

4,5

Subsector Dependence Score

Source: Trinomics calculations based on data from Exploring Natural Capital Opportunities, Risks and 
Exposure (ENCORE) 

The overall sector’s score is constructed as a sum of the two scores above: the impact 
score and the dependency score. This therefore attributes equal importance to the two 
components.  

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𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐵𝐵𝐵𝐵𝑆𝑆 𝑅𝑅𝑑𝑑𝑆𝑆𝑅𝑅 𝐵𝐵𝐸𝐸𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆

= 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 + 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐷𝐷𝑆𝑆𝐼𝐼𝑆𝑆𝐷𝐷𝑑𝑑𝑆𝑆𝐷𝐷𝑆𝑆𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆

A  similar  weighting  approach  might  be  potentially  used  also  for  the  overall  score 
calculation  to  fine  tune  the  methodology  to  better  reflect  the  risks  prioritized.  For 
example,  a  greater  preoccupation  with  transition  risk  stemming  from  a  potential 
tightening  of  the  environmental  regulation  may  require  putting  more  weight  on  the 
“impact” part of the overall score. Financial ties to specific locations where ecosystems 
services are degraded and therefore their further provision is endangered, on other hand, 
might require putting more weight on the “dependency” part of the overall score to better 
capture relevant risks. 

Figure 3-6 presents the ranking of the affected industries in function of their overall BES 
risk exposure scores. Consistent with Figure 3-2, this highlights the importance of the 
subsectors belonging to the fourth – high impact and high dependence group. The top 
quartile,  consisting  of  the  seven  industries  with  the  highest  BES  related  risk  scores 
includes:  Agriculture  and  Farming,  Forestry,  Metals  and  Mining,  Construction  and 
Engineering, Fishing and Aquaculture, Construction Materials, and Oil and Gas – Mid 
and Downstream, in diminishing order of magnitude.  

Figure 3-6 Ranking of industries based on their BES risk exposure scores 

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0

1

2

3

4

5

6

7

8

Agriculture and Farming
Forestry
Metals and Mining
Construction and Engineering
Fishing and Aquaculture
Construction Materials
Oil and Gas - Mid and Downstream
Water and Waste Services / Water Utilities
Energy Production
Water Transportation
Food and Beverages

Textiles, Apparels, Footwears and Accessories;…

Pulp and Paper products
Oil and Gas
Machinery and Equipment
Biotechnology and Pharmaceutics
Metal processing
Real Estate and Services
Transmission and Distribution
Household and Personal Products
Media and Communication / Digital…

Hotels and Lodging / Accommodation
Electronics
Health Care Delivery
Air Transportation
Hospitality, Food and Beverage Services
Chemicals (and Biofuels)
Automobiles and Components

Leisure Activities / Environmental protection and…

Source: Trinomics calculations based on data from Exploring Natural Capital Opportunities, Risks and 
Exposure (ENCORE) 

The figure also reveals that the Leisure Activities and Environmental Protection that align 
relatively well with the activities eligible for significant contribution to the protection and 
restoration  of  biodiversity  and  ecosystem  under  the  EU  Taxonomy  Regulation  – 
Accommodation and Conservation activities, are associated with relatively low BES risk 
exposure score. This is largely because the ENCORE tool and this study places greater 
emphasis  on  potential  adverse  effects  of  nature-related  physical  as  well  as  transition 
risk.  The  EU  Taxonomy,  on  other  hand,  focuses  on  economic  activities  that  could  be 
making a significant positive contribution to environmental objectives.  

The sub-sectors identified as the most exposed to BES-related risk by the analysis within 
the study, are however, consistent with the Commission commissioned study caried out 
by  Ramboll  that  evaluated  and  ranked  activities  according  to  their  potential  to  exert 

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positive impact upon biodiversity and ecosystem.  213 This assessment was based on a 
different  methodology,  that  prioritized  impact,  from  the  perspective  of  the  potential  to 
reduce  negative  impact  and  contribute  to  positive  improvements.  It  also  relied  on  a 
different source of data – the data collected on the European Environment Information 
and Observation Network (EIONET) on pressures and threats across ecosystems and 
conservation measures across Member States. The results also identified marine fishing, 
agriculture,  forestry,  real  estate  development  to  have  high  potential  for  positive 
improvements, while mining and quarrying – including metals and mining, and extraction 
of oil and gas – was associated with medium improvement potential. 

The severity of the nature-related risks that these sub-sectors are exposed to can also 
have implications for other sectors that they are interconnected with through the 
supply  chains.  This  is  especially  true  for  sectors  that  they  are  interconnected  with 
downstream, through the supply of essential inputs for those industries. The indirectly 
exposed (sub)sectors would also have to be systematically incorporated in the nature 
related  risk  assessment  and  management  methodologies  of  financial  institutions,  to 
ensure  a  comprehensive  approach  to  the  identification  and  mitigation  of  physical  and 
transition risk. This can be done using input-output tables, as explained under section 
3.2.4 and exemplified by Box 2. 

The  seven  sub-sectors  that  are  most  exposed  to  nature-related  risks,  for  example, 
provide important supplies to at least eight other sectors, thus indirectly exposing them 
as well to nature-related risks. These sectors are reflected by Figure 3-7, that indicates 
the sectoral distribution of the intermediate output (output that is used as supply in the 
same or other sectors) from each of the most exposed sub-sectors, highlighting those 
sectors that absorb more than 10% of intermediate output.  

Figure 3-7. Downstream linkages of the seven sub-sectors most exposed to BES-related risk  

213 Ramboll/ European Commission DG Environment (2020) Final Report on Sustainable Finance Taxonomy Data Collection and Environmental 

Objectives. Service Request in the context of Framework Contract on Economic analysis of environmental policies and analytical support in the 
context of Better Regulation ENV.F.1/FRA/2019/000. 

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0%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Agriculture and Farming

Forestry

Metals and Mining (+)

Construction and Engineering

Fishing and Acquaculture

Construction Materials (+)

Oil and Gas - Mid and Downstream

Same sector
Manufacture of wood and of products of wood and cork
Manufacture of coke and refined petroleum products
Electricity, gas, steam and air conditioning supply
Land transport and transport via pipelines
Other

Manufacture of food, beverages and tobacco
Construction
Manufacture of basic metals
Real estate activities
Accommodation and food services

Source: Trinomics calculations, using the WIOD database from 2014. 214 

The figure shows that in the case of agriculture and farming for example, approximately 
20 % of intermediate outputs are used within the same sub-sector. The predominant part 
of  agriculture  and  farming  output,  however,  is  used  for  the  manufacture  of  food, 
beverages,  and  tobacco.  Similarly,  in  the  case  of  fishing  and  agriculture,  51  %  of 
intermediate  output  is  destined  for  food  manufacturing,  with  another  26%  destined  to 
accommodation and food services. This means, that the food and beverages sector is 
indirectly exposed to the nature-related risks of agriculture and farming, and fishing and 
agriculture as well, that are not captured by the ENCORE data and the analysis. 

In the case of forestry, more than a third (36 %) of the intermediate output supplies the 
manufacturing of wood, wood products and cork (except furniture), with an additional 14 
% used by the construction sector. The construction sector stands out as an important 
indirectly  exposed  sector  not  only  through  forestry,  but  also  construction  materials, 
with  more  than  60  percent  of  construction  materials  used  by  the  construction  sector. 
Construction  and  engineering,  then  at  its  own  end,  is  interconnected  with  the  real 
estate sector, with 15 percent of intermediate output of the construction sector used by 
the real estate service sector. Once again, construction ad engineering is therefore also 
indirectly  exposed  to  nature  related  risks  associated  with  forestry  and  construction 
materials, that are once again, not adequately captured within the scoring approach. 

The  sectoral  inter-linkages  of  metals  and  mining  are  captured  at  a  broader  level, 
through  the  mining  and  quarrying  sector  that  in  addition  to  metals  and  mining  also 
includes oil and gas extraction (oil and gas – upstream), another sub-sector exposed to 

214 Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R. and de Vries, G. J. (2015), "An Illustrated User Guide to the World Input–Output Database: the Case 

of Global Automotive Production" , Review of International Economics., 23: 575–605. 

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nature  related  risk.  A  significant  part  of  the  output  from  this  sector  is  used  for  the 
manufacture of coke and refined petroleum products (37%), manufacture of basic metals 
(15%) and the supply of electricity, gas, steam and air conditioning (17%). Finally, the 
mid and downstream processing of oil and gas also supplies the manufacture of coke 
and  refined  petroleum  products,  albeit  with  a  lower  share  -  10%  -  of  the  intermediate 
output, than in the case of oil and gas extraction. An additional third % of its output is 
used  by  manufacture  of  chemicals  and  chemical  products,  and  by  land  transport  and 
transport via pipelines, with 13% of the total output destined to each of these sectors. 

3.3.1. 

EU relevance assessment 

To  make  the  analysis  more  EU-specific  and  acquire  a  better  sense  of  the  potential 
economic implications for the EU, a sector-specific “EU economic relevance indicator” 
was  derived  to  assess  the  potential  economic/financial  implications  for  the  EU  of  the 
biodiversity and nature related dependence and impact assessed through the previous 
stage of the study.  

This part of the analysis built on the alignment of the 30 exposed (sub)sectors and 
industries with  corresponding  NACE  codes. As  can  be  seen  in  Table  3-1A (in  the 
annex), this alignment resulted in the inclusion of (sub)sectors and industries at various 
levels of NACE aggregation, spanning across 13 out of the total 21 NACE sections (level 
1).  They  covered:  agriculture,  forestry,  and  fishing  (A),  mining  and  quarrying  (B), 
manufacturing (C), electricity, gas, steam, and air conditioning supply (D), water supply, 
sewerage, waste management and remediation activities (E), construction (F), trade (G), 
transportation (F), accommodation (I), information and communication (J), real estate (L) 
and human health activities (Q). 

The exposed industries identified through the literature correspond to NACE codes at 
different  levels  of  aggregation.  A  significant  part  of  the  exposed  industries  was 
matched with NACE codes at the division (NACE 2) level. Examples in this regard are 
A1:  crop  and  animal  production,  A2:  forestry  and  logging,  and  A3:  Fishing  and 
aquaculture, thus covering the entire Agriculture, forestry, and fishing (A) section. There 
are also several manufacturing related industries at the division level. An exception in 
this regard is manufacturing of medical equipment and suppliers, associated with division 
group  or  level  3  NACE  codes,  such  as  C32.5:  Manufacture  of  medical  and  dental 
instruments  and  suppliers;  and  C26.2:  Manufacture  of  irradiation,  electromedical  and 
electrotherapeutical  equipment.  The  NACE  codes  corresponding  to  production,  and 
transmission and distribution of electricity, are at the highest level of granularity with level 
4 class codes associated with these two industries.  

To determine the economic relevance of these sub-sectors and as such approximate 
the potential economic implications of the materialization of the BES risk, an indicator 
was  computed  that  considered  the  significance  of  these  sub-sectors  in  terms  of 
investments, employment and gross value added. These are also reflected by Table 3-
1A in the Annex. This indicator was computed, using the formula below, as the equally 
weighted sum (or average) of their relative share in total investments, employment and 
gross value added associated with affected subsectors, respectively. Investments were 

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with biodiversity loss and ecosystem degradation 

assessed through gross capital formation, that refers to resident producers’ investments, 
deducting disposals, in fixed assets thar are used in the production of other goods and 
services for a period of more than a year.215 The secondary data used for this part of the 
analysis  was  based  on  the  Eurostat  national  account  databases  (for  gross  capital 
formation, and gross value added) and structural statistics (for employment). 

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐵𝐵𝐸𝐸 𝑆𝑆𝑆𝑆𝑟𝑟𝑆𝑆𝑑𝑑𝐼𝐼𝐷𝐷𝑆𝑆𝑆𝑆 𝑑𝑑𝐷𝐷𝑑𝑑𝑑𝑑𝑆𝑆𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆

=

+

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑑𝑑𝐷𝐷𝑑𝑑𝑆𝑆𝑆𝑆𝑆𝑆𝐼𝐼𝑆𝑆𝐷𝐷𝑆𝑆
𝐼𝐼𝐷𝐷𝑑𝑑𝑆𝑆𝑆𝑆𝑆𝑆𝐼𝐼𝑆𝑆𝐷𝐷𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜𝐼𝐼𝑟𝑟𝑟𝑟 𝑆𝑆𝐸𝐸𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆

∗ 0.33

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑑𝑑𝐼𝐼𝑟𝑟𝑆𝑆𝑆𝑆 𝐼𝐼𝑑𝑑𝑑𝑑𝑆𝑆𝑑𝑑
𝐺𝐺𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑑𝑑𝐼𝐼𝑟𝑟𝑆𝑆𝑆𝑆 𝐼𝐼𝑑𝑑𝑑𝑑𝑆𝑆𝑑𝑑 𝑆𝑆𝑜𝑜𝐼𝐼𝑟𝑟𝑟𝑟 𝑆𝑆𝐸𝐸𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆

∗ 0.33

+

𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝐼𝐼𝐼𝐼𝑟𝑟𝑆𝑆𝐷𝐷𝐼𝐼𝑆𝑆𝐷𝐷𝑆𝑆
∗ 0.33
three  dimensions  of  economic  relevance  allows 
𝐵𝐵𝐼𝐼𝐼𝐼𝑟𝑟𝑆𝑆𝐷𝐷𝐼𝐼𝑆𝑆𝐷𝐷𝑆𝑆 𝑆𝑆𝑜𝑜𝐼𝐼𝑟𝑟𝑟𝑟 𝑆𝑆𝐸𝐸𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆𝑑𝑑 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆

for  a  more 
Considering  all 
comprehensive  assessment  of  the  potential  economic  implications  of  possible 
disruptions within each sub-sectors connected to biodiversity and nature dependence or 
impact.  The three  dimensions  are  not  always closely  correlated,  as  illustrated  also  by 
Figure 3-7 that represents the association across the significance of investments and the 
overall economic relevance of sub-sectors. The figure suggests that considering gross 
value added and employment generally raises the economic relevance of most sectors, 
as exemplified by retail sale, automobiles and components, and health care delivery. In 
the  case  of  health  care  delivery,  for  example,  while  the  relative  significance  of 
investments  is  1.74%,  its  overall  economic  significance  is  approximately  4.5%.  A 
significant  exception  in  this  regard  is  real  estate,  where  the  relevance  of  investments 
(29%)  is  somewhat  counterbalanced  by  low  shares  of  employment  (less  than  1%), 
resulting  in  a  relatively  lower  share  of  overall  economic  significance  (of  14%).  Due  to 
these high values, real estate and services is marked as an outlier on Figure 3-7, with its 
real  values  specified  in  the  labelling,  rather  than  on  the  axis,  due  merely  to  reasons 
related to the ease of visualization. 

Figure 3-7 Relative importance of investments and the overall economic relevance of sub-sectors exposed to 
biodiversity and nature risk 

215 European Commission (2023) Glossary: Gross fixed capital formation. Available at 
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Gross_fixed_capital_formation_(GFCF) 

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Outlier: Real Estate 
(29%,14%)

Retail Sale

Health Care Delivery

Construction and 
Engineering

Automobiles and 
Components

Agriculture and Farming

Food and Beverages

r
o
t
a
c
i
d
n
I

e
n
a
v
e
l
e
R

c
i
m
o
n
o
c
E

6%

5%

4%

3%

2%

1%

0%

0%

1%

2%

3%
Investments (GCF)

4%

5%

6%

Source: Trinomics calculations based on data from Eurostat, 2020 and 2021 

Based  on  the  analysis,  the  affected  subsector  with  the  greatest  relevance  for  the  EU 
economy is by far real estate and services, illustrated also by Figure 3-8, that shows the 
ranking of all subsectors according to their EU relevance. As can be seen from this 
figure, the EU economic relevance score ranges from 14% to 0.05% corresponding to 
real estate and services, and metals and mining respectively. Real estate and services 
are then followed by retail sale (4.58%), healthcare delivery (4.42%), construction and 
engineering  (3.38%),  agriculture  and  farming  (2.3%),  food  and  beverages  (1.63%), 
automobiles  and  components  (1.53%)  and  metal  processing  (1.5%).  Given  the 
significance  of  these  sub-sectors  to  the  EU  economy,  in  terms  of  investments,  gross 
value added and employment, the economic/financial implications of the materialization 
of  exposure  to  physical  and/or  transition  risk  could  be  understood  as  similar  in  their 
relative importance. 

Figure 3-8 Ranking of sub-sectors exposed to biodiversity and nature risk based on their EU economic 
relevance 

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0% 2% 4% 6% 8% 10% 12% 14%

Real Estate and Services
Retail sale
Health Care Delivery
Construction and Engineering
Agriculture and Farming
Food and Beverages
Automobiles and Components
Metal processing
Hospitality, Food and Beverage Services
Electronics
Machinery and Equipment
Water and Waste Services / Water Utilities

Media and Communication / Digital…
Household and Personal Products
Hotels and Lodging / Accommodation
Chemicals (and Biofuels)
Biotechnology and Pharmaceutics
Textiles, Apparels, Footwears and Accessories;
Construction Materials
Energy Production
Pulp and Paper products
Forestry
Medical equipment and supplies
Air Transportation
Water Transportation
Transmission and Distribution
Oil and Gas - Mid and Downstream
Fishing and Aquaculture

Leisure Activities / Environmental protection…

Oil and Gas
Metals and Mining

Source: Trinomics calculations based on data from Eurostat, 2020 and 2021 

It is important to keep in mind that the financial materiality of exposure to nature-related 
risks across (sub)sectors will most likely be different for financial institutions than it is for 
the EU economy, and will differ considerably across financial institutions, depending on 
the  sectoral  composition  of  their  portfolios.  Additionally,  the  financing  activities  of 
financial  institutions  from  the  EU  cover  industry  activities  globally  and  are  therefore 
exposed to different locational and global inter-sectoral aspects of exposure to nature-
related  risks.  The  lack  of  adequate  data  at  the  global  level  would  therefore  pose 
additional  challenges  to  financial  institutions,  that  could  be  assessed  through  less 
granular approaches, and thus generate additional uncertainties. 

3.3.1. 

Significance of exposure score 

The final score assessing and ranking the significance of exposure to biodiversity and 
nature risk is calculated as a weighed multiplicative score with two components – the 
overall biodiversity and nature related risk score and EU economic relevance indicator - 
calculated through the previous stages of the analysis. This is in contrast with the additive 
calculation  approach  employed  for  assessing  the  overall  biodiversity  and  nature  risk 
exposure score. The concept and logic of this approach is that a score constructed as 
multiplication would correctly 'ignore' sectors which are either not exposed to biodiversity 
and  nature  related  risk  (BES),  i.e.  BES_risk  =  0  (regardless  of  their  EU  economic 

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relevance),  and  will  also  correctly  disregard  sectors  which  are  of  no  EU  economic 
relevance, i.e. EU economic relevance indicator = 0 regardless of their biodiversity and 
nature risk. At the same time, sectors which are both 'risky' and 'economically relevant' 
would get the highest score. This is what is naturally required from the EU relevance-
adjusted score. 

𝑆𝑆𝑑𝑑𝑆𝑆𝐷𝐷𝑑𝑑𝑜𝑜𝑑𝑑𝑆𝑆𝐼𝐼𝐷𝐷𝑆𝑆𝑆𝑆 𝑆𝑆𝑜𝑜 𝑆𝑆𝐸𝐸𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 =   𝐵𝐵𝐵𝐵𝑆𝑆 𝑆𝑆𝑑𝑑𝑆𝑆𝑅𝑅 𝑆𝑆𝐸𝐸𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 ^𝐼𝐼 ∗  𝐵𝐵𝐸𝐸𝑆𝑆𝑆𝑆𝑆𝑆𝐷𝐷𝑆𝑆𝐼𝐼𝑑𝑑𝑆𝑆 𝑆𝑆𝑆𝑆𝑟𝑟𝑆𝑆𝑑𝑑𝐼𝐼𝐷𝐷𝑆𝑆𝑆𝑆 𝑑𝑑𝐷𝐷𝑑𝑑𝑑𝑑𝑆𝑆𝐼𝐼𝑆𝑆𝑆𝑆𝑆𝑆 ^𝑆𝑆 
As  noted  earlier,  the  BES  risk  exposure  score  varies  between  2  and  8,  while  the  EU 
economic relevance indicator varies between 0.05% and 14%. This is also indicated by 
Figure 3-9 that maps the biodiversity and nature risk exposure scores and EU economic 
relevance  indicator  for  the  affected  sub-sectors.  Knowing  the  ranges  is  important  for 
exponentiation  to  make  sure  that  a  higher  initial  value  corresponds  to  a  higher 
exponentiated value. A similar remark made on the weighting used for the biodiversity 
and nature related risk score is valid here: selection of a specific set of weights might 
require an inclusive consultation process with the broad group of stakeholders, which is 
beyond the scope of the project. For the purposes of the illustration of the methodology, 
we have tested the weights of “a” between one and six, while keeping the “b” weight fixed 
at the value of one. The variation in the relative significance of a and b, allows for granting 
greater or lesser importance to the BES risk exposure score relative to the EU economic 
relevance indicator.  

Figure 3-9 Mapping BES Risk Exposure Scores and EU Economic Relevance Indicators for the affected sub-
sectors 

r
o
t
a
c
i
d
n
I

e
c
n
a
v
e
l
e
R

c
i
m
o
n
o
c
E
U
E

16%

14%

12%

10%

8%

6%

4%

2%

0%

Real Estate and 
Services

Health Care 
Delivery

Agriculture and 
Farming

Construction and 
Engineering 

0

1

2

3

4

5

6

7

8

BES Risk Exposure Score

Source: Trinomics calculations based on data from Exploring Natural Capital Opportunities, Risks and Exposure 
(ENCORE), and Eurostat, 2020 and 2021. 

The results of the baseline estimation, based on a proportional importance attached to 
BES  risk  exposure  score  and  EU  economic  relevance  indicator  (a=1  and  b=1)  are 
presented in Figure 3-10. This also corresponds a BES risk estimation score that grants 

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α

β=0

 =0.7) and relatively lower importance to the 
greater importance to the average score (
broadness  of  the  evaluation  (
.3).  As  can  be  seen  in  the  figure,  the  sub-sector 
attached to the most significant exposure is Real Estate and Services. The top quartile 
– including the most significantly exposed industries - also includes Construction 
and Engineering, Health Care Delivery, Agriculture and Farming, Food and Beverages, 
Metal  Processing,  and  Machinery  and  Equipment.  The  significant  exposure  of  these 
sectors within the EU context are largely determined by their economic significance in 
terms  of  investment,  employment,  or  production  value.  The  real  estate  sector,  for 
example, absorbed 29% of the total gross capital formation of the EU in 2021.  216 Real 
estate and health care also stand out with respect to their contribution to the total EU 
gross value added, with 11% and 5% respectively.217 While their BES risk exposure is 
lower than of other sectors, materialisation of BES risks could have a significant impact 
on the EU economy and financial system. The case studies of these sectors – as part of 
Section 3.4. - further elaborate on the significance of their ties with financial institutions 
and on the pathways through which the exposures of these sectors to nature related-
risks can affect banks, investment funds, insurance companies. 

Figure 3-10 Ranking of sub-sectors based on the significance of the exposure score 

216 Eurostat (2021): Gross capital formation by industry. 

217 Eurostat (2021): National accounts aggregates by industry. 

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0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

Real Estate and Services
Construction and Engineering
Health Care Delivery
Agriculture and Farming
Food and Beverages
Metal processing
Machinery and Equipment
Electronics
Hospitality, Food and Beverage Services
Water and Waste Services / Water Utilities
Automobiles and Components
Household and Personal Products
Media and Communication / Digital Communication
Biotechnology and Pharmaceutics
Hotels and Lodging / Accommodation

Textiles, Apparels, Footwears and Accessories;…

Chemicals (and Biofuels)
Construction Materials
Energy Production
Forestry
Pulp and Paper products
Water Transportation
Air Transportation
Transmission and Distribution
Oil and Gas - Mid and Downstream
Fishing and Aquaculture
Metals and Mining
Oil and Gas

Leisure Activities / Environmental protection and…

Source: Trinomics calculations based on data from Exploring Natural Capital Opportunities, Risks and Exposure 
(ENCORE), and Eurostat, 2020 and 2021. 

The significance of exposure score demonstrated robustness in the sensitivity check 
that entailed experimenting with different weights. Firstly, the set of top seven sectors, 
corresponding to the top quartile, did not change significantly when the relative weights 
associated with the depth and breadth of the biodiversity and nature related risk 
assessment score (the values of α and β) changed (for both “a” weight of one and six). 
This resulted only in the substitution of machinery and equipment with health care and 
delivery, as the latter is evaluated across more ecosystem services and drivers, than 
the former. Secondly, the change in the “a” weight from one to six has also led to a 
change by only one sector in a set of top seven sectors (regardless of the 70-30 or 50-
50 weights used in the underlying sector score calculation). This reveals that when EU 
economic relevance is given less importance, water and waste services acquire greater 
relevance due to their relatively greater exposure to biodiversity and nature related risk 
as the general level. Overall, however, the results are quite robust, and this 
replacement occurs at a later stage (at a=4) of the rebalancing of importance across 
the two main components of the Significance of Exposure Score. The results of these 
different weighs used in the computation of the overall significance of exposure score 
are captured by Table 3-5. 

Table 3-5 Robustness check of the ranking of sub-sectors based on their overall significance of exposure 
score 

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Significance of 
exposure score  

Significance of 
exposure score  

Significance of 
exposure score  

Significance of 
exposure score  

(α =0.7 and β =0.3, 
a = 1 and b =1) 

(α = 0.5 and β =0.5, 
a = 1 and b =1) 

(α = 0.7 and β =0.3, 
a = 6 and b =1) 

(α = 0.5 and β =0.5, 
a = 6 and b =1) 

Industry 

Score 

Industry 

Score 

Industry 

Score 

Industry 

Score 

Real estate 
and services 

Construction 
and 
Engineering 

0.682 

0.211 

Real estate 
and services 

Construction 
and 
Engineering 

0.608 

Agriculture 
and Farming 

3,978 

0.202 

Real Estate 
and Services 

2,121 

Health Care 
Delivery 

0.205 

Health Care 
Delivery 

0.164 

Agriculture 
and Farming 

Food and 
Beverages 

0.171 

0.090 

Agriculture 
and Farming 

Food and 
Beverages 

0.156 

0.083 

Metal 
Processing  

0.078 

Metal 
Processing  

0.075 

Construction 
and 
Engineering 

Food and 
Beverages 

Health Care 
Delivery 

Water and 
Waste 
Services 

Machinery 
and 
Equipment 

0.066 

Machinery 
and 
Equipment 

0.063 

Metal 
Processing 

2,015 

462 

435 

369 

303 

Agriculture 
and Farming 

Construction 
and 
Engineering 

Real Estate 
and 
Services 

Food and 
Beverages 

Metal 
Processing 

Water and 
Waste 
Services 

Machinery 
and 
Equipment 

2,359 

1,517 

1,063 

287 

240 

232 

205 

Source: Trinomics calculations based on data from Exploring Natural Capital Opportunities, Risks and Exposure 
(ENCORE), and Eurostat, 2020 and 2021. 

The  presented  analysis,  however,  also  has  some  important  limitations.  The 
methodological  approach,  for  example,  fails  to  consider  inter-sectoral  (value  chain) 
linkages and locational aspects of the exposure to biodiversity and nature related risk in 
a  systematic manner. Industries,  however,  can  be  exposed  to  biodiversity  and  nature 
related  risks  not  only  through  their  direct  industrial  processes,  captured  through  the 
ENCORE tool, but also through the operations up and downstream in their supply chains. 
The exposure of the real estate sector, for example, is also affected by the nature related 
physical  and 
risks  associated  with  construction  and  engineering, 
manufacturing  of  construction  materials  and  of  construction  equipment,  but  even 
forestry,  that  provide  essential  supplies  to  the  development  and  maintenance  of  real 
estate  assets.  Agriculture  and  farming  influences  industries  upstream,  through  the 
provision of key ingredients to food and beverage manufacturing, for example, but even 
food  and  beverage related  hospitality  services. Finally,  health  care  delivery,  is  greatly 
exposed to nature related risks in pharmaceuticals and biotechnology, manufacturing of 
medical equipment and supplies, etc. 

transition 

Additionally, the significance of exposure of industries to physical and transition risk is 
expected  to  vary  considerably  across  the  geographical  specificities  and  regulatory 
contexts  associated  with  the  locations  where  most  of  the  production  of  goods  and 
services takes place. The real estate sector, for example, is more exposed to destruction 
of or damage to real estate assets in geographical areas that have a higher likelihood to 
be affected by drought, flooding, wildfires, or natural catastrophes, and/or where building 
regulations  are more  stringent.  Its  exposure  to  biodiversity  and  nature  impact risk  will 

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also  be  much  more  significant  in  surroundings  close  to  biodiversity  sensitive  areas, 
where they could cause more significant damage and face significant reputational risks, 
especially  in  countries  with  more  active  environmental  organizations  that  can  monitor 
and signal negative impact on such biodiversity hotspots. 

These  inter-sectoral  and  geographical  aspects  will  have  to  be  factored  in  by  financial 
institutions in a more systematic manner. The next section – Section 3.4. will provide an 
illustration  of the  relevance  of the  inter-sectoral  and  of  locational  factors for three  key 
sectors  from  the  list  of  most  materially  exposed  sub-sectors:  real  estate  (and 
construction), agriculture and farming, and health care delivery. Considering the strong 
interlinkages between real estate and construction (the second most materially exposed 
sub-sector on Figure 3-10), it will be integrated in the real estate sector analysis, through 
the inter-sectoral considerations. Similarly, the deeper analysis of the two other selected 
sub-sectors– agriculture and health care – the other materially exposed sectors will be 
given further attention though the analysis of nature-related risks that they are interlinked 
with through the inter-sectoral linkages. The analysis catered around these three sub-
sectors can then serve as the basis for the formulation of some recommendations on 
how to approach this in a more systematic manner as part of Task 3.  

3.4.  Transmission and mitigation mechanisms in most 

exposed (sub)sectors 

This  section  consists  of  a  series  of  three  case  studies  focusing  on  three  most 
materially exposed sub-sectors: real estate, agriculture and farming, and health care 
delivery to address key gaps of the overall analysis and provide further guidelines for 
the development of a systematic approach by financial institutions. The analysis for 
each  sub-sectors  is  focused  upon  and  organized  around  the  following  four  key 
dimensions: 

Key features of each sub-sector, including its ties to financial institutions; 

Deeper analysis of biodiversity and nature related risks that it is exposed to, including 
an analysis of hidden risks associated with sub-sectors and locations that they are 
interlinked with; 

Key  transmission  channels  through  which  the  biodiversity  and  nature  related  risks 
associated with the sub-sector can impact financial institutions;, and 

Mitigation measures that could be adopted to prevent and minimize exposure to these 
risks. 

In this section, we analyze the nature and biodiversity related risks in more detail within 
our  identified  most  materially  exposed  (sub)  sectors/industries.  The  assessment 
conducted focuses on getting a comprehensive overview with a purpose to discern the 
intricate interplay of locational and inter-sectoral (value chain) dimensions that shape the 

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exposure  of  these  sectors.  By  delving  into  this,  we  aim  to  unravel  the  underlying 
dynamics  that  influence  how  transition  and  physical  risks  (and  systemic  dimensions) 
manifest  as  financial  risks  across  sectors.  The  analysis  therefore  also  entails  an 
examination  of  the  key  transmission  channels  and  mitigation  mechanisms  that  steer 
sectoral  exposure  towards  these  diverse  risk  categories,  forming  an  essential  bridge 
between economic sectors and financial institutions.  

For the three most relevant sectors identified for the European context – Real estate and 
Construction,  Agriculture  and  Farming,  and,  Healthcare  and  Pharmaceuticals  –  we 
assess  the  key  features  that  define  the  sector,  and  its  connection  to  nature  and 
biodiversity  resources.  We  assess  how  biodiversity  and  nature  risks  are  linked  to  the 
main  processes  and  operations  and  delve  deeper  into  possible  locational  aspects  of 
these  risks.  We  also  attempt  to  identify  and  further  elaborate  on  the  key  sectoral 
transmission channels noting that both Task 1 findings and the literature review for Task 
2, that focused on sector level analysis, have indicated that substantial data gaps exist 
in this realm. Finally, we provide an overview of recommended mitigation measures that 
are most feasible considering the current understanding, disclosure, and integration of 
nature-related risks in the sector. 

3.4.1.  Sub-Sector 1: Real Estate  

3.4.1.1.  Key features of the real estate and construction 

sector 

The  real  estate  sector  refers  to  a  whole  range  of  economic  activities  related  to  the 
design, development, even demolition, as well as acquisition, renting and operating, and 
other services associated with residential or non-residential buildings, civil engineering 
projects and related installations. Real estate development, services, and operations is 
reliant  on  construction  and  engineering,  but  also  the  manufacturing  of  construction 
materials and machinery, that are therefore an important part of the real estate supply 
chain.  These  are  economic  areas  that  were  identified  as  exposed  sub-sectors,  as 
reflected  by  Table  3-2,  with  real  estate  and  construction  among  the  most  materially 
exposed sectors from the perspective of the EU economy, as can be seen in Figure 3-
10. 

These activities play an important role in the EU’s economy. Real estate and services 
contribute to approximately 11 percent of gross value added (GVA) generated in the EU, 
as can be seen also in Table 3-6, representing one of the key sectors in the EU economy. 
The  significance  of  construction  and  engineering,  manufacturing  of  construction 
materials and of machinery and equipment, that would also cover construction materials, 
is  more  modest,  at  a  total  of  approximately  1.5-2%.  The  relevance  of  the  real  estate 
sector is even more substantial in terms of its role in the accumulation of fixed assets 
(GFA)  within  EU,  that  are  often  financed  through  external  sources,  indicating  the 
importance  of  ties  to  the  financial  sector.  This  is  also  true  for  construction  and 
engineering,  that  is  integrated  into  real  estate  development.  Construction  and 

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engineering also employ a significant part of the EU workforce, at almost 7 percent. The 
relevance of real estate and services, and of manufacturing of construction materials, is 
more modest in this regard, at 0.60 and 0.83%, respectively. 

Table 3-6: Significance of real estate and construction for the EU economy – as share in EU total 

Construction Materials (C32) 

Machinery and Equipment (C28) 

Real Estate and Services (L68) 

Construction and Engineering 
(F41) 

Source: Eurostat, 2020 and 2021. 

Investments 
(GCF) 

Employment 

Production 
(GVA) 

0.12% 

0.38% 

29.29% 

0.60% 

1.62% 

0.83% 

0.58% 

1.75% 

11.25% 

2.59% 

6.68% 

0.98% 

The relative importance of real estate and services sectors – in terms of share in total 
value added – is particularly significant in the southern European countries of Greece 
(16%),  Italy  (14%),  Portugal  (13%),  France  (13%),  Spain  (13%).  It  has  a  lower 
significance  in  Poland,  Ireland,  Malta,  and  Lithuania,  at  around  6%,  where  other 
economic sectors play a more prominent role.218 

The  real  estate  and  construction  sector  has  strong  ties  to  financial  institutions,  as 
demonstrated also by the 2008 global financial crises. The financial sector, especially 
banks,  have  a  primary  role  in  financing  real  estate  investments.  Bank  mortgage  loan 
portfolios  exceed  200% of  banks’  Common  Equity  Tier  1  (CET1)  capital in  most  euro 
area countries, and loans to companies engaged in real estate activities are also of great 
significance across several EU member states.219 Additionally, real estate properties are 
a very important form of storage of wealth for households, asset owners and managers. 
The  investment  opportunity  presented  by  the  real  estate  debt  market,  for  example,  is 
significant in Europe, with nearly 1000 billion Euros available in the mid-2010s.220  

Investing in real estate presents challenges that do not exist in capital markets, as the 
maximization  of  the  property’s value  can  be  affected  by  damage,  tends  to  deteriorate 
over time, and is also more difficult to sell. Investors therefore channel funds towards 
several types of properties, with different risks associated with them. When it comes to 
real estate in riskier areas – as for example those more exposed to flooding, to fire or 
extreme  weather,  investments  are  often  conditional  on  proper  insurance  coverage. 
Insurance  companies  worldwide  have  been  underwriting  property  risks  for  centuries, 
tracing  their  origins  to  property  risks  posed  by  fires.  In  2019,  approximately  8%  of  all 
premiums  and  around  6%  of  claims  paid,  amounting  to  1254  and  997  billion  Euros 
respectively, were related to insurance that protect property against risks such as fire, 
theft  and  weather  damage.221  Today,  however,  insurers  also  invest  in  real  estate  – 

218 Source: Eurostat. National accounts aggregates by industry (up to NACE A*64) [NAMA_10_A64__custom_6799575] 
219Lang, Hannes Jan ; Markus Behn, Barbara Jamulska and Marco Lo Duca (2022) : Real estate markets, financial 
stability and macroprudential policy; ECB Macroprudential Bulletin. Source: https://www.ecb.europa.eu/pub/financial-
stability/macroprudential-bulletin/html/ecb.mpbu202210_1~53d521bde7.en.html 
220 Berckel, Gerard-Jan : The Evolution of Real Estate and real assets investment by insurers. Available at : 
https://www.aon.com/unitedkingdom/insights/evolution-of-real-estate.jsp 
221 Insurance Europe (2019) : European Insurance in Figure : 2019 data. Available at : 
https://insuranceeurope.eu/publications/689/european-insurance-in-figures-2019-data/ 

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whether  in the  form  of  equity  or  debt  – to maximize  their  portfolio  yields222, albeit  this 
percentage  is  still  relatively  low  –  of  approximately  1  %  in  their  total  investment 
portfolio.223  

3.4.1.2.  Biodiversity and nature related risks 

Physical Risk 

The direct dependence of real estate and services is relatively low (at an aggregate score 
of 2), but real estate development is also exposed indirectly through the higher levels of 
ecosystem service dependence in construction and engineering (2.7) and manufacturing 
of  construction  materials  (2.7).  Real  estate  development,  for  example,  is  highly 
dependent  on  surface  and  ground  water,  as  can  be  seen  from  Figure  3-11.  This  is 
particularly problematic in locations exposed to drought and climate change. According 
to recent analysis, for example, drought hazard has been increasing across several EU 
member states, including countries where the economic relevance of real estate is very 
significant, such as Italy, Spain, and Portugal.224 These countries exposed to extreme 
temperatures are also often the most exposed to forest fires. 

Figure 3-11 - Biodiversity and nature related dependencies and impacts (imp) in Real estate and Services  

Groundwater

3

Solid waste (imp)

4

Air pollution (imp)

3

Soil pollution (imp)

Water pollution (imp)

3

3

5

4

3

2

1

0

Surface water

4

Bio-remediation

2

Filtration

1

Mediation of sensory
impacts
2

GHG emissions (imp)

4

Terrestrial ecosystem
use (imp)

5

1

Flood and storm
protection
2
Mass stabilisation and
erosion control

222 Appicelli, Frank (2020) : Insurance Company High-Yield Real Estate Investments : Available at : 
https://www.carltonfields.com/insights/expect-focus/2019/insurance-company-high-yield-real-estate-invesmen 
223Insurance Europe (2021) European insurance : Preliminary figures 2021. Available at : 
https://www.insuranceeurope.eu/publications/2674/european-insurance-preliminary-figures-
2021/download/Preliminary+figures%202021.pdf 
224 European Commission (2022) Drought in Europe : August 2022. GDO Analytical report. Available at : 
https://edo.jrc.ec.europa.eu/documents/news/GDO-EDODroughtNews202208_Europe.pdf 

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Source: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) 

Water  related  ecosystem,  such  as  water  flow  maintenance,  is  also  relevant  for 
construction  by  enabling  the  production  process and  preventing  disruptions.   Habitats 
provide  essential  protection  from  flood  and  storms  by  the  sheltering  and  attenuating 
effects  of  natural  and  planted  vegetation.  They  also  contribute,  along  with  other 
ecosystem services, to mass stabilization and erosion control, that is especially important 
in coastal areas and on slopes. Additionally, they can contribute to climate regulation, as 
for example, vegetation can modify temperature, humidity and even wind speeds. These 
affect construction and engineering, albeit at different levels of materiality, as shown on 
Figure 3-12.  

Figure 3-12 – Biodiversity and nature related dependencies in Construction and Engineering   

Pest control

1

Mass stabilisation
and erosion control

3

Flood and storm
protection

4

Groundwater

5

3

4

3

2

1

0

Surface water

3

Soil quality

2

Ventilation

1

3
Water flow
maintenance

Climate regulation

4

3

Mediation of sensory
impacts

2

Bio-remediation

2
Filtration

Source: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) 

Dependence is, once again, very high for the manufacturing of construction materials, 
as shown by Figure 3-13. Water constitutes an essential direct physical input for mortar, 
mixing of cement concrete and for curing works during construction. The quality of water 
can  thus  significantly  enable  (or  undermine)  the  production  process  of  construction 
materials.  

Figure 3-13 – Biodiversity and nature related impacts and dependencies in Construction Materials   

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Groundwater

5

Disturbances (imp)

4

Solid waste (imp)

4

Air pollution (imp)

3

Water pollution (imp)

3

5

4

3

2

1

0

Surface water

5

Water quality

2

2

Dilution by
atmosphere and
ecosystems

4

Marine ecosystem
use

GHG emissions (imp)

4

Terrestrial ecosystem
use

5

4
Water use

Freshwater
4
ecosystem use

Source: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) 

Transition Risk 

The exposure of real estate and constructions to biodiversity and nature related risk is 
more significant through its impacts than through its dependence on nature. The overall 
impact score of real estate is of moderate materiality (score of 3, relative to dependence 
score  of  2),  but  exposure  is  once  again  more  significant  through  construction  and 
engineering (impact score of 6.2) and construction materials (score of 6). 

Developing and operating real estate can result in clearing and degradation of habitats, 
that  can  bring  about  the  loss  of  biodiversity  and  of  construction  sites  in  surrounding 
areas. The use of vehicles and heavy machinery can also cause soil compaction, that 
can harm the growth of vegetation. Additionally, construction can lead to flooding as hard 
surfaces reduce the ability of the land to absorb rainwater. Transportation connected to 
real  estate  sector,  particularly  during  development,  often  lead  to  significant  GHG 
emissions and air pollution. The latter can result from using fossil fuels, spills of diesel, 
paints,  solvents,  or  other  toxic  materials,  that  can  also  pollute  water  and  soil.  The 
locational aspects become relevant in terms of regulation, as requirements regarding the 
disposal of toxic construction waste products is less stringent in some parts of the world 
or are less enforced, even within the EU. This to some extent applies to the production 
and recycling of solid waste as well. Real estate and services can be associated with 
high volumes of solid waste, including glass, metal, paper, wood, but even in the forms 
of products, such as office equipment or apartment furniture. The intensity of the impact 
of real estate and services on these dimensions is shown by Figure 3-11. 

Construction can also result in the clearing and degradation of habitats, risk of flooding, 
and soil compaction, leading to significant impact on terrestrial, marine, and freshwater 
ecosystems. It also has significant impact on GHG emissions, water use, generation of 

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solid  waste,  air  and  soil  pollution,  and  disturbances,  at  high  levels  of  materiality,  as 
captured  by  Figure  3-14.  Producing  construction  materials  can  result  in  significant 
destruction  of  terrestrial  ecosystems,  through  the  removal  of  vegetation  and  soil 
excavation, that modifies habitats, and/or lead to loss of species, soil erosion and land 
degradation.  Pits  and  quarries  disrupt  the  existing  movement  of  surface  and 
groundwater,  with  implications  on  the  quantity  and  quality  of  water  available  across 
specific locations. It also relies on the use of significant amounts of water – estimated at 
around 100-600 litres per tonne per clinker produced in the manufacture of cement225, 
with  the  specific  amount  depending  largely  on  the  type  of  cement  line  technology 
used.226Similarly, brick production uses significant amounts of water to create consistent 
and mouldable clay for firing. Manufacturing of construction materials is also associated 
with substantial GHG emissions, contributing to the overall footprint of buildings. Cement 
manufacture,  for  example,  contributes  to  N2,  O2,  SO2  emissions,  as  well  as  the 
formation  of  water  vapours  and  formation  of  micro-components  (CO  and  NOx).  The 
predominant  part  of  CO2  emissions  result  from  the  high  temperatures  used  in  the 
production  of  lime.  Finally,  the  manufacturing  of  construction  materials  leads  to  the 
generation of a significant amount of waste and noise pollution. 

Figure 3-14 – Biodiversity and nature related impacts in Construction and Engineering 

Disturbances

4

Solid waste

4

Marine ecosystem
use

5

Terrestrial ecosystem
use

5

Freshwater
ecosystem use

4

5
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0

Air pollution

4

4

Water use

Soil pollution

4

4

GHG emissions

3
Water pollution

Source: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) 

Transmission channels 

Financial  institutions  have  no  material  direct  dependence  or  impact  on  BES  but  are 
significantly  exposed  to  biodiversity  and  nature  related  risks  indirectly,  through  for 

225 Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE), available at: 
https://encore.naturalcapital.finance/en/explore?tab=dependencies;  

226 César Valderrama, Ricard Granados, José Luis Cortina, Carles M. Gasol, Manel Guillem, Alejandro Josa, Implementation of best available techniques 
in cement manufacturing: a life-cycle assessment study, Journal of Cleaner Production, Volume 25, 2012, Pages 60-67, ISSN 0959-6526, 
https://doi.org/10.1016/j.jclepro.2011.11.055. 

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Study for a methodological framework and assessment of potential financial risks associated 
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example,  their  close  ties  to  the  real  estate  sector.  The  physical  and  transition  risks 
associated with the sector can lead to significant decline in the value of properties and 
their  ability  to  generate  income,  as  for  example  through  reduced  rental  income  and 
limited  resale  opportunities.  Rising  insurance  premiums  and  additional  maintenance 
costs,  can  increase  operational  costs,  reducing  profit  margins.  Finally,  significant 
investments,  as  for  example,  in  flood  or  wildfire  defences  can  limit  returns  on 
investments. These can be particularly prominent in vulnerable areas characterized by 
fragile habitats and/or areas characterized by extreme temperatures. The exposure of 
financial institutions to nature-related risks associated with real estate development and 
services,  can  therefore  be  very  significant  through  either  of  the  main  transmission 
channels identified in section 2.2.3.  

The transmission of these nature-related risks to financial institutions can also take place 
a larger scale, as physical and/or transition risks affect entire locations. Recent history 
has shown that the real estate sector is closely linked to financial stability. This is perhaps 
best illustrated by the onset of the 2009 financial crisis, when a cascading of foreclosures 
and  defaults  crashed  the  housing  market,  with  major  implications  on  credit  lending 
institutions  and  the  financial  securities  that  backed  up  subprime  mortgages.  Such 
widespread effects can also result from exposure to nature-related risks that affect real 
estate rentability, insurance and ability to pay back loans. Natural hazards exacerbated 
by climate change pose risks to the stability of real estate prices and financial institutions, 
especially  in  areas  exposed  to  extreme  weather conditions227,  as  climate  change  can 
affect ecosystem services through the onset of floods, drought, and wildfires, leading to 
a cascading impact on sectors dependent upon BES.   

In  the  southern  part  of  Europe,  for  example,  especially  in  the  Mediterranean  basin 
including  Italy,  Spain,  Greece  and  Portugal,  wildfires  have  grown  more  prominent, 
destroying  property,  and  generating  significant  losses  in  real  estate.  These  are 
sometimes further accentuated by the planting of highly flammable mono-cultures, such 
as eucalyptus, that is relevant for the paper industry. Onsets of floods and of wildfires in 
specific areas, can bring about significant declines in the value of properties and a shift 
in demand, with a significant impact on the entire sector and financial institutions funding 
mortgages  and  investing  in  real  estate  developments  in  these  areas.  The  costs  of 
maintaining  and  operating  property  in  these  areas  more  exposed  to  climate-related 
natural risks are also increasing, through increased usage of water to keep things cool, 
more significant repair bills, and a significant increase in insurance premiums.  

Climate  change  related  natural  hazards  can  also  bring  about  a  cascading  effect  of 
transition risks, as for example public policies change to address these challenges. New 
rules regarding building structures, urban drainage, green spaces, and wetland creation, 
for example, can also have major impact on real sector in areas where the internalization 

227 Gourevitch, J.D., Kousky, C., Liao, Y.(. et al. Unpriced climate risk and the potential consequences of overvaluation 
in US housing markets. Nat. Clim. Chang. 13, 250–257 (2023). https://doi.org/10.1038/s41558-023-01594-8. Available 
at: https://www.nature.com/articles/s41558-023-01594-8 

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of these costs can influence property values, with implications on financial institutions as 
well.228  

While these transmissions at larger scales are also possible within the real estate sector, 
these build on the same transmission channels as at a more micro scale linked to credit, 
underwriting, market and liquidity risks. 

Credit risk 

Credit institutions are particularly exposed to this sector via credit risk on loans.229 The 
realization  of  the  physical  risk  drivers,  especially  their  manifestation  at  a  larger 
geographical scale, as for example with respect to climate-related natural hazards, can 
lead to significant damage to the value of assets, and consequently the debtor’s wealth 
and ability to repay its credits. The physical risk drivers can also reduce the cash flows 
of  the  affected  properties,  as  for  example  through  their  sale  and  renting,  with  major 
implications  on  the  abilities  of  real  estate  companies  to  repay  credits.  There  is  for 
example significant empirical evidence of property values decline because of drought, 
flooding, and wildfires, with implications on the predicted probability of default as well as 
on increasing non-performing asset ratios and lowering bank equity ratios.230 But credit 
risks are also closely linked to biodiversity and nature related transition risk, especially 
as  the  EU  and  several  member  states  are  becoming  more  and  more  aware  and 
ambitious  regarding  the  importance  of  limiting  negative  impact  on  biodiversity  and 
ecosystem degradation, with the new regulations and policies often imposing significant 
costs on real estate developers and operators, with implications on their ability to repay 
debts. 

The  potentially  negative  influence  of  biodiversity  and  nature  related  risks  on  debt 
repayment is further accentuated by the fact that according to recent data bank lending 
to  the  sector  is  occurring  at  high  loan-to-value  ratios  in  several  EU  member  states, 
making financial institutions providing credit to the real estate sector especially exposed 
to credit risk.231 If the value of the loan collateral decreases, for example, the loan-to-
value ratio goes up, increasing banks’ loss-given default ratios and potentially leading to 
higher  capital  requirements.  This  could  significantly  influence  the  ability  of  banks  to 
provide further credit supply, and as such also relates to operational risks, that will be 
discussed further on in this section. These developments refer primarily to banks, but 
insurance companies increasingly participate in real estate debt investments.  

228 ESRB (2023) : ESRB issues a recommendation on vulnerabilities in the commercial real estate sector in the 
European Economic Area. ESRB Press release from 25 January 2023. Available at : 
https://www.esrb.europa.eu/news/pr/date/2023/html/esrb.pr230125~f97abe5330.en.html 
229 ibid 
230 Basel Committee on Banking Supervision (2021) : Climate-related risk drivers and their transmission channels. Bank 
for International Settlements from April 2021. https://c2e2.unepccc.org/wp-content/uploads/sites/3/2021/04/bis-climate-
related-risk-drivers-and-their-transimission-channels-14-april-2021.pdf 
231 ibid 

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Underwriting risk 

Underwriting risk results from the potential loss borne due to inaccurate assessment or 
the risks associated with insurance policies, including those for property that constitutes 
a  significant  part  of  insurance  premiums  and  claims.  Where  insured  properties  suffer 
nature-related  damage,  insurers may face  increasing  number  and  amounts  of  claims. 
Even  in  the  absence  of  major  catastrophes,  more  gradual  and  slow  deterioration  of 
ecosystems and degradation of biodiversity can also lead to significant rise in the claims 
of  insurance  policies.  This  can  result,  for  example,  from  the  decay  in  nature-based 
prevention against wind, water, or temperature related damage, such as coral reefs or 
wetlands, that leads to significant damage to properties.232 Nature-related physical and 
transition  risks,  can  therefore  lead  to  a  significant  increase  in  insurance  claims, 
exceeding the premiums earned when these have not been properly factored into the 
pricing of insurance policies. 

Market risks 

The  realization  of  biodiversity  and  nature  related  risks  can  bring  about  significant 
changes  in  real  estate  assets  and  rentals,  as  they  cause  damage  or  influence 
maintenance  costs.  The  exposure  of  financial  institutions  to  biodiversity  and  nature 
related  physical  risks  is  not  linked  merely  to  climate  related  natural  hazards,  but  also 
through  other  risk  drivers,  such  as  use  of  terrestrial  and  water  ecosystems,  that  can 
influence asset values through their interference with availability of water, protection from 
flooding and landslides, and climate regulation. Loss in biodiversity can affect the value 
of real estate assets developed and of properties in general, affecting investments and 
the  collateral  value  of  assets  backing  mortgages.233Similarly,  tightening  regulations 
regarding buildings and/or surrounding areas, can also lead to a decline in the value of 
assets and services that are particularly exposed to it, with implications on the investment 
stocks.  Considering  the  significant  role  of  real  estate  in  investments,  such  adverse 
movements  in  prices  would  therefore  greatly  impact  asset  owners  and  managers 
focused on the sector, but also insurance companies through their asset portfolios set 
up to counterbalance liabilities.234   

Liquidity risk 

Buildings are generally relatively immobile and illiquid assets that can’t be moved or sold 
very easily. These features, however, also make them especially vulnerable to nature-
related  risks.  The  strong  linkages  of  financial  institutions  with  the  real  estate  sector 
through  investments  also  influences  their  exposure  to  liquidity  risk.  This  is  primarily 
through the influence on their ability to sell properties quickly and at an adequate price, 
due  for  example,  once  again  through  a  biodiversity  and  nature  related  decline  in  the 

232 European Insurance and Occupational Pensions Authority (EIOPA) (2023) EIOPA Staff Paper on  nature-related 
risks and impacts for insurance. Available at : https://www.eiopa.europa.eu/publications/eiopa-staff-paper-nature-
related-risks-and-impacts-insurance_en 
233 ibid 
234 ibid 

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asset’s  value  or  an  increase  in  the  maintenance  cost,  that  influences  profitability  of 
rentals  or  investment  returns.  The  investors  facing  nature-related  liquidity  risk,  could 
transition into market risk, if financial institutions decide to or are able to hold onto the 
properties,  in  expectation  of  a  future  shift  in  the  value  of  the  assets.  Liquidity  risk  is, 
however,  more  closely  linked  to  the  need  for  refinancing  or  liquidity,  potentially  also 
associated  with  nature  related  reasons  that  cause  net  cash  outflows  or  depletion  of 
liquidity buffers. This could be the case, for example, if incomes decline or maintenance 
costs increase due to nature-related factors, with implications on the amount of savings 
deposited, thus undermining the stability of sources of funding for banks.  

Operational risks 

Operational  risks  refer  primarily  to  disruption  in  business  continuity  and  exposure  to 
reputational  and  liability  risks.  This  could  for  example  refer  to  increased  legal  and 
regulatory compliance costs associated with real estate sector-relevant public policies 
that  seek  to  prevent  or  minimize  nature-related  risks  (eg,  more  stringent  building 
requirements), and as such operational risks is particularly closely linked to biodiversity 
and nature related transition risk. Sometimes, being associated with investees who have 
a  negative  impact  on  nature  can  cause  reputation  risks,  even  in  the  absence  of 
mandatory regulation. Inaction to decarbonise in real estate development, for example, 
could result in the real estate and related financial institutions facing public pressure to 
reduce share of emissions and/or quantity of waste generated.235 Reputational cost can 
transform  into  litigation  risks,  depending  on  the  applicable  regulatory  framework 
regarding real estate across various member states. Legislation regarding disclosure on 
biodiversity-related  risks,  stricter  building  standards,  increase  the  risk  for  operational 
risks  either  directly  or  indirectly,  through  the  counterparts  from  the  real  estate  sector. 
These become operational risks through their potentially negative impact on stakeholder 
and shareholder value.  

3.4.1.1. 

Identifying key mitigation measures  

Mitigation measures to minimize exposure to biodiversity and nature related risk and its 
transformation  into  financial  risk  can  consist  of  both  actions  taken  by  both  financial 
institutions and their counterparts from the real estate sector.  

In  the  real  estate  sector,  nature-related  risk  management  currently  has  a  strong 
emphasis  on  climate  change  considerations.236  This  is  to  a  large  extent  due  to  the 
recognition of dependence on natural assets and ecosystems being associated with the 
realization  that  climate  change  can  bring  about  natural  catastrophes.  There  is  also 
growing awareness that real estate development can have a negative impact on climate 
change  due  to  deforestation,  soil  degradation,  land  use  changes  and  exploitation  of 

235 United Nations Environmental Programme Finance Initiative (UNEPFI) (2023) Climate Risks in the Real Estate 
Sector. March 2023 Climate Change Publications TCFD. Available at : https://www.unepfi.org/wordpress/wp-
content/uploads/2023/03/Real-Estate-Sector-Risks-Briefing.pdf 
236 United Nations Environmental Programme Finance Initiative (UNEPFI) (2023) Climate Risks in the Real Estate 
Sector. March 2023 Climate Change Publications TCFD. Available at : https://www.unepfi.org/wordpress/wp-
content/uploads/2023/03/Real-Estate-Sector-Risks-Briefing.pdf 

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resources. Additionally, nature and biodiversity are often seen an opportunity to achieve 
net  zero  goals.  The  steps  taken  to  address  the  climate-related  natural  risks  and 
opportunities  could  therefore  serve  as  an  important  reference  point  within  efforts  to 
prevent, minimize and potentially offset nature-related risks in the sector.237 

Mitigation measures in the real estate development and services sector can refer to 1) 
assessment of nature related risks affecting real estate development and operations, 2) 
integrating  these  risks  and  potential  costs  into  business  strategies  and  practices,  3) 
adjustments in the design and material selection for new buildings to prevent and reduce 
exposure, 4) retrofitting of existing buildings and infrastructures to minimize exposure, 
and 5) improving comprehensive data collection and reporting regulations, to ensure that 
the progress over time and/or lack thereof is identified and understood.238  

Conducting risk assessments for nature (1) can enable businesses to understand how 
they  are  dependent  and  impacting  biodiversity,  what  they  can  to  do  to  prevent  and 
minimize  negative  impacts.  This  might  influence  decisions  regarding  the  location  of 
future real estate development projects (2), avoiding for example, exposure to high risks, 
such as coastal areas and/or very close to biodiversity sensitive areas. Specific solutions 
to improve the design of new and use of existing assets can rely on the use of nature-
based solutions (NBS), such as sustainable urban drainage, green roofs and walls, urban 
parks and green spaces, street trees, wetland creation, etc.239 During the design phase 
(3), greater attention can also be paid to sustainability aspects, thus ensuring reduced 
waste generation and improved waste management, reduce use and impact on water, 
etc.  Retrofitting  existing  building  to  improve  sustainability  (4),  could  consist  of  using 
nature-based solutions to ensure protection from flooding, soil erosion, ensure natural 
ventilation  and  solar  shading,  etc.  Finally,  the  improvement  of  comprehensive  data 
collection  (5)  refers  to  the  regular  assessment  and  reporting  of  biodiversity  and 
ecosystem-related risks and opportunities by real estate entities so that they would adjust 
their own strategies and risk management approaches accordingly. 

While financial institutions at this point do not seem to apply real estate sector specific 
mitigation measures to address  nature related risks  at  large  scale,  some  adjustments 
could be made to the use of their overall environment-related and/or real-estate focused 
risk assessment strategies. 240 

These could also be grouped in key areas. In a first stage, the mitigation measures could 
consist  in  improved  identification  and  analysis  of  nature-related  risks,  particularly  with 
respect to real estate sector, relying on collection of additional data and use of modern 
technologies. Property insurers, for example, are expected for example, to adopt more 
selective  underwriting  and  increased  adoption  technologies,  such  as  risk  hazard 
mapping  and  arial  imagery,  to  meet  the  challenges  posed  by  Europe’s  increasing 

237 United Nations Environmental Programme Finance Initiative (UNEPFI) (2023) Climate Risks in the Real Estate 
Sector. March 2023 Climate Change Publications TCFD. Available at : https://www.unepfi.org/wordpress/wp-
content/uploads/2023/03/Real-Estate-Sector-Risks-Briefing.pdf 
238 ibid 
239 Savvides, Becca (2023) Why Nature-Related risk management is key to real estate’s climate resilience. UK&I 
Thinking Sustainability. Available at : https://www.cushmanwakefield.com/en/united-kingdom/insights/why-nature-
related-risk-management-is-key-to-real-estates-climate-resilience 
240 European Central Bank (2020) : Guide on climate-related and environmental risks. ECB Publication, November 
2020. Available at : https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.202011finalguideonclimate-
relatedandenvironmentalrisks~58213f6564.en.pdf 

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vulnerability to large-scale losses resulting from flooding, storms, drought, heat waves 
and forest fires.241 In the case of investments into property assets and real estate sector 
in general, initial analysis of potential rates of returns over the long term, should also be 
extended to factor in nature-related risks and opportunities. With respect to banks, due 
diligence  should  also  be  extended  to  collect  relevant  data  on  nature-related  risks, 
including information regarding the adoption of mitigation measures. These should be 
complemented  by  additional  measures  to  monitor  and  report  the  effectiveness  of  the 
financial  entities  to  address  these  risks.  This  could  take  place  at  project,  economic 
activity  and/or  entity  levels.  Nature-related  risk  assessment  disclosure  and  reporting 
frameworks, such as the TNFD, could be a starting point for continuous assessment and 
reporting, at least at the entity level.  

3.4.2.  Sub-Sector 2: Agriculture and Farming  

3.4.2.1.  Key features of the agriculture sector 

The European agri-food sector is pivotal in the European economy and disruptions of 
the underpinning ecosystem services could expose the sector, and most importantly far-
ranging society, to a number of risks. This sector spans activities from crop and livestock 
farming to food product manufacturing, thereby including agriculture, farming, and food 
processing,  packaging,  and  transport,  but  distinctly  stands  apart  from  fisheries  and 
forestry. In 2022, the agri-food sector’s gross added value was estimated at EUR 222.3 
billion,  contributing  1.4%  of  the  EU’s  GDP242.  The  agri-food  industry  provides  an 
estimated 8.7 million people with jobs, accounting for 4.2% of total employment in the 
EU in 2020243.  The sector is deeply complex, since agricultural products are traded in 
large quantities on the global market. Trade in agricultural products has been expanding 
significantly over the past years, with an average annual growth of 5.6%244, consistent 
with the increasingly global and complex supply chains that interconnect the EU with the 
rest of the world. 

Investing in agricultural supply chains and rural areas is crucial to address the growing 
demands and challenges surrounding food security. The CAP remains one of the largest 
public investment tools in the EU budget. For the period of 2021-2027 EUR 378 billion 
was made available to the CAP, representing 31% of the total EU budget245. The sector 
is  generally  characterized  by  low  and  fluctuating  profits  margins  and  cash  flows, 
combined with intrinsic risks related to animal disease, climate change, soil health, and 
water  use/access  (ground  and  surface  waters).  This  has  led  financial  institutions, 
particularly banks, to be more hesitant to provide credit, financing, or insurance to the 
sector: farmers are sometimes considered a risk due to their lack in creditworthiness and 

241 Global Data (2022): Property Insurance Industry in Europe will surpass $156  billion in 2025, forecasts Global Data. 
Available at: https://www.globaldata.com/data-insights/financial-services/property-insurance-industry-in-europe-will-
surpass-forecasts-globaldata/ 
242 Eurostat (2022). Performance of the agricultural sector. 
243 Eurostat (2022). Framers and the agricultural labor force – statistics.  
244 Eurostat (2023). Extra-EU trade in agricultural goods. 
245 Negre (2023). Financing of the CAP. Fact Sheets on the European Union. European Parliament. 

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low  repayment  capacity246.  The  financing  gap  in  the  sector  remains  substantial:  an 
estimated EUR 12.5 billion in the EU 24 (excluding the Republic of Cyprus, Luxembourg, 
and Malta for which comparable data was not available), and is likely to increase in the 
future247. The Farm to Fork and Biodiversity strategy, for example, will require farmers to 
undertake  additional  investments,  that  will  be  contingent  on  both  public  and  private 
funding  available  to  help  produce  in  a  more  environmentally  friendly  and  sustainable 
manner.  

However,  the  agricultural  sector  also  presents  significant  opportunities.  Growing 
prospects in the global economy and the EUs’ role in exporting products will most likely 
attract  investments  from  financial  institutions248.  Additionally,  sustainable  farming 
practices  also  provide  new  opportunities for  innovation  and  improved  efficiency,  while 
also  reducing  environmental  footprints,  resource  use,  and  restoring  biodiversity. 
Regenerative  agriculture  therefore  offers  a  way  of  farming  that  generates  financial, 
ecological,  and  social  returns.  Investing  in  regenerative  agriculture  therefore  also 
presents  opportunities  for  new  and  innovative  financing  opportunities249.  Financial 
institutions can, and must, play a critical role in the sectors transformation from intensive 
farmland to nature-inclusive farmlands. 

Inter-sectoral connections 

Agricultural  sector  is  receiving  inputs  from  several  industries:  fertilizer  (N,P,K  -  P,K-
mining, natural gas extraction), chemical (crop protection), petrochemical (oil extraction, 
diesel production), machinery (tractors etc. which links to technology and innovation) and 
energy (oil and gas). Oil & gas (mid and downstream) are both in the top 7 highest ranked 
sectors according to analytical assessment using ENCORE data. It is also linked to the 
transport sector, as the movement of agricultural products between farms and to markets 
require  transportation  and  a  distribution  network.  It  is  also  important  to  consider  that 
today’s  food  production,  and  future  improvements  in  efficient  and  sustainable  food 
production, is largely reliant on agricultural technological advancements driven by R&D. 
Furthermore,  achieving  resilient  crops  and  adapting  plant  species  links  directly  to 
innovation in genetics, and genetic research. On the other hand, the agriculture sector 
also supplies outputs to various industries: retail and wholesale (through food, textiles 
and  apparel,  and 
industries, 
pharmaceuticals  and  healthcare,  and  tourism  (i.e.  artisanal  products,  cultural  creative 
industries). The pharmaceuticals and healthcare sector are among the more materially 
exposed sub-sectors within the EU economy. In addition, the energy production sector, 
depending  on  weighting  applied,  is  either  part  of  the  top  7  ranked  sectors,  or  closely 
following them.   In summary, agriculture and farming industry is not only ranked high in 

leather),  energy  (through  bioenergy),  chemicals 

246 EIB (2020). Financial needs in the agriculture and agri-food sectors in the European Union. Summary report. 
Available here: https://www.fi-
compass.eu/sites/default/files/publications/financial_needs_agriculture_agrifood_sectors_eu_summary.pdf 
247 Ibid 
248 Sustainable Finance Platform (2022). Financing regenerative agriculture. Regenerative finance solutions to restore 
and conserve biodiversity. Available here: https://www.dnb.nl/media/adjnzhdz/web-financing-regenerative-agriculture-
final.pdf 
249 Sustainable Finance Platform (2022). Financing regenerative agriculture. Regenerative finance solutions to restore 
and conserve biodiversity. Available here: https://www.dnb.nl/media/adjnzhdz/web-financing-regenerative-agriculture-
final.pdf 

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terms of combined impact-dependency on the nature but is also firmly connected to other 
materially exposed sub-sectors, implying that its ranking is likely to remain high when 
considering  indirect  impacts  and  dependencies  established  through  inter-sectoral 
connections. 

A  risk  assessment  of  biodiversity  and  ecosystem  services  impacts  on  the  European 
economy, particularly in the sectors of agriculture, food, and beverages, necessitates an 
in-depth exploration to understand both its direct and latent impacts of a very large array 
of  drivers.  Here  we  identify  some  of  the  most  significant  risk  drivers  affecting  the 
European  agricultural  sector.  Many  of  the  sector’s  dependencies  are  also  directly 
impacted  by  their  unsustainable  practices,  resulting  in  direct  impacts  on  the  sector’s 
outputs  and  economic  valuations,  and  subsequently  heightening  their  own  risks  and 
vulnerabilities. The agricultural sector stands as a good illustration of the complexity of 
double materiality. Disruptions to these services can reverberate across the agricultural 
sector, impacting both the quantity and quality of food produced. The intricate dance of 
ecosystem services is not just a matter of environmental or agricultural significance; it 
has  profound  economic ramifications,  especially when  viewed  through  the  lens  of  the 
European economy. Europe, with its diverse landscapes, climate zones, and agricultural 
traditions, is a continent deeply reliant on the robustness of its ecosystems to ensure its 
food security, and to reduce its dependency on foreign imports and thus its vulnerability 
to  economic  embargos.  We  present  each  risk  driver  by  a  description  of  the  causal 
linkages between an endangered ecosystem service and agri-food production followed 
by assessments of the economic implications. 

3.4.2.2.  Biodiversity and nature related risks 

The  strong  connection  between  the  agricultural  sector  and  the  natural  environment, 
along  with  its  wide  range  of  services,  means  that  the  sector  has  several  direct 
dependencies. It is therefore no surprise that the sector is therefore globally ranked as 
one  of  the  most  vulnerable  to  financial  risk.  However,  the  sector  is  at  the  same  time 
responsible for the global decline in biodiversity, through its direct detrimental impacts. 
Agriculture is the number one driver of biodiversity loss globally and contributes to one 
third of global emissions250 251 Livestock production and feed account for over 70% of all 
agricultural  land  use252,  whilst  cattle  and  soy  for  animal  feed  are  both  among  the  top 
three drivers of deforestation globally253. 

In  terms  of  dependencies,  our  assessment  revealed  that  groundwater,  surface  water, 
flood  and  storm  protection  and  erosion  control  as  some  of  the  most  significant  ones. 
Thereafter  follow  a  series  of  other  high  dependencies  (with  a  minimum  value  of  4) 
including pollination, soil quality, water flow and quality, climate regulation and disease 
control (Figure 3-14). Within these categories, we consider different levels of materiality. 

250 Benton et al. (2021). Food system impacts on biodiversity loss. Research Paper. Energy, Environment and 
Resource Programme.  
251 Fairr (2022). Biodiversity and Nature risks – implications for investors and policy. 
252 FAO (2021). Land use statistics and indicators. Available here: https://www.fao.org/documents/card/en/c/cb6033en/ 
253 Weisse and Goldman (2021). Just 7 commodities replaced an area of forest twice the size of Germany between 
2001 and 2015. Available here: https://www.wri.org/insights/just-7-commodities-replaced-area-forest-twice-size-
germany-between-2001-and-2015 

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The highest materiality rating goes to flood and storm protection, which is provided by 
the sheltering, buffering and attenuating effects of natural and planted vegetation. The 
production  processes  is  extremely  vulnerable  from  disruptions  from  floods,  especially 
considering  that  the  severity  of  the  impact  would  be  long-lasting  on  the  production 
process  and  thus  pose  significant  risk.  Similarly,  the  production  process  is  extremely 
vulnerable  to  pest-control  and  disease.  The  degree  of  protection  offered  by  the 
ecosystem  service  is  critical  and  irreplaceable  for  the  production  process.  The  pest 
control and invasive alien species management is provided through direct introduction 
and  maintenance  of  populations  of  the  predators  of  the  pest  or  the  invasive  species, 
landscaping areas to encourage habitats for pest reduction, and the manufacture of a 
family of natural biocides based on natural toxins to pests. Water flow and quality are 
indispensable for the production process. On the other hand, pollination, soil quality and 
erosion  control  have  a  high  materiality,  but  here  the  system  can  cope  with  some 
disruptions before posing significant risks. However, considering the extent to which the 
sector  is  dependent  on  these  services  means  that  these  pose  a  high  risk  to  the 
production process.  

As stated previously, the agricultural sector is an example of double materiality – most 
of the ecosystem services that the sector depends on are also directly impacted by the 
unsustainable  and  intensified  practices  currently  in  place.  Water  and  soil  health  are 
significantly  impacted  by  the  sector.  The  impact  of  agriculture  on  water  use/scarcity, 
water  pollution  (particularly  through  eutrophication  and  chemical  pollution)  and  soil 
degradation  (from  chemical  contamination)  not  only  directly  poses  a  risk  on  the 
agricultural sectors dependencies but also directly affects other sectors dependencies 
on these resources (Figure 3-14). Thus, the impact of the agricultural sector is one that 
is  not  only  of  detriment  to  itself  but  is  far  reaching  into  a  number  of  other  sectors 
associated to its supply chain as well as of other economic significance (e.g. drinking 
water,  human  health,  food  and  beverages,  pharmaceuticals,  antimicrobial  resistance, 
disease outbreaks and healthcare, fisheries, other recreational activities254.) In addition, 
the agricultural sector substantially contributes to GHG emissions and thus fuels climate 
change  impacts  that  consequently  further  amplify  degradation  of  all  other  ecosystem 
services. The far-reaching impacts of the agricultural sector’s unsustainable actions are 
further evidence as to why urgent action is needed to transform practices, and highlight 
just how vast investment opportunities can be – and the significance of the benefits that 
could be reaped.  

We  provide  a  brief  overview  of  the  ecosystem  services  of  highest  relevant  to  the 
agricultural  sectors  dependence  and  impacts,  elaborating  on  the  importance  of  the 
service, the possible economic implications, and the inter-linkages with other sectors.  

Figure 3-15 – Biodiversity and nature related impacts and dependencies in the agricultural sector 

254 OECD (2012). Agriculture and water quality: monetary costs and benefits across OECD countries. OECD 
Publishing. 

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Agriculture and Farming - Dependencies

Animal-based energy

2

Fibres and other…

4

5

4

3

2

1

0

Pest control
4

Mass stabilisation…

5

Flood and storm…

5

Disease control
4

Climate regulation
4

4
Buffering and…

Mediation of…

2

3

Filtration

3

Genetic materials

3

Groundwater

5

Surface water

5

Pollination

4

4

Soil quality

2

Ventilation

4

Water flow…

Dilution by…

3
Bio-remediation

4

Water quality

Agriculture and Farming - Impact
Terrestrial
ecosystem use
5

5

Soil pollution

3

Water pollution

3

4

3

2

1

0

Freshwater
ecosystem use

4

Water use

5

3

GHG emissions

2
Other resource use
(minerals/ores)

Source: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) 

Water Resources (Surface & Groundwater) 

Beyond  mere  irrigation,  water  acts  as  the  primary  solvent  and  medium  for  various 
biochemical  processes  in  plants.  Healthy  water  systems  enable  the  transportation  of 
nutrients, ensuring optimal plant health, which directly translates to yield and quality. This 
requires  water  sources to  not  only  be  abundant,  but  also for  water  quality to  be  good 
enough  to  be  able  to  expose  to  agricultural  products  meant  for  consumption.  The 
economic  ramifications  of  water  quality  and  scarcity  are  profound.  Crop  failures  or 

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reductions due to inadequate water quality or quantity could cause substantial economic 
setbacks. This not only puts stress on public utilities but also amplifies costs throughout 
the agricultural supply chain. European Court of Auditors report has found that although 
both the Common Agricultural Policy (CAP) and the Water Framework Directive (WFD) 
set requirements on MS to control agricultural use of water, and thus make the use more 
sustainable, they have so far failed in achieving this leaving the agricultural sector with 
the largest consumption for European freshwater resources, in many cases far beyond 
sustainable levels.255 

Flood and storm protection  

Ecosystems,  such  as  wetland  and  natural  vegetation,  act  as  buffer  against  flood  and 
storm impact, by absorbing excess water, slow down water and reduce the intensity of 
these events. This physical protection shields agricultural areas from direct damage from 
inundation, erosion, and debris that can be carried by floodwater. Protection from floods 
and storms does not only provide a physical protection to crops, livestock and fields but 
links to a number of other dependencies including: soil health (preventing soil erosion 
and nutrient loss) and stability of water supply (preventing disruption in water sources 
and  ensuring  regulated  water  flow  during  periods  of  heavy  rainfall).  In  addition, 
ecosystem  services  that  allow  for  flood  protection  provide  direct  protection  to  key 
infrastructure  (buildings,  equipment,  irrigation  systems).  The  extreme  precipitation  in 
western Europe from 12th to 15th of July in 2021 was estimated to affect a total area of 
2470  km2  with  severe  inundation.  A  total  of  200  people  died,  and  the  economic  loss 
within this short period was estimated at EUR 3 billion256.  

Soil Quality & Erosion Control 

Erosion,  caused  primarily  by  water  and  wind,  leads  to  the  loss  of  fertile  topsoil, 
significantly  diminishing  its  productive  capacity.  Erosion  control,  often  facilitated  by 
vegetative  cover  and  specific  farming  practices,  is  essential  to  ensure  the  long-term 
productivity of lands. The economic toll of unchecked erosion is steep. It is estimated 
that  soil  erosion  costs  European  countries  EUR  1.25  billion  in  annual  agricultural 
productivity loss and EUR 155 million in GDP loss. that soil degradation could result in 
losses of up to €38 billion annually within Europe257. The direct costs hit mainly farmers 
through loss in production, damage to plantation and cost of additional nutrients needed 
to balance the loss. However, indirect costs remain unaccounted for but are estimated 

255 European Court of Auditors (2021). Sustainable water use in agriculture: CAP funds more likely to promote greater 
rather than more efficient water use. Available here: 
https://www.eca.europa.eu/Lists/ECADocuments/SR21_20/SR_CAP-and-water_EN.pdf 
256 He et al. (2021). Brief communication: Western Europe flood in 2021: mapping agriculture flood exposure from SAR. 
Natural hazards and Earth systems sciences. EGU. 
257 EU Science hub (2018). Soil erosion costs European farmers EUR 1.25 billion a year. News announcement. 
Available here: https://joint-research-centre.ec.europa.eu/jrc-news-and-updates/soil-erosion-costs-european-farmers-
eu125-billion-year-2018-02-27_en 

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to be felt across various sectors of the economy including loss of wildlife habitat, land 
abandonment, damages to road and railways and public infrastructure.258 

Pollination 

Pollination is a symbiotic relationship where pollinators, including bees, butterflies, and 
beetles,  enable  the  reproduction  of  entomophilous  plants.  Through  their  actions,  they 
assure fruit set, thereby having a direct impact on the yield and quality of crops. It has 
been estimated that pollinators improve or stabilize yields of approximately 75% of crop-
plant species globally259. Any disruption or diminishment of this service can significantly 
alter the quantity and quality of produce, with repercussions on the entire supply chain. 
Globally, the estimated economic value of wild and managed pollination services was 
estimated at USD 215 billion in 2005, which represent 9.5% of global food production260. 
Tangible  benefits  to  the  economy  of  pollinators  to  the  EU’s  agricultural  outputs  are 
estimated at EUR 5 billion a year at leas – for some crops the contribution of pollinators 
can amount to half of the market value of produce261. A decrease in the pollination service 
would, in the medium to long term, lead to increased costs in the agri-food supply chain, 
raising prices for consumers and potentially resulting in economic downturns in regions 
heavily reliant on specific crops. 

Pest Control & Invasive Species Management 

The  natural  equilibrium  of  ecosystems  involves  native  predators  and  competitors 
keeping potential pests in check. Disruptions to this balance, whether due to decreased 
predator  populations  or  the  introduction  of  invasive  species,  can  lead  to  significant 
agricultural losses. Additionally, monoculture plantations increase the risk of disease and 
pets  out  brakes  due  to  the  lack  of  genetic  diversity  and  thus  reduced  capacity  for 
adaptation and immune-resilience. Beyond immediate crop losses, the costs associated 
with managing and controlling these threats are substantial. A recent study estimated 
that the total cost of invasive alien species damage between 1960 and 2020 was USD 
140 billion across the EU: the agricultural sector was most impacted with overall USD 36 
billion of damage262. Cost of managing disease, pests and invasive alien species vary 
significantly  between  types  of  agriculture.  For  example,  the  annual  average  cost  of 
chemical  crop  protection  in  European  for  outside  horticulture  was  estimated  at  EUR 
808/ha while for olives it was EUR 83/ha263. However, the cost can also vary based on 
techniques and technology used. As such, costs of damage as well as management of 
these  dependencies  pose  a  significant  risk  to  the  agricultural  sector  and  as  such  a 

258 Ibid. 
259 Klein et al (2007). 
260 Vanbergen, A. J., et al. (2013). Threats to ecosystem service: pressures on pollinators. Frontiers in Ecology and the 
Environment, 11(5), 251-259 
261 EC (2023). Questions and answers on A New Deal for Pollinators. Available here: 
https://ec.europa.eu/commission/presscorner/detail/%20en/qanda_23_282 
262 Haubrock et al (2021). Economic costs of invasive alien species across Europe. NeoBiota 67, 153-190. 
263 EPRS (2021). Cost of crop protection measures. European Parliament. Available at: 
https://www.europarl.europa.eu/RegData/etudes/STUD/2021/690043/EPRS_STU(2021)690043_EN.pdf 

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number  of  associated,  inter-linked  sectors.  Climate  change  is  likely  to  exacerbate  the 
problem,  reducing  plant  resilience,  increase  the  stress  exposure  to  crops  and  thus 
ultimately leading to an increase in disease outbreaks and proliferation.  

Locational specificities 

The  main  nature  related  risks  in  agriculture  vary  widely  across  regions,  as  there  is 
signification variation in their exposures to deforestation for cropland/plantations/pasture 
expansion;  unsustainable  water  use  (ground  water  depletion,  soil  subsidence),  soil 
degradation,  nutrient  pollution,  overgrazing.  Deforestation  is  happening  mostly  for  the 
reason of expanding economically productive land and, according to FAO264 in the past 
years it has been seen mostly in Brazil, Tanzania, and Indonesia, whereas through trade, 
that  impact  is  relevant  also  in  the  EU  context,  especially  with  respect  to  biofuels265. 
Unsustainable water use i.e. high level of a water stress index (ratio of total withdrawals 
to  total  renewable  supply)  varies  substantially  by  region,  and  according  to  the  WRI 
estimate266 many world regions are prone to this issue including a few EU countries, 
where excessive water extraction in some cases has even resulted in ground subsidence 
causing  damages  in  buildings  (see  “A  Case  Study  Aquifer  Management  in  Spain”  by 
EARSC267), which is a demonstration of the systemic risk type of effects, according to 
the adopted TNFD typology. While soil degradation is a global scale issue268 with some 
prominent  hotspots  including  in  the  EU,  there  are  activities  ramping  up  to  restore 
degraded soils (e.g. in Brazil:269 270) Nutrient pollution is a prominent issue at the EU 
scale.  According  to  EPA,    while  nutrient  concentrations  in  the  environment  have 
generally decreased over the past three decades, excess nutrient pollution remains one 
of the most serious issues affecting human and ecosystem health in the EU with impacts 
manifesting as eutrophication, air pollution and climate change. Relatively high nitrogen 
surpluses are found in intensive livestock regions including north-western Germany, the 
Netherlands, Belgium, Luxembourg, Brittany in France and the Po Valley in Italy (EPA, 
map on spatial variation in N and P surplus271: Finally, grazing areas vary considerably 
by  the  world  regions  with  EU  being  a  minor  contributor  among  those272.  However, 
grazing is found to be a major contributor to variation in European Union land and water 
footprints when tracking food through the global trade273 

264https://ourworldindata.org/deforestation 
265 Hutt (2022). What are the EU’s options in plam oil standoff? Business Malaysia. Available here: 
https://www.dw.com/en/what-are-eus-options-in-palm-oil-row-with-malaysia-and-indonesia/a-62564129 
266 WRI (2013). Water stress by country. Available at: https://www.wri.org/data/water-stress-country 
267 Mamais et al (2020). Sentinels benefits Sutdy (SeBS) – A case study on Aquifer Management in Spain. Available 
here: https://earsc.org/sebs/wp-content/uploads/2020/10/Aquifer-Management-in-Spain_vf.pdf  
268 Borrelli et al (2017). An assessment of the global impact of 21st century land use change on soil erosion. Nature 
Communications, 8. 
269  The Nature Conservancy (2020) Guia de Conduta Ambiental para investiments e empresitmos para producao de 
soja no Cerrado.  Available here: https://www.tnc.org.br/content/dam/tnc/nature/en/documents/brasil/tnc-
guiacondutaambiental-pt.pdf 
270 Seone et al. (2023). Restauracao ecologica em sistemas agroflorestais sueccesionais do Vale do Ribeira, Sao 
Paolo. Embrapa. 
271 EEA (2022). Cross-cutting story 4: Nutrients. Available here: https://www.eea.europa.eu/publications/zero-
pollution/cross-cutting-stories/nutrients 
272 Statista (2009). Areas of grazing land in selected world regions in 1961, 1991, and 2007. Available here: 
https://www.statista.com/statistics/269236/grazing-land-worldwide-by-region/ 
273 Vanham et al (2023). Multi-model assessment identifies livestock grazing as a major contributor to variation in 
European Union land and water footprints. Nature Food, 4. 

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3.4.2.3. 

Transmission channels 

The  agricultural  sector,  while  seemingly  distinct  from  the  financial  realm,  is  intricately 
woven into the fabric of the financial sector and the broader economy through a network 
of  direct  and  indirect  transmission  channels.  As  such,  financial  institutions  are  by  no 
means immune to the cascading and transcending risks originating from the agricultural 
sector.  Transmission  channels  thus  range  from  micro  to  macro  level,  translating  into 
credit, market, liquidity and operational risks.  

Financial  institutions,  particularly  banks  and  credit  providers,  have  established  direct 
connections to agriculture via lending portfolios. This leads to direct exposure to risks 
through  agricultural  lending.  The  repercussions  of  ecosystem  service  disruptions, 
leading  to  diminished  agricultural  yields,  can  elevate  the  likelihood  of  loan  defaults, 
directly  affecting  financial  institutions'  stability.  The  ECB  reported  that  in  2022  it  held 
around EUR 20 billion in vulnerable loans274. The effect of the COVID pandemic resulted 
in that the agricultural sectors vulnerability posed one of the largest threats to banks, as 
they were significantly affected by the outbreak. With a 10% drop in farm revenues, which 
could result from reduced pollination or water shortages, the risk to loan portfolios can 
surge  by  significant  amounts  in  a  short  timeframe.  In  addition,  banks  can  experience 
collateral  value  decline.  Banks  frequently  accept  agricultural  land  or  assets  as 
collateral against loans. Degradation of soil quality, or increased vulnerability of lands to 
events like wildfires and floods can depreciate the value of these assets. As such, nature 
related  loss  translate  directly  into  capital  depreciation  and  increased  investment 
needs in the agricultural sector. Financial institutions also invest in a broad spectrum of 
assets,  including  agri-business  stocks  and  bonds.  Disturbances  in  ecosystem 
services  can  trigger  market  apprehensions  about  the  future  profitability  of  these 
businesses, leading to stock price volatility and as such translate into investment portfolio 
risks.  

Linked to that financial institutions are also indirectly exposed through the consequences 
on the supply chain: they have credit exposures to the entire agri-food supply chain, from 
farm  equipment  manufacturers  to  food  retailers.  Disruptions  at  the  agricultural 
production level therefore can ripple through this chain, affecting the profitability and 
creditworthiness of a multitude of enterprises. Furthermore, the fact that the agricultural 
sector has inter-linkages with significant number of other sectors across multiple supply 
chains also means that any larger disruption to the sector, affecting productivity, would 
create large macroeconomic feedback loops. These can potentially lead to changes in 
consumer  behavior  and  spending,  increased  unemployment,  and  diminished 
economic  growth  –  all  of  which  can  act  as  transmission  channels  to  financial 
institutions.  Such  macroeconomic  shifts  can  affect  the  overall  credit  environment  and 
increase default rates across various sectors, not just agriculture. Note that in particular 
a shift in consumer behavior can translate into legal and reputational risks not only for 
the businesses in the sector but directly to financial institutions themselves. Inaction to 
less 
improve  agricultural  practices  and  shift 

towards  more  sustainable,  and 

274 ECB (2023). Financial Stability Review – Corporate vulnerability and the risks of lower growth and higher rates. 
Available here: https://www.ecb.europa.eu/pub/financial-
stability/fsr/focus/2023/html/ecb.fsrbox202305_01~3d6c7da2aa.en.html 

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environmentally  harmful  practices  could  drive  down  spending  on  key  agricultural 
products.  Case  studies show  that farms  focused  on  pigs  and  poultry  could  lose  up  to 
34% with increasing awareness of consumers to reduce their meat consumption275. 

Finally,  as  noted  previously  impacts  of  floods  and  stormwater  on  agriculture  not  only 
cause  production  disruptions  but  can  also  affect  key  agricultural  infrastructure. 
Property damages and business disruption from severe weather is a key transmission 
channel at the micro level, which can directly translate into operational risks for financial 
institutions. 

3.4.2.4. 

Identifying key mitigation measures 

The  criticality  of  ecosystem  services  to  the  European  agricultural  sector  has  been 
underscored by various studies, with disruptions in these services posing considerable 
risks to both food security and the economy. Since the economic health and success of 
the sector is intrinsically and directly linked to a number of key ecosystem services, there 
are a number of mitigation approaches that can be taken at individual farm level. At the 
company level a responsible and cautious strategy can be implemented with regard to: 
avoiding  activities  leading  to  deforestation;  implementation  of  the  prudent  soil 
management  ensuring  its  healthy  state  and,  where  necessary,  also  carrying  out  soil 
restoration;  careful  fertilizer  application  following  best  practices  to  prevent  or  reduce 
nutrient  pollution;  rational  spatial  allocation  of  livestock  and  other  strategies  to  avoid 
overgrazing. A number of direct mitigation actions in relation to specific dependencies 
are known, and are all linked to improving agricultural practices: 

•  POLLINATORS: Enhancing habitat diversity by planting wildflower strips and 
hedgerows, and reducing pesticide use can bolster pollinator populations276. 
Implementing such measures can increase crop yields by up to 25% through 
improved pollination277 

•  WATER MANAGEMENT: Implementing efficient irrigation systems, such as drip 

irrigation, and optimizing water storage can conserve water and reduce 
waste278. Furthermore, the restoration of wetlands can enhance water 
purification processes. Efficient irrigation can reduce water usage by 30-60%, 
preserving vital water resources279 

•  CLIMATE ATTENUATION: Reforestation and afforestation, combined with 
sustainable land management practices, can act as carbon sinks and buffer 
regional climates280. Properly managed reforestation can sequester around 205 
Gt of carbon, countering anthropogenic emissions and mitigating climate-
related risks281 

275 Rieger et al (2023). From fork to farm: impacts of more sustainable diets in the EU-27 on the agricultural sector. 
Journal of Agricultural Economics. 
276 Potts, S.G. et al. (2016). Safeguarding pollinators and their values to human well-being. Nature. 
277 Gallai, N. et al. (2009). Economic valuation of the vulnerability of world agriculture confronted with pollinator decline. 
Ecological Economics. 
278 Hanjra, M.A. & Qureshi, M.E. (2010). Global water crisis and future food security in an era of climate change. Food 
Policy. 
279 Jägermeyr, J. et al. (2016). Integrated crop water management might sustainably halve the global food gap. 
Environmental Research Letters. 
280 Bastin, J.F. et al. (2019). The global tree restoration potential. Science. 
281 Ibid 

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•  SOIL QUALITY AND EROSION: Adopting conservation tillage, crop rotation, and 
planting cover crops can substantially reduce soil erosion and maintain soil 
fertility282. Conservation tillage alone can reduce soil erosion rates by up to 90% 
in certain contexts283. 

•  PEST CONTROL AND INVASIVE ALIEN SPECIES: Promoting biological control 

agents, integrated pest management, and stringent border controls can mitigate 
the risks posed by pests and invasive species284. Integrated pest management 
can reduce pesticide use by up to 90% while maintaining or increasing crop 
yields285 

In addition, the sector in its entirety, and the financial sector can take mitigative actions 
too.  At  a  broader  sectoral  level,  and  with the  assumption  of  essential  regulations  and 
policies at sub-national, national, and supra-national tiers, there exists the potential to 
advance,  encourage,  support,  and  even  enforce  mitigation  measures  at  the  company 
level. This larger-scale approach allows for the promotion and incentivization of practices 
that contribute to sustainability, while also making certain measures obligatory through 
legal  frameworks.  An  apt  example  of  such  large-scale  intervention  is  the  Water 
Framework Directive (WFD) which includes components to regulate the water usage to 
prevent the unsustainable depletion of this vital resource. This regulation extends beyond 
the  scope  of  individual  companies,  primarily  due  to  the  intricate  interdependencies 
among  various  users  drawing  water  from  shared  streams  or  utilizing  communal 
groundwater sources. In essence, these regulatory efforts transcend individual company 
boundaries to ensure the responsible and equitable management of resources that are 
shared  among  multiple  entities.  However,  as  noted  previously,  investigations  into  the 
enforcement  and  proper  implementation  of  water  prices  and  taxation  have  remained 
weak in the EU. While sectoral policies can indeed pose a viable mitigative approach, 
they are often too weakly enforced.  

Finally  financial  institutions  play  a  critical  role  in  supporting  the  transition  of  the 
agricultural  sector,  and  thus  directly  reducing  its  own  risk  exposure.  Considering  the 
substantial  financing  gap  that  remains  for  the  agricultural  sector,  and  with  increasing 
scale of impacts, the financial sector will play a critical role in financing more sustainable 
practices. Banks possess the capacity to effectively mitigate their risks by strategically 
shaping the composition of their stocks and loans portfolios, adapting them as needed 
to align with changing risk profiles. For insurers, a crucial aspect lies in establishing a 
robust financial estimation mechanism that can accurately assess the potential liabilities 
stemming from insuring nature-related risks. This involves a thorough understanding of 
the intricate nature of these risks and their potential financial implications. Similarly, asset 
managers and company owners should be proactive in implementing the interventions 
discussed  per  dependency,  tailoring  them  to  suit  the  specific  circumstances  of  the 
companies  they  oversee.  By  adopting  these  measures,  financial  institutions,  insurers, 
asset managers, and company owners can collectively contribute to a more resilient and 

282 Montgomery, D.R. (2007). Soil erosion and agricultural sustainability. PNAS. 
283 Pimentel, D. & Kounang, N. (1998). Ecology of Soil Erosion in Ecosystems. Ecosystems. 
284 Ehler, L.E. (2006). Integrated pest management (IPM): definition, historical development and implementation, and 
the other IPM. Pest Management Science. 
285 Pretty, J. et al. (2008). The environmental and social benefits of specific IPM practices. Critical Issues in 
Environmental Taxation 

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sustainable financial landscape, safeguarding their interests while promoting responsible 
practices in the face of nature-related challenges. 

3.4.1. 

Sub-Sector 3: Health Care Delivery  

3.4.1.1.  Key features of the health care delivery sector  

The health care delivery industry consists of different economic activities. According to 
the NACE classification system, it includes hospital activities, medical and dental practice 
activities, while excluding residential care activities. In 2020, the human health activities’ 
gross added value was EUR 646,588 million? accounting for 5% of the total gross value 
added in the EU27. The gross capital formation was EUR 55,661 million, slightly less 
than the investments in assets in the agriculture and farming industry (both industries 
represent 2% of the total GCF in 2021). In terms of employment, the healthcare industry 
provides around 6% of the jobs in EU27 in 2021. While the sector is dominated by public 
care delivery, the private sector plays a (growing) substantial role either indirectly by the 
provision  of  ancillary  goods  and  services,  or  by direct  healthcare delivery through,  for 
instance, Public-Private Partnerships.  

Public healthcare is one of the most important public spending in the EU27 (accounting 
for 11% in 2020)286. Private investors are relatively less significant, for various reasons. 
A study by the EIB’s advisory hub on the healthcare sector in the EU highlighted several 
investments  barriers 
investment  promoters, 
including  constraints  of  healthcare 
insufficient  access  to  funding,  regulatory  barriers,  as  well  as  lack  of  consolidation  of 
business models  and  of  sufficient  scale  or  volume  of  activities for  financing  (e.g.  loan 
period  or  volume).  The  report  also  concludes  that  the  healthcare  sector  in  the  EU  is 
characterised by strong differences across member states, due to national healthcare 
system  set-up,  the  value  and  types  of  investments,  various  investment  barriers  and 
national policy contexts. Moreover, looking at the different financed projects in 2015, it 
seems that  investments are  mainly  directed  to  hospital facilities,  followed  by  e-health, 
hospital facilities and medical equipment and other healthcare investments. Healthcare 
investments in primary care facilities and long-term care facilities are rather low.287 

Relevance and role of financial institutions in the sector 

Financial actors nonetheless invest in the health sector in various roles, from lenders, 
intermediaries to investors, whilst deploying a wide variety of financial instruments (e.g. 
loans,  equity  investments,  and  venture  capital).288  In  addition,  there  is  a  growing 
importance  of  private  equity  in  the  healthcare  sector. In Germany,  it  is  estimated  that 
about 750 of overall 3800 ambulatory healthcare centres were in the hands of private 

286 Eurostat (2023).  Healthcare expenditure statistics 
287 EIB (2019. )Health sector study – EIB Advisory Hub.  
288 Krech R, Kickbusch I, Franz C, et al. Banking for health: the role of financial sector actors in investing in global 
health. BMJ Glob Health 2018;3:e000597. doi:10.1136/ bmjgh-2017-000597 

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equity funds in 2020, despite regulations aimed at preventing this type of ownership. 289 
Pension  funds  often  have  the  healthcare  sector  in  their  portfolio.  For  instance,  the 
Defined  Benefit (DB)  pension  funds  in the  Netherlands  and the  United  Kingdom  have 
8.5% investments in equity in health care (total investments in equity account for 32.1% 
of all investments).290 

Another  important  actor  in  the  healthcare  sector  are  the  insurance  companies  that 
provide  individuals  or  groups  with  a  range  of  services  to  supplement,  complement  or 
sometimes replace publicly financed healthcare, depending on the national healthcare 
system. The insurance policies cover the medical costs of illness or accidents.291 The 
role  of  private  health  insurers  is  becoming  ever more  significant  because  of  Europe’s 
ageing populations and increasing strains on national healthcare systems. In 2019, 12% 
of all claims and benefits were directed to health in the EU.292 Of which four-fifths of all 
claims were paid in the four largest markets, namely the Netherlands, Germany, France, 
and Switzerland.  

Finally,  asset  managers  are  also  active  in  the  health  sector  driven  by  technology 
development and increasing demand because of the ageing population.  293 Moreover, 
asset managers increasingly see ESG impact, providing an incentive for investments in 
affordable healthcare and stewardship.294 

Location and supply chain information  

to  healthcare  delivery  (e.g.  nursing)  occur 
The  services  directly  contributing 
predominantly in respective Member States, however, the production of equipment and 
medicines  often  takes  place  outside  the  EU.  Countries  like  India  and  China  play  an 
important role in manufacture of medicines and equipment. In 2018–19, India exported 
nearly $19 billion worth of pharmaceuticals to more than 200 countries, including the EU. 
295 Relying on countries outside the EU to produce essential materials and drugs, is risky, 
and  has  in  the  past  resulted  in  shortages  in  supply  which  hampers  the  functioning 
healthcare sector in the EU.296 While drug and equipment delivery problems are not a 
new  issue,  the  Covid-19  pandemic  further  revealed  the  EU’s  dependence  on  certain 
supply  chains  for  equipment  such  as  gloves,  gowns,  and  N95  masks,  as  well  as  life-
support machines, and oxygen generators. 297298 

289 Bernd Rechel and others, Private equity investment in Europe’s primary care sector—a call for research and policy 
action, European Journal of Public Health, Volume 33, Issue 3, June 2023, Pages 354–355, 
https://doi.org/10.1093/eurpub/ckad061 
290 European Commission (2019). Study on the drivers of investments in equity by insurers and pension funds 
291 Insurance Europe (2023). Health Insurance.  
292 Insurance Europe (2019).  European Insurance in Figures  
293 Fund Europe (2022). Why asset managers are becoming vital to the future of healthcare.  
294 EFAMA (2022). Asset Management in Europe. An overview of  the asset management in Europe.  
295 Guerin PJ, Singh-Phulgenda S, Strub-Wourgaft N. The consequence of COVID-19 on the global supply of medical 
products: Why Indian generics matter for the world? F1000Res. 2020 Apr 1;9:225. doi: 
10.12688/f1000research.23057.1.  
296 European Commission (2022). Vulnerabilities of the global supply chains of medicines. Structured. Dialogue on the 
security of medicines supply Commission Staff Working Document.  
297 McKinsey (2022). Optimizing health system supply chain performance  
298 World Bank Blogs (2022). Tackling health care supply chain challenges through innovations in measurement  

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The EU expressed its concerns regarding dependency upon these supply chains, and 
announced several measures to address this, including the Pharmaceutical Strategy for 
Europe (“Pharmaceutical Strategy”) of November 2020, which includes several actions 
aimed at improving the availability of medicines, with lower dependence on imports.299 
However,  securing  medicine  and  equipment  supply  is  often  challenging  due  to  the 
complexity  of  these  supply  chains.  For  instance,  shifting  the  production  of  the 
manufacturing  of  equipment,  requires  upstream  enterprises  such  as  aluminium, 
integrated circuits, lithium batteries, pneumatic fittings, and raw material manufacturers 
to increase their supplies. 

3.4.1.2.  Biodiversity and nature -related risks  

Maintaining  healthy,  functional  ecosystems  is  intrinsically  linked  to  human  health. 
Similarly, a functioning healthcare system is largely dependent on healthy ecosystems, 
due  to,  inter  alia,  the  provision  of  genetic  resources  required  for  drug  production,  the 
control  of  disease  vectors  (thus  reducing  the  burden  on  healthcare  systems  to  treat 
infected  patients),  in  addition  to  an  array  of  psychological  and  nutritional  benefits.  300. 
While  the  estimated  percentage  of  pharmaceutical  drugs  sourced  directly  or  indirectly 
from  nature  varies,  several  studies  highlight  the  significant  importance  of  the  active 
ingredients from nature for the pharmaceutical market and some estimations reach as 
as high as 50 % of all approved drugs. 301 

The figures below present the dependencies and impacts of the Healthcare Delivery and 
the Biotechnology and Pharmaceutical sector, based on ENCORE data. It shows that 
the  Health  care  delivery  sectors  depends  on  ground  water,  surface  water,  mass 
stabilisation and erosion control. The dependence on water is closely tied to essential 
requirements such as supplying hospitals with water for cooling, cleaning, and drinking 
purposes. The environmental impacts stemming from the healthcare delivery sector are 
most pronounced in terms of greenhouse gas (GHG) emissions, followed by water and 
soil pollution. 

According to a study conducted by RIVM (2022), the healthcare sector in the Netherlands 
accounts for 7.3% of the national GHG emissions302, making it a significant contributor. 
It also contributes to 13% of abiotic mineral usage, 7.5% of freshwater consumption, and 
4.2% of waste production.303 Notably, medicines and various chemical products drive a 
major portion of these impacts, for instance, around 40% of the estimated 7.3% GHG 
emissions are associated with the production of medicines and other chemical products. 
The  consumption  of  food  also  has  a  substantial  impact  the  environment,  notably  in 
relation to freshwater consumption, land use and waste production.  

299 European Commission (2022). Vulnerabilities of the global supply chains of medicines. Structured. Dialogue on the security of 
medicines supply Commission Staff Working Document 
300 Mazer-Amirshahi and Fox (2018) Saline Shortages — Many Causes, No Simple Solution 
301 KPMG and Nature Value Initiative (2011). Biodiversity and ecosystem services. Risk and opportunity analysis within 
the pharmaceutical sector. On Behalf of Robeco Asset Management; J. Nat. Prod. 2016, 79, 3, 629–661 Publication 
Date:February 7, 2016 https://doi.org/10.1021/acs.jnatprod.5b01055 
302 This includes emissions both within the Netherlands and abroad 
303 RIVM (2022). Het effect van de Nederlandse zorg op het milieu Methode voor milieuvoetafdruk en voorbeelden voor een goede 
zorgomgeving. M.A. Steenmeijer et al. DOI 10.21945/RIVM-2022-0127 

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The  report  also  includes  a  hotpots  analysis, revealing  that  over  70%  of raw  materials 
(metals and minerals) is concentrated in Asia, whereas GHG emissions, accounting for 
nearly 40%, are centered in the Netherlands. 

As  partly  highlighted  in  the  text  above,  the  Pharmaceutical  and  Biotechnology  sector 
shows  more  dependencies  and  impacts  on  nature.  The  highest  dependency  is  on 
surface  water,  followed  by  water  flow  maintenance,  water  quality,  ground  water, 
bioremediation, dilution by atmosphere and ecosystems, filtration and mass stabilisation 
and  erosion  control.  The  sector’s  impact  on  nature  is  the  highest  for  solid  waste  & 
pollution,  water  use  &  pollution,  and  to  a  lesser  extent  air  pollution.  Literature  review 
further mentions overexploitation of active ingredients from nature. 304 

There are different risks associated with the process of 1) discovering new drugs, 2) drug 
testing and developments, 3) drug manufacturing, to eventually 4) selling and distribute 
the  drugs.  For  instance,  drug  testing  often  is  exposed  to  reputational  risks  as  animal 
testing is controversial topic and regulations are increasing. 305 

Figures 3-16 Impacts and denepencies on nature  

Health Care Delivery

Groundwater
(dep)

3

5

4

3

2

1

0

Soil pollution
(imp)

3

Water pollution
(imp)

3

Surface water
(dep)

3

2

Mass
stabilisation and
erosion control
(dep)

4
GHG emissions
(imp)

304 KPMG and Nature Value Initiative (2011). Biodiversity and ecosystem services. Risk and opportunity analysis within the 
pharmaceutical sector. On Behalf of Robeco Asset Management 
305 KPMG and Nature Value Initiative (2011). Biodiversity and ecosystem services. Risk and opportunity analysis within the 
pharmaceutical sector. On Behalf of Robeco Asset Management 

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Biotechnology and Pharmaceuticals

Genetic materials

Solid waste (imp)
4

Air pollution (imp)

3

Soil pollution
(imp)

4

Water pollution
(imp)

4

Water use (imp)

4

Mass stabilisation
and erosion
control

5

4

3

2

1

0

2

Filtration

3

Groundwater
3

Surface water
4

Water flow
maintenance
3

2

Water quality

1

Bio-remediation

Dilution by
1
atmosphere and
ecosystems

Source: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) 

The figures 3-16 above capture the key risks relevant to the healthcare sector, however, 
as noted in section 3.3.1 a number of ‘hidden’ risks are not captured here. For example, 
a key risk to be considered is microbial resistance. The World Health Organization lists 
this as among the greatest threats to global health,306 with the loss of nature one of the 
key contributing factors promoting the increased circulation of antibiotic resistance genes 
throughout the environment. The destruction and/or degradation of ecosystems not only 
reduces the genetic pool of molecules which could be utilised for future pharmaceutical 
products, but also inhibits the ability of ecosystems to provide a biological barrier to resist 
the spread of antimicrobial resistance.307 In addition, the healthcare sector can also be 
an exacerbating factor in propelling antimicrobial resistance throughout the environment 
through  pollutant  discharge.  Such  waste  from  pharmaceutical  manufacturing  and 
community/healthcare settings spreads resistant microbes throughout the environment, 
providing an increased risk of transmission of antimicrobial resistance between humans 
and animals.  308 

3.4.1.3. 

Identifying the key transmission channels 

Given the dependence of the healthcare system on intact, functioning nature, a range of 
impact on the sector can be foreseen through the loss of nature. Using the framework 
established  in  task  1,  each  of  the  transmission  channels  to  the  healthcare  sector  are 
discussed below.  

306 UNEP (2023) Bracing for Superbugs. Available at: https://www.unep.org/resources/superbugs/environmental-action 
307 UNEP (2023) Bracing for Superbugs. Available at: https://www.unep.org/resources/superbugs/environmental-action 
308 UNEP (2023) Bracing for Superbugs. Available at: https://www.unep.org/resources/superbugs/environmental-action 

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Changing demand. Nature loss, and the continued degradation of ecosystems (and their 
health)  is  projected  to  increase  the  risk  of  human  exposure  to  new  and  already 
established  zoonotic  diseases.  309  With  such  proliferation  of  diseases  encountered  by 
the population, it can be expected that further strain is placed on the healthcare system 
to treat and develop preventative measures to cope with patient uptake. Second-order 
impacts such as the negative feedback loops and interlinkages associated with nature-
loss, climate change and (the increased severity and frequency of) extreme weather can 
also impact healthcare systems- through limiting access to healthcare infrastructure. As 
an example, in 2012 Hurricane Sandy led to the temporary closure and forced movement 
of patients from a hospital which serves 500,000 patients annually. 310 Such closures can 
place further strain on hospitals and healthcare providers through the forced movement 
of  patients  and  increased  demand  for  healthcare  due  to  the  risk  of  injury  from  such 
climate events. In turn, such increased demand and potential overcrowding can reduce 
the quality of care.  

Raw  price  volatility.  Building  upon  the  example  presented  above,  extreme  weather, 
exacerbated  by  nature  loss  has the  potential to cause  physical  damage to  healthcare 
infrastructure, which in turn can lead to supply chain issues and price volatility. The 2017 
Hurricane Maria resulted in critical damage to a saline production facility (used for, inter 
alia,  the  sterilisation  of medical  equipment)  311  -  interrupting  supply  lines  and  costs  of 
imports.  Furthermore,  the  growth  in  human  population  has  resulted  in  an  increased 
demand and trade of wild species for medicinal purposes,312 yet with the continued global 
destruction of ecosystems and thus natural resources, it could be foreseen that prices 
associated with wild harvested medicines could increase. This is captured in figure 3-17 
below from Chen et al., which highlights the correlation between (wild) medicinal plant 
availability and associated pricing.  

Figure 3-17 Wild harvesting price and volume interactions of medicinal plants 

309 Keesing and Ostfeld (2021) Impacts of biodiversity and biodiversity loss on zoonotic diseases 
310 See: https://www.commonwealthfund.org/blog/2018/be-high-performing-us-health-system-will-need-adapt-climate-
change 
311 Marie-Lawrence et al., (2020) Leveraging a Bayesian network approach to model and analyze supplier vulnerability 
to severe weather risk: A case study of the U.S. pharmaceutical supply chain following Hurricane Maria 
312 Schippmann et al., (2006) A comparison of cultivation and wild collection of medicinal and aromatic plants under 
sustainability aspects  

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Source: Chen et al., (2016)313 

Asset value. Aside from the potential impacts of physical damage to healthcare assets 
from  nature  loss  (erosion  and/or  weather  extremes  causing  structural  damage  to 
healthcare  infrastructure,  costs  and/or  quality  of  water  treatment  increasing  due  to 
waterborne  diseases-  impacting  health  of  patients  or  costs  of  running  healthcare 
facilities, etc.), healthcare asset values can be indirectly impacted by nature-loss. The 
reputation and patient confidence associated with healthcare facilities can, at least in-
part, be determined by the natural surroundings of the facilities- with patients associating 
deteriorated  environmental  conditions  with  diminished  quality  of  healthcare  services. 
This in turn, can not only impact the financial performance of the healthcare provider, but 
also the values of their respective assets.  

Change  in  profitability/increased  litigation.  In  the  scenario  presented  above  relating  to 
‘raw price volatility’, it could be foreseen that the (over) exploitation of genetic material 
used within the healthcare sector (such as pharmaceuticals) can lead to litigation due to 
non-compliance  with  legislation.  314  A  good  example  of  this  is  compliance  with  the 
Convention  on  Biological  Diversity  and  the  requirement  for  benefit  sharing  of  genetic 
resources. Industries/organisations which have a monopoly on genetic resources may 
be  forced  to  share  access  and  use  of  such  resources-  to  ultimately  benefit  the 
communities in which such resources originate. Such regulations, which prevent (inter 
alia)  the  overexploitation  of  such  resources,  can  therefore  negatively  impact  the 
profitability  of  companies  which  patent  and  profiteer  from  naturally-derived  products 
(pharmaceuticals) – due to limiting their exclusivity to genetic resources.  

Disruption  of  activities/value  chains.  Finally,  it  can  be  foreseen  that  nature  loss  can 
impact  multiple  segments  of  the  healthcare  value  chain.  As  outlined  in  the  above 
sections, the projected loss of natural medicines (humankind are estimated at losing at 
least  one  important  source  of  drug  every  two  years315),  and  the  projected  increase  in 
disease  vectors  and  outbreaks  can  be  foreseen  to  increase  hospitalisation  and 
healthcare  admissions.  In  turn,  associated  health  insurance  claims  can  be  expected, 
reducing  the  affordability  of  healthcare  insurance  (through  adjusted  premium  rates). 
Disruptions  to  supply  chains,  particularly  in  the  pharmaceutical  industry,  can  be  very 
costly. The pharmaceutical supply chain accounts for approximately 25% of total costs, 
whereas  (on  average)  75  days  of  replenishment time  is  required from  pharmaceutical 
plants  to  distribution  centres.316  This  emphasises  that  any  disruptions  to  such  supply 
chains could result in considerable costs to such industries. The negative feedback loops 
with nature loss and climate change impacts can thus lead to significant risks inflicted on 
pharmaceutical value chains.  

313 Chen et al., (2016) Conservation and sustainable use of medicinal plants: problems, progress, and prospects 
314 Marden (2018) International agreements may impact genomic technologies 
315  Neergheen-Bhujun et al., (2017) Biodiversity, drug discovery, and the future of global health: Introducing the 
biodiversity to biomedicine consortium, a call to action 
316 See: https://vamstar.io/my-resources/covid-19-supply-chain-risk-in-europe/ 

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3.4.1.4. 

Identifying key mitigation measures  

As highlighted earlier (see section 2.4.3), the initial stride towards crafting a robust risk 
mitigation strategy begins with cultivating a heightened awareness of the existing risks. 
Subsequently, it encompasses the anticipation and evaluation of these risks, a process 
inherently reliant  on  transparent  disclosure  conforming to  industry  best  practices.  The 
mounting  importance  of  Environmental,  Social,  and  Governance  (ESG)  criteria  for 
investors underscores the need for accurate and comprehensive disclosure, facilitating 
informed decisions concerning nature-related risks. While financial institutions can take 
steps  to  impose  stricter  measures  for  investment  and  client  acquisition,  substantial 
transformative change towards effective mitigation must emanate from within the sector 
itself.  

The healthcare sector, integral to human well-being, is intricately intertwined with nature, 
evident through  its  utilization  of  natural resources  in  therapeutics,  but  also  its through 
packaging  and  manufacturing.  However,  transparency  within  pharmaceutical  supply 
chains  is  severely  lacking,  rendering  the  assessment  of  risks  and  long-term  viability 
exceedingly  challenging317.  The  absence  of  standardization  further  hampers  risk 
comparison, as firms historically struggled to accurately quantify physical impacts and 
their corresponding financial implications318. The first step in mitigation is therefore for 
the healthcare and pharmaceutical sector to embark on a comprehensive risk inventory, 
gauging  the  likelihood  and  potential  impact  of  these  risks.  This  information  forms  the 
bedrock  upon  which  robust  risk  management  strategies  can  be  built.  The  obtained 
insights are critical to incorporate into companies, as well as financial institutions, risk 
appetite  framework  to  enable  informed  risk  decisions  and  resource  allocation  for 
monitoring and mitigation, culminating in sound strategic choices encompassing capital 
allocation and investments319. 

To  holistically  evaluate  nature-related  risks  and  opportunities,  healthcare  firms  must 
acknowledge and account for dimensions encompassing raw materials, manufacturing, 
and packaging. Disclosing the provenance of raw materials and associated supply risks 
becomes pivotal, as these factors directly influence accessibility and pricing. However, 
the pharmaceutical sector's historical reluctance to disclose financial and climate data 
has  led  to  diminished  investor  confidence  and  subsequent  impacts  on  financial 
institutions'  decisions320.  Some  of  the  larger  pharmaceutical  companies  have  begun 
taking  pro-active  steps  in  mitigation,  through  institutional  transformation:  Bayer  has 
articulated  strategies  that  incorporate  biodiversity  conservation  into  their  corporate 
agenda, including protecting forest ecosystems, reducing their impacts on biodiversity 
and supporting smallholder farmers.321 

317 Pinchot and Christianson (2019) What Investors Want from Sustainability Data; World Resources Institute: 
Washington, DC, USA. 
318 Deweerdt et al (2022). How Will the TNFD Impact the Health Sector’s Nature-Risks Management? 
319 ECB (2020). Guide on climate-related and environmental risks – Supervisory expectations relating to risk 
management and disclosure.  
320 KPMG (2011). Biodiversity and ecosystem services: Risk and opportunity analysis within the pharmaceutical sector. 
Available here: https://www.fauna-flora.org/app/uploads/old-images/Biodiversity-and-Ecosystem-Services-Risk-and-
opportunity-analysis-within-the-pharmaceutical-sector-NVI-KPMG1.pdf 
321 Bayer (2023). Conservation and restoration of biodiversity in agriculture and forestry. Available here: 
https://www.bayer.com/en/sustainability/position-biodiversity 

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The health and pharmaceutical sector not only rely on medicine and therapeutics from 
nature, sources from plants, animals and minerals, but also rely heavily on petroleum-
based  chemicals  in  their  manufacturing  process322.  These  not  only  require  significant 
amount of water, but also generate high level of waste. Contamination of pharmaceutical 
in  ecosystems,  specifically  in  soil,  water  and  air,  have  been  extensively  studies  and 
reported.323 324 Discussion around pharma and health care sector’s responsibility to pay 
for environmental damages relating to environmental pollution and thus adverse impacts 
on ecosystem health has been an ongoing debate, in particular under the EU’s Polluter 
Pays Principle325. As such, the responsibility and necessary actions pharma and health 
care sector in their waste management, development of ‘green pharmaceuticals, proper 
disposal of pharma products is essential, and presents a timely mitigation strategy for 
the industry. Proper waste management practices are also necessary to minimize among 
others increasing drug resistance in organisms, and contamination of clean water and 
soil. 

Finally, the health of our environment is intrinsically intertwined with human health, as 
evidenced by the COVID-19 pandemic. With merely 20% of human health attributed to 
clinical care, the remaining 80% hinges on social, economic, and environmental factors. 
Acknowledging  this  symbiotic  relationship,  the  healthcare  sector  not  only  has  the 
potential to promote sustainable lifestyle choices but also possesses the financial means 
to  reinvest  in  education,  nature  restoration,  and  sustainable  practices326.  As  global 
healthcare spending continues to rise, now at an estimated USD 9 trillion annually which 
represents  10%  of  global  GDP,  there  is  a  pivotal  opportunity  to  redirect  financial 
resources  towards  preserving  the  environment,  creating  a  direct  connection  between 
nature  and  human  health327.  The  role  of  financial  institutions  and  policy  mandates 
emerges as pivotal, with active obligations on the pharmaceutical and healthcare sector 
offering a route to reinvest in nature, biodiversity, and curbing their GHG emissions. 

3.5.  Key conclusions and recommendations 

A sectoral approach to assessing biodiversity and nature related risks is crucial in the 
current landscape, primarily due to the limited availability of micro-level data, which is 
both  reliable  and  comparable.  While  the  TNFD  and  the  EU’s  sustainability  reporting 
framework, including the SFDR and CSRD, represent positive steps towards this goal, 
companies use different methods for reporting and implementation of ESGs. Hence at 
this stage it may take some time to achieve the right quality of data (standardized and 
comparable) to accurately quantify the risks financial institutions are exposed to. Even 

322 Deweerdt et al (2022). How Will the TNFD Impact the Health Sector’s Nature-Risks Management?. Int. J. Environ. 
Res. Public Health, 19(20. 
323 Wilkinson et al (2022). Pharmaceutical pollution of the world’s rivers. PNAS, 199 (8). 
324 Gworek et al (2021). Pharmaceuticals in the Soil and Plant Environment: a Review. Water, Air, & Soil 
Pollution volume 232 
325 OECD (2022). Background note: The implementation of the Polluter Pays Principle - For the thematic workshop on 
29 – 30th March 2022. Available here: https://www.oecd.org/water/background-note-polluter-pays-principle-29-20-
march-2022.pdf 
326 King et al (2023). An Urgent Call to Integrate the Health Sector into the Post-2020 Global Biodiversity Framework. 
Int J Environ Res Public Health. 20 (1). 
327 World Health Organization (WHO) Global Spending on Health: Weathering the Storm. World Health Organization 
(WHO); Geneva, Switzerland: 2020 

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with biodiversity loss and ecosystem degradation 

when such comprehensive data becomes accessible, it's important to acknowledge that 
resource  constraints  could  make  an  in-depth  analysis  challenging.  In  such  scenarios, 
adopting an iterative approach where materially exposed sectors engage in additional 
risk  identification  and  assessment  methods  could  be  practical.  This  implies  that  risk 
frameworks  must  be  adaptable,  facilitating  both  complex  micro-level  analyses  and 
sectoral  assessments.  Ultimately,  promoting  accessibility  to  a  nature-related  risk 
framework across the board will not only standardize nature risk assessments but also 
enhance our collective comprehension of these risks. 

Existing  approaches to  identify  and rank sectoral  sensitivity to  biodiversity  and  nature 
risks  encounters  a  range  of  limitations.  Many  of  the  examined  references  utilize  a 
somewhat ad hoc approach to pinpoint sectors that are vulnerable to these risks. One 
common  approach  is  to  investigate  existing  literature  and  engage  experts  to  delve 
deeper into the impacts on specific sectors, a method exemplified by initiatives like the 
TNFD. On the other hand, some financial institutions have already taken on assessment 
tools, though these methodologies are not without their own inherent constraints. The 
most  commonly  implemented  tools  that  allow  for  a  quantitative  component  in  the 
assessments  were  covered  under  Task  1.  Despite  their  popularity,  these  tools  share 
common issues and limitations.  

Our methodological approach in Task 2 focused on ENCORE, one of the prevailing tools 
in  use,  to  gauge  sectoral  sensitivity  to  biodiversity  and  nature  risks.  However,  this 
investigation  uncovered  a  series  of  constraints  associated  with  the  data  provided  by 
ENCORE including: 

•  The materiality assessment provided offers a rudimentary ranking at best, 

underscoring the need for more refined evaluation methods. 

•  The sectoral classification employed diverges from widely accepted 

classification systems, which undermines comparability and alignment 
with industry standards. 
It overlooks the critical interplay across sectors and the significance of 
location-specific factors, essential for a comprehensive understanding of 
biodiversity and nature risks. 
It also fails to consider feedback loops from the economy and financial 
sectors to the environment, contagion effects, etc. 

• 

• 

•  The transition of biodiversity and nature risks into financial risks is still in 
its formative stages, signifying an area that requires further development 
to comprehensively gauge potential impacts This requires, for example, 
greater emphasis on forward looking assessments, with a focus on the 
development of scenarios tailored to sectoral exposures and financial 
stability that could be integrated into the financial institutions’ risk 
management approaches. 

•  ENCORE's assessment framework does not encompass the mitigation 
measures that businesses and sectors may have already adopted to 
address their exposure to these risks. 

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A comprehensive literature review reinforces the notion that transmission channels and 
mitigation measures are inadequately incorporated within empirical studies, reports, and 
methodological approaches at the sectoral level. Addressing these limitations requires 
ongoing enhancements in assessment methodologies and tools, aimed at achieving a 
more nuanced understanding of sectoral sensitivity to biodiversity and nature risks. 

Finally,  in  our  methodological  approach  to  determine  the  most  sensitive  sectors, 
encompassing quantitative materiality analysis and industry case studies, we encounter 
analogous  limitations  to  some  extent.  Utilization  of  ENCORE  for  dependencies  and 
impacts  assessment  primarily  aimed  to  assess  the  feasibility  of  current  methods  and 
information,  and  to  shed  light  on  persisting  challenges  stemming  from  existing  data 
constraints. When attempting to contextualize the ENCORE global data to the European 
context, we found additional limitations in the materiality analysis, notably the difficulties 
in  alignment  with  NACE  sectoral  classifications  and  deficiencies  in  considering  inter-
sectoral (value chain), locational, and temporal factors. Lack of information on variability 
of risks was also reviewed in Task 1 and determined as a key limitation in today’s existing 
frameworks and tools. 

The  development  of  industry  case  studies  served  to  further  highlight  the  complexities 
encountered at sectoral level assessments. These case studies also aimed to provide 
empirical  insights  into  inter-sectoral  linkages,  transmission  channels,  and  mitigation 
strategies—areas that are notably complex and often not adequately captured by general 
tools  like  ENCORE  due  to  their  intricate  nature.  The  industry  case  studies  ultimately 
unveil  three  critical  findings:  1)  the  significance  of  so-called  "hidden  risks,"  through 
biological and macroeconomic feedback loops 2) the substantial impact of inter-sectoral 
linkages  that  can  amplify  risk  propagation  across  various  sectors,  thereby  generating 
more pronounced financial risks than commonly estimated, and 3) the current deficiency 
in comprehending transmission channels and mitigation measures at the sectoral level. 
Given these findings, further exploration in this realm is imperative for future analysis, as 
sector-level transmission channels frequently serve as vital mediators bridging micro and 
macro level transmissions.  

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4.  Task 3 - Developing an applicable methodological 

framework 

4.1 

Introduction 

This  section  provides  a  methodological  framework  to  guide  financial  institutions  and 
financial  supervisors  to  identify  and  assess  potential  financial  risks  associated  with 
biodiversity loss and ecosystems degradation.  

Over the past two years, several frameworks have emerged to provide initial guidance 
on  nature  risks  assessment  for  financial  institutions  and  financial  supervisors.  These 
include  the  OECD’s  “Supervisory  framework  for  Assessing  Nature-related  Financial 
Risks”328,  and  the  NGFS  Conceptual  Framework  on  Nature-related  Risks329.  Both  of 
these frameworks are directed at financial supervisors and central banks. However, there 
is  currently  limited  methodological  guidance  that  can  be  used  more  broadly  across 
financial  institutions  and  financial  supervisors,  even  though  the  Taskforce  on  Nature-
related Financial Disclosures (TNFD) also presents detailed guidance under its “LEAP” 
approach, directed at corporate and financial institutions, with specific guidance for FIs 
along  with  core  metrics.330  This  framework  aims  to  build  on  this  work,  providing  a 
practical methodological guidance for financial institutions on how to assess the financial 
implications of these risks. 

This  framework  sets  out  an  overall  approach  and  step-by-step  methodology  that 
financial institutions can use to assess the financial impacts of biodiversity and 
nature-related  risks.  It  sets  out  a  common  and  adaptable  approach  that  financial 
institutions can use to quantify these risks. The framework takes a modelling perspective, 
guiding financial institutions through the necessary steps that are required to model their 
nature  risk  implications.  It  defines  the  key  components  of  a  biodiversity  and  nature-
related  risk  assessment  and  details  step  by  step  actions  that  can  be  expected  from 
financial institutions for their identification and measurement of nature-related financial 
risks.  Certain  steps  have  been  re-ordered  to  better  suit  the  perspective  and 
methodologies typically employed by financial institutions, considering their overarching 
approach  before  delving  into  company  or  sector-specific  data,  while  respecting  core 
elements of the TNFD.  

The framework does not make recommendations on specific tools, metrics and models 
that  should  be  used  by  financial  institutions  to  undertake  nature-related  risk 
assessments. Rather, throughout the framework we emphasise that the choice of when 

328 OECD (2023) A supervisory framework for assessing nature-related financial risks, Available at: https://www.oecd.org/finance/a-

supervisory-framework-for-assessing-nature-related-financial-risks-a8e4991f-en.htm 

329 NGFS (2023) Nature-related Financial Risks: a Conceptual Framework to guide Action by Central Banks and Supervisors. Available 

at: https://www.ngfs.net/sites/default/files/medias/documents/ngfs_conceptual-framework-on-nature-related-risks.pdf 

330 TNFD (2023). Nature-related Risk and Opportunity Management and Disclosure Framework.  

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to utilise a specific tool, approach or metrics depends on the purpose, specificities and 
starting point of assessment. At several points in the framework, we include an in-depth 
discussion of the spectrum of different approaches financial institutions could use to carry 
out assessments at different levels of granularity and detail. To supplement this, an in-
depth review of available tools is included in Annex A (table 5.1)  of this report. In addition 
we provide an brief summary of available tool and guidance at every step of the method 
framework. 

The framework aims to guide financial institutions in answering four key questions: 

●  What are the main components of a risk assessment framework that financial 
institutions can put in place to help them identify, measure and mitigate nature-
related risks ? 

●  How can risks be identified and measured? 

●  How can risks be quantified into financial terms? 

●  How to integrate a forward-looking perspective? 

The framework was developed to equip financial institutions with a general approach that 
can be applied for different use cases, resource constraints and data availability. It aims 
to help financial institutions work towards best practice in a data challenged environment, 
with the focus on being flexible in the context of improving data. The framework provides 
starting  points  for  financial  institutions  across  different  level  of  capabilities  and  data 
availabilities.  It  aims  to  help  them  overcome  gaps  and  get  started  with  nature  risk 
assessment in many contexts.  

4.1.1.  Methodology and key considerations  

4.1.1.1.  Approach used to develop this framework  

This  framework  was  developed  based  on  an  in-depth  review  of  existing  climate  and 
nature  risk  assessment  frameworks  as  well  as  an  extensive  consultation  with  key 
stakeholders across European financial institutions.  

Existing frameworks on climate-related risk assessment were used as a main reference 
to  frame  key  structural  components  and  define  essential  concepts  and  terminology. 
Climate  risk  assessment  methodologies  current  best  reflect  what  financial  institutions 
already do and understand and share some fundamental components with other nature-
related  risk  assessments.  Risk  categorizations  (e.g.  physical  and  transition  risks)  are 
likely to be broadly consistent across climate and nature. Additionally, there are multiple 
interactions  between  climate  and  nature  that  require  an  integrated  approach  to  the 
climate  and  nature  transition.331  Finally,  financial  institutions  have  already  established 
risk management processes for climate, and as identified in Task 1, have signalled the 

331 European Commission, ‘Nature and climate crises: two sides of the same coin’ (2021) 

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intention  to  use  climate  frameworks  as  a  basis  for  assessing  nature-related  risk. 
Therefore, constructing a framework aligned with climate frameworks make it easier for 
these  institutions  to  integrate  biodiversity  and  nature  assessments  into  existing 
processes. 

However, the framework departs from climate frameworks in important ways due to the 
specific  nature  of  biodiversity  risks  and  their  differences  from  climate  risks.  Existing 
guidance  on  biodiversity  and  nature-related  risks  were  also  used  as  a  reference  to 
develop the detailed content of this framework. The framework also extensively draws 
from case studies of financial institutions that have already conducted nature-related risk 
assessments. It integrates key learnings and considerations to overcome the challenges 
faced in these initial assessments.  

The framework is therefore aligned with the overall approach of climate risks framework 
but differs where needed and remains nature specific in content. 

To understand climate and nature risk assessment, a three-step process was used to 
screen available climate and nature risk assessment frameworks for financial institutions, 
building on the literature review outlined in Task 1. The process followed is summarised 
below: 

1. 

Identification – 100+ sources located as part of the literature review in 
Task 1 were used as a basis for compiling a long-list of climate and nature 
risk assessment frameworks and guidance. This was augmented with a 
search  identifying  climate  specific  frameworks,  and  case  studies  of 
nature  related  risk  assessments  such  as  UNEP-FI  TNFD  pilots,  Dutch 
Central Bank’s “Indebted to Nature” report, and Banque de France “Silent 
Spring” assessment.332333,334 

2.  Applicability to a broad range of financial sector institutions – the 
literature review described in Task 1 identified guidance applicable to the 
final  sector.  Guidance  applicable  to  the  range  of  institutions  within  the 
scope of this study was selected. 

3.  Detail – the field was narrowed to the best available guidance based on 
having  sufficient  information  on  how  to  conduct  a  nature  related  risk 
assessment.  

Three  sources  of  existing  methodological  guidance  on  biodiversity  and  nature-related 
risk assessment were identified as major references for the financial sector, the NGFS 
conceptual  framework335,  the  OECD  supervisory  framework  and  the  TNFD  LEAP 
approach.  In  line  with  findings  of  Task  1,  the  main  steps  and  concepts  used  in  this 
framework are aligned with these existing guidance documents/frameworks. The current 

332 DeNerderlandscheBank (2020). Indebted to Nature: Exploring biodiversity risks for the Dutch financial sector available 
at: https://www.dnb.nl/media/4c3fqawd/indebted-to-nature.pdf 
333 UNEP-FI  (2023)  Unboxing  Nature-related  risks:Insights  from  the  UNEP-FI-led  TNFD  Piloting  Programme  available  at: 
https://www.unepfi.org/publications/unboxing-nature-related-risks-insights-from-the-unep-fi-led-tnfd-piloting-
programme/ 
334 Banque de France (2021). A “Silent Spring” for the Financial System? 

335 

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framework was developed to provide an additional layer of detail on practical steps to 
help financial institutions better understand how to implement a biodiversity and nature-
related  risk  assessment  framework  and  carry  out  the  risk  assessments.  Table  4-1 
provides  an  overview  of  the  main  area  of  alignment  and  differences  with  these  3 
frameworks of references.  

Table 4-2 Comparison with existing guidance on nature-related risks for financial institutions 

Description 

Targeted 
parties 

Key elements 
covered 

Direct alignment 

Main differences 

Current 
framework 

Practical guidance through 
a step-by-step approach, 
providing distinct building 
blocks to understanding 
and assessing nature risks  

Financial 
institutions, 
namely banks, 
asset 
managers, 
asset owners 
and insurers 

Risk identification, 
exposure estimation, 
risk quantification, 
business responses, 
financial impact 
estimation and 
mitigation actions 

OECD 
supervisory 
framework 
(2023) 

A supervisory framework 
to assess biodiversity-
related financial risks, 
impacts and 
dependencies. 

Central banks 
and retail 
banks  

Overview of 
biodiversity-related 
financial risks; data, 
metrics and 
indicators;  
measurement 
approaches; 
Approaches to 
Translate Exposure 
into Risk; Public 
policy for 
biodiversity 

NGFS 
conceptual 
framework 
(2023) 

A conceptual framework 
on nature-related financial 
risks to guide action by 
central banks and 
supervisors 

Central banks 
and 
supervisors 

Identify sources of 
physical and 
transition risk; 
Assess economic 
risks; Assess risk to, 
from and within the 
financial system   

TNFD 
(2023) 

A risk management and 
disclosure framework to 
report and act on evolving 
nature-related risks, with 
the ultimate aim to support 
a shift in global financial 
flows toward nature-
positive outcomes 

The TNFD 
framework is 
intended for 
use globally 
by non-
financial (‘ 
real-economy') 
companies  
and financial 
institutions of 
all sizes. 

The LEAP (Locate, 
Evaluate, Assess, 
Prepare) approach 
for nature risks 
assessment; TNFD 
Disclosure guidance 
for Financial 
Institutions and 
additional guidance 
for other real 
economy sectors 

154 

Focused more on 
data sources, tools 
and metrics 
considerations than 
step-by-step;  

Risks identification 
and linkages 
between steps not 
covered in as much 
detail 

Adopts a more 
integrated approach, 
where climate-
related risks are 
considered to be 
part of nature-
related financial 
risks;  

Steps to quantify 
exposure and risks 
materiality not 
discussed in as 
much detail 

Dedicates a step to 
location 
identification and 
prioritisation while 
this framework 
trickles it down 
across multiple 
steps 

Modelled metrics and 
indicator corresponds to 
Step 1.1 on unit of 
analysis and Step 2.1 on 
modelling physical and 
transition risks 

Measurement 
approaches corresponds 
to step 2.2; on impacts 
and dependencies 
exposure 

Approaches to Translate 
Exposure into Risk 
corresponds to steps 2.3, 
2.4, 3.1, and step 2.1 on 
forward looking analysis 

Phase 1 corresponds to 
step 1.2 on risk 
identification; and step 
2.1 on modelling sources 
of financial risks 

Phase 2 corresponds to 
step 2.3 on risk 
materiality and 2.4 on 
business response. 

Phase 3 corresponds to 
step 3.1 on financial 
impact assessment 

The Scoping step of 
LEAP corresponds to the 
scoping phase of this 
frameworkThe “Evaluate” 
E3 and E4 step 
corresponds to step 2.2 
on impacts and 
dependencies exposure 
assessment 

The “Assess” A1 step in 
LEAP, corresponds to 2.1 
on sources of financial 
risks, and A4 to 2.3 on 
risk materiality, 2.4 on 
response and 3.1 on 
financial impact 

The “Prepare” step 
corresponds to 3.2 on 
mitigation actions 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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4.1.1.2.  Key design considerations in an evolving field  

Nature-related risk assessment is an emerging area of interest for financial institutions. 
A multitude of actors are developing various initiatives, tools, and data solutions to help 
support this. This framework was developed with the aim of presenting what current best 
practice could be while taking into account existing limitations and the rapidly changing 
data landscape.  

Three key design considerations have shaped the overall structure and content of this 
framework: 

1. This framework closely aligns with existing climate risks frameworks at high-

level, but its content is specific to nature and biodiversity 

This framework uses key structural components, concepts and terminology developed 
by climate frameworks. However, the content detailed under each main phases of the 
risk assessment presents some fundamental differences accounting for specificities of 
nature-related risks. 

2.  This  framework  is  a  middle  ground  between  a  prescriptive  step-by-step 

guidance and a high-level conceptual guidance 

This framework aims at providing applicable and practical guidance through a step-by-
step  approach  when  most  relevant.  However,  the  steps  of  the  framework  can  be 
considered as distinct building blocks to understanding and assessing nature risks which 
don’t  necessarily  need  to  all  be  carried  out  in  the  early  phases  of  establishing  and 
implementing the risk assessment framework.  The framework aims to describe potential 
best  practice  approaches  for  developing  these  building  blocks  without  prescribing  a 
restrictive methodology.  In order to reflect the variety of use cases, capability building 
needs and resource differences, this framework presents different kinds of tools suitable 
for different cases and does not provide specific recommendations on which tools to use 
– as the most appropriate tools might vary between use cases and financial institutions. 
Moreover, it should be noted that this framework does not recommend specific tools to 
carry out assessments but rather provides examples of tools as an illustration of what 
could be used.  

3. The framework’s main components are adaptable to future developments in 

data and capabilities 

The framework provides suggested approaches which are applicable with different data 
and  methodological  capacities,  and  therefore  adaptable  to  future  developments.  The 
practical guidance within each step reflects best practice while building in different data 
and methodological options – from most ambitious to most common practice. 

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4.2.  Overview of the framework 

This  framework  covers  the  key  components  of  nature  risk  assessment  for  financial 
institutions from defining the appropriate assessment scope, to quantifying transition and 
physical risks, estimating impacts and dependencies exposure and translating exposure 
and risks into financial impacts at entity and financial level, to then informing actions for 
financial institutions 

For each main structural step of a nature risk assessment, the framework details how 
specific actions can be carried out. It also includes discussions around key challenges, 
synergies and design decisions that arise when undertaking these actions. This includes 
discussions around synergies and divergence with climate risks assessment approaches 
and metrics. 

For  each  step  involving  quantification,  this  framework  provides  a  discussion  around 
current data challenges and approaches to overcome them. 

4.2.1.  The 3 phases of nature risks assessment 

Nature-related risk assessments can be structured around three fundamental phases 
which are aligned with climate risk assessment practices, and also reflect emerging best 
practices used in other nature frameworks as discussed in Section 2. It also follows the 
basic  structural  logic  of broader risk  management  frameworks  such  as  the  Enterprise 
Risk Management framework from the Committee of Sponsoring Organizations of the 
Treadway Commission (COSO).336 

The three fundamental phases are: 

Phase 1- Scoping 

This is the initial preparation that financial institutions need to conduct before carrying 
out an assessment. This involves establishing the purpose and unit of analysis of the 
assessment and laying out potential risks and sectors to prioritize.  

The  scoping  phase  can  provide  a  preliminary  view  into  the  exposure  of  the  financial 
institutions to specific sectors and risks, which will support decisions on risks or sectors 
to  prioritize  and  help  define  data  needs  in  more  details.  This  phase  does  not  involve 
quantification but can require some initial knowledge of nature-related risks.  

Phase 2 - Entity-level337 risk assessment  

This includes the measurement of all key components of nature-related risks for entities 
within  the  real  economy.  It  is  the  core  of  the  quantitative  analysis  covering  the 
quantification  of  both  physical  and  financial  metrics  which  will  lead  to  estimates  of 

336 See: https://www.coso.org/guidance-erm 

337 The word "entity" is used throughout this framework to refer to the businesses supported by financial institutions through lending, 

investments or insurance.  These businesses can be analysed at different levels: sector, subsector, company, asset-level. 

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financial outcomes at entity level.  This also covers the potential integration of forward-
looking scenarios into the risk assessment. 

The entity-level assessment involves an estimation of the main sources of risks and their 
materiality in monetary terms, as well as an assessment of the exposure of the entities 
to  a  set  of  impacts  and  dependencies  on  nature.  Depending  on  the  scope  defined  in 
Phase  1,  financial  institutions  can  decide  to  simplify  the  assessment  by  only  carrying 
certain  steps  of  this  phase  (e.g.  only  focusing  on  transition  risks  and  impacts,  or  not 
including entities’ responses to risks).  

Phase 3 - FI-level impact assessment and mitigation  

This phase consists in the translation of entity-level financial risks in the real economy 
into financial risks for the financial sector, and specifically the financial institution carrying 
the assessment.   

It focuses on the aggregation of entity-level risks and present how financial modelling 
and risk classification can be used to translate these into risks for financial institutions. 
After this, potential mitigation actions can be defined by financial institutions to reduce 
the risks identified and measured.  

Figure 4-2 Overview of the three phases of nature risk assessment  

Each phase is broken down into several steps (eight in total) which have each a set of 
actions that can guide financial institutions on how to reach the targeted output of each 
step.  

The  next  section  provides  an  overview  of  each  step  of  the  framework  and  specific 
actions. 

4.2.2.  The 8 steps of nature-related risks assessment 

Financial institutions can structure their assessment around 8 main consecutive steps. 
Each step generates an output that feeds into the next step.  

Figure 4-3 Steps, actions and outputs of nature-related risks assessment 

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Step 1.1 – Intention setting aims at producing a clear definition of the primary use 
and objective of the assessment. Based on this, financial institutions can then establish 
the scope and level of assessment needed, including the unit of analysis (e.g. sector or 
counterparty-level analysis).  

Step 1.2 – Risk identification is a step further into the scoping phase, during which 
financial institutions can get a high-level view of their exposure to different sectors and 
risk drivers and narrow the scope to sectors that are likely to present the most material 
risk.  

Step 2.1 Sources of financial risks lays the basis for the quantification of risks 
through the definition and measurement of key variables reflecting relevant aspects of 
state of nature, nature-related policies and regulations, and market dynamics across 
different locations and sectors. These variables contribute to the measurement of 
physical, transition, and systemic risks and can be projected under different scenarios if 
financial institutions decide to carry a forward-looking analysis.  

Step 2.2 Impacts and dependencies exposure consists of the measurement of the 
entity’s interaction with nature through physical impacts on nature and level of 
dependencies to ecosystem services. This can also cover attribution of impacts and 
dependencies through entities’ supply chain – or indirect exposure.  

Step 2.3 Risk materiality combines measures generated in step 2.1 and 2.2 and 
translate these into financial impacts at entity-level. This includes the definition of 
transmission channels through which sources of risks materialise into economic impact 
and the translation of economic impacts into impacts on the entities’ financial 
performance. 

Step 2.4 Responses to risk consists in assessing how entities could mitigate some of 
the financial impacts, providing a more realistic view of financial risks at entity-level.  

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Step 3.1 Financial impacts assessment focusses on the translation of entity-level 
financial impacts into financial risks for the financial institution through aggregation and 
financial modelling, and the classification of these risks.  

Step 3.2 Mitigation actions presents how financial institutions can use the results of 
the nature-related risk assessment to develop a plan for the management and 
mitigation of these risks.  

Each step can be conducted with different levels of complexity, including varying levels 
of location specificity and sectoral granularity. The assessment can also be undertaken 
with different drivers’ coverage and integrate forward-looking projections. The next 
section will present each action in detail and discuss different modelling and design 
considerations.  

4.3.  Detailed step-by-step approach 

This  section  describes  each  step  of  the  nature-related  risk  assessment  framework 
through a set of key actions that can guide financial institutions towards best practice. 
For  each  step,  key  design  questions  and  considerations  are  highlighted,  and  when 
available,  relevant  measurement  and  identification  tools  currently  available  are 
presented.  

This  approach  also  explores  solutions  to  overcome  existing  gaps  and  challenges, 
that 
especially  around  data  and 
implementation of the best practice approach will rely on improving capabilities and data 
in the near future. 

location-specific  analysis,  acknowledging 

4.3.1.  Phase 1 – Scoping  

During  the  scoping  phase,  financial  institutions  can  answer  a  set  of  fundamental 
questions,  which  will  frame  the  risk  assessment  and  help  define  the  outputs  and 
outcomes expected from it.  

In  alignment  with  the  Scoping  phase  of  the  TNFD  LEAP  approach,  these  questions 
include: 

•  What is the specific purpose (‘use case’) of the risk assessment?  
•  What areas of activities should it cover? 
•  What is the appropriate level (granularity) of analysis for this assessment? 

4.3.1.1.  Step 1.1 Intention setting  

This first step covers the key elements that need to be considered to define what is the 
main  purpose  of  the  assessment  and  understand  what  kind  of  outputs  are  needed  to 
achieve this purpose.  

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Action 1 - Define the aim and ambition  

Financial institutions can initiate the scoping of the risk assessment by defining a clear 
aim for the risk assessment which should directly inform what outputs and outcomes are 
expected to be produced. 

Firstly,  financial  institutions  can  list  what  the  risk  assessment  will  be  used  for.  This 
intention  can  be  formalised  into  a  primary  use,  which  could  relate  to  compliance  with 
policy or legislation, or to operational or strategic goals. Examples of main use cases for 
a  risk  assessment  can  be  (i)  compliance  with  disclosure  requirements  or  voluntary 
frameworks  such  as  the  SFDR,  CSRD  or  TNFD,  (ii)  impact  analysis  to  inform  capital 
allocation or pricing strategy, (iii) stress-testing to review risk appetite, risk management 
approaches and comply with supervisory requirements.  

Key consideration – Is the assessment meant to be used internally at operational level or will 
it be used in external reporting? This will directly influence the flexibility in the type of outputs 
required. For operational use, the risk assessment could help inform nature strategy, develop 
nature-related product, improve risk management procedure, etc. 

After establishing the primary use, the aim of the assessment can be further refined by 
reviewing  regulatory  frameworks  (emerging  or  currently  in  place)  that  could  create 
additional  use  cases  for  the  assessment.  Financial  institutions  can  review  nature 
frameworks and regulations relevant for their country and sector of operations. This can 
directly inform what outputs are generally required or expected by different institutions, 
for example the type of data and metrics which need to be disclosed. This could be for 
instance  Taskforce  on  Nature-related  Financial  Disclosures  (TNFD),  Corporate 
Sustainability Reporting Directive (CSRD), Regulatory Technical Standards (RTS) of the 
Sustainable Finance Disclosure Regulation (SFDR), European Banking Authority (EBA) 
requirements  on  Capital  Requirements  Regulation  (CRR)  mandate,  EU  Taxonomy 
reporting requirements, etc. 

Based on this review and the identified primary use case the scope of the assessment 
can be established. 

Action 2 - Set the unit of analysis  

When the scope of the assessment is established, financial institutions can define the 
unit of analysis required for the rest of the assessment.  

Nature  risk  assessments  can  be  done  at  different  levels  of  granularity,  ranging  from 
sector-wide analysis to asset-level assessment. The more specific the unit of analysis is, 
the higher potential understanding of heterogeneity in the nature risks between units and 
locations. However, increasing the specificity of insights substantially increases the data 
and modelling challenges. It is therefore key for financial institutions to understand the 
different options and their implications to clearly define the scope and level of granularity 
early on in the assessment and align it with their use cases. 

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Table 4-2 below presents the three main levels of analysis which can be considered for 
a risk assessment: sectoral level, company level, or asset level. 

Table 4-3 Overview of assessment levels of analysis 

Unit of 
analysis 

Description 

Benefits of 
analysis 

Limitations 

Data needs and 
sources 

Sectors or 
subsectors 

Sectors defined by 
global framework 
such as ISIC e.g. 
agriculture sector 

Wide range 
coverage, 
consistent data 
across sectors, 
existing 
knowledge 

Low granularity of 
estimated risks, lack 
of heterogeneity/ 
insights on company 
and location specific 
risks 

Individual companies 
operating within 
each sector 

Companies 

Account for 
differences in 
company 
heterogeneity 
location activity  

Limited spatial 
granularity, lack of 
insights on location 
specific risks  

Specific assets for 
the company of 
interest, e.g. 
buildings for a real 
estate company 

Asset level 

Ability to carry 
sophisticated 
spatial analysis at 
ecosystem level, 
understand 
exposure to 
location specific 
risk  

Limited access to 
data (especially 
production and econ 
data for assets), 
inconsistent data 
across sectors and 
companies, difficult to 
tie assets back to 
company 

FI’s exposure by sector, 
financial data (quantity, 
revenue, profit) by 
sector and by location 
(region, country) 

FI’s exposure by 
company, company 
financial data by area of 
activity (subsector, 
product) and location 
(production and selling 
locations), production 
data (quantity, 
production type and 
processes), quantity or 
value of main inputs 
into production process 

FI’s exposure by asset, 
asset level financial 
data, production data, 
quantity or value of 
main inputs into 
production process 

The decision can be directly informed by the use cases established for the assessment 
in the previous step, as well as a review of capabilities and data available. The definition 
of the appropriate level of analysis can also be guided by the sectors of focus for the 
analysis.  If  the  main  nature  impacts  are  associated  with  the  companies’  own 
activities/operating  sites  (e.g.  mining)  then  an  asset-level  of  granularity  would  be 
appropriate.  For sectors where nature risks are associated with the use of their products 
(e.g.  active  ingredients  in  pharmaceuticals  that  find  their  way,  after  use,  into  aquatic 
systems or pesticide and biocides manufacturers) then the company-level assessment 
(product design, extended producer responsibility systems, etc,) might be the better level 
to focus on. 

Table 4-4 Example Action 1 and 2 – An asset manager based in the EU 

Description  Asset manager looking to launch funds that promotes ESG goals 

Main use case  Disclose sustainability related information and ESG management 

Comply with Sustainable Finance Disclosure Regulation (SFDR) 

Reporting/disclosure 
regulations of interest 

Regulatory Technical Standards (RTS) of the SFDR, which require Article 8 funds 
(‘…promotes environmental or social characteristics… ’) to disclose ESG 
indicators of invested companies.  

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Scope  All funds under management classified as Article 8 under SFDR 

Unit of analysis  Company level to comply with SFDR and to balance the level of detail and 

modelling challenge 

4.3.1.2.  Step 1.2 Risk identification 

This step indicates how financial institutions can further refine the scope of the nature-
related  risk  assessment  by  prioritizing  a  set  of  risk  drivers  and  sectors  that  are  most 
relevant to their activity, based on high-level research and overview of their business.  

Risk  identification  and  prioritization  can  be  a  helpful  step  to  handle  the  complexity  of 
nature risk modelling, enabling clear and accurate definitions of variables in the following 
phases of the risk assessment. However, it is recognized that in some cases, such as 
for the assessment of systemic risks, considering a wide variety of drivers and sectors 
might be necessary.  

Action 1 - Prioritize risk drivers 

Nature related risks result from a large array of impacts and dependencies on nature, for 
instance ENCORE classifies 21 dependencies and 11 impact categories. Prioritizing a 
subset of risk drivers can allow financial institution to reduce the complexity of their risk 
assessment.  

Financial  institutions  can  create  a  shortlist  of  risk  drivers  that  are  feasible  and  most 
relevant  to  their  activity  to  further  refine  the  scope  of  their  analysis.  It  is  important  to 
highlight  however  that  in  the  longer-term  financial  institutions  would  incrementally 
explore a wider range of risk drivers to ensure a complete view of nature related risks.  

Firstly, a long list of risk drivers for transition and physical risks can be collected 
from  global  frameworks.  Financial 
frameworks 
summarising long lists of ecosystem services, nature impacts and dependencies which 
drive nature risks – for instance IPBES biodiversity assessment reports, the ENCORE 
database and TNFD guidance. These drivers of transition and physical risks can be a 
level more detailed than the risk drivers defined by Task 2 (refer to 2.2.2 of this). 

institutions  can  use  existing 

Key consideration - What are the main risk drivers for physical risks?   Drivers of physical risks 
are reflected in ecosystem services, an initial understanding of the main ecosystem services 
underpinning economic activity will be useful when selecting physical risks drivers. Resources such 
as ENCORE and the Millennium Ecosystem Assessment can support this understanding. 

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Secondly,  financial  institutions  can  select  risk  drivers  that 
are most likely to be material. Based on established knowledge 
in resources, financial institutions can identify which drivers are 
most likely to be linked to translate into real-world implications of 
significant magnitude. Financial institutions can conduct an initial 
review  of  nature  regulations  and  trends  in  state  of  nature  to 
inform their selection. 

Then,  risk  drivers  can  be  shortlisted  based  on  their 
relevance  to  the  core  activities  of  the  financial  institution. 
Financial institutions can prioritize the risk drivers which are most 
likely  to  be  linked  with  targeted  entities’  activities.  This  can  be 
informed  by  a  high-level  review  of  the  financial  institutions’ 
exposure to specific sectors or activities. Main sectors invested 
in, or credit exposure at financial institutions can be used as an 
initial indicator of relevance. 

Finally, a shortlist of risk drivers can be defined by reviewing 
the feasibility of quantitative modelling for each driver. This 
requires understanding how easily quantifiable each risk driver is 
based on its complexity, data availability and existing scientific knowledge. In the case 
that  a  risk  driver  has  been  identified  as  highly  relevant  and  material  for  the  financial 
institutions’ activities, but has a low feasibility, the institution should consider maintaining 
this risk driver for a qualitative analysis, to ensure it does not leave a significant gap in 
the institutions’ risk profile.  

Key consideration - What is the right amount of risk drivers to select to inform a risk 
assessment?  There are no pre-defined ideal set of risk drivers as this will be guided by the 
specific activities and locations targeted by the assessment. It is advisable to start with a 
wider set of well-understood risk drivers and eventually filtering them further down the 
process if needed. 

Action 2 - Prioritize sectors  

Financial institutions can also prioritise specific sectors in the real economy that are most 
likely to be driving risks for their activities. This can be done based on an overview of the 
financial  institutions’  exposure  and  the  level  of  nature-related  impacts  or  dependency 
associated with each sector.  

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To  prioritize  a  subset  of  sectors,  financial  institutions  can 
first compile an initial qualitative view on sectors’ potential 
exposure  to  nature  risks.  Financial  institutions  can  rely  on 
existing analysis to understand which sectors are most exposed 
to nature risks globally and what are the main risks each sector 
is exposed to. This can be carried using qualitative assessment 
tools such as ENCORE, or WWF’s biodiversity risk filter, or refer 
to the assessment done in section 3.3.2 of this report. 

Then financial institutions can identify sectors where most 
financial exposure is concentrated. Financial institutions can 
prioritise sectors for which they have the highest exposure, e.g. 
sectors  with  concentration  of  loans  from  bank  or  heavily  invested/insured  by 
investors/insurers, and their upstream/downstream activities. For EU, the most relevant 
sectors are real estate, health care, construction & engineering, and agriculture. 

This  information  can  be  combined to  shortlist  sector(s) for further assessment. 
Financial  institutions  can  combine  the  view  of  financial  exposure  to  sectors  and  each 
sectors’  potential  exposure  to  impacts  and  dependencies  (qualitatively  reviewed  as 
described above). This can be done using a heatmap which will then provide a clear view 
of  concentration  of  exposure  that  can  guide  the  shortlisting  of  sectors  for  the  risk 
assessment and materiality. 

Table 4-5 Tools and guidance for risk and sector identification and prioritization 

Data sources and tools  

ENCORE materiality database by sector and subsectors 

• 
•  WWF biodiversity risk filter  
SBTN materiality heatmaps 
• 

Guidance 

• 
• 
• 
• 

ECB good practices for climate and environmental risk management,  
TNFD V1.0 ( LEAP Approach) 
Banque de France (2021), 
IUCN  sector  specific  review  of  nature  risks  and  opportunities  (e.g. 
Apparel sector guidance) 

Box 4-1 How to manage location-specific variations in nature risk assessments? 

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The consideration of the location is central to a robust nature risk assessment. The 
functioning and health of ecosystems and services are often distinct for each location and 
as a result impacts and dependencies can significantly differ between ecosystems and 
their location. There can thus be stark differences in risks depending on the location of the 
entity’s activity assessed and the location of impact on nature – which can travel away from 
the activity’s site to other ecosystems such as pesticides across aquatic systems. Location is 
a central component of nature risk assessment. 

The stage at which the location targeted should be defined depends on the scope of 
analysis. For instance, if only direct risks are considered for a portfolio that is highly 
concentrated in one area, this location can be targeted early on during the risk identification 
phase. However, most analysis will require some level of flexibility in location 
coverage since high-risk locations will be identified when exposure and risk 
materiality are assessed (see table below).  The analysis can be simplified by starting with 
a selection of key locations allowing for adjustments or additions as needed.  

Although this will vary depending on the unit of analysis and the scope of the risk 
assessment, different sub-steps can require more or less granularity depending on their aim. 
As detailed below: 

Step 

Application of location 

Recommended 
level 

Data 
availability 

Considerations 

Risk identification 

Identify a selection of most 
relevant locations for the rest 
of the assessment 

Depending on unit of 
analysis and FI scope 
of activities, but 
usually country, 
region or global 

Good 

Physical risks 
modelling 

Modelling changes in the state 
of nature (ecosystem services) 
to assess physical risks 

Ecosystem level or 
more granular 

Average 

Transition risks 
modelling 

Modelling changes in demand, 
regulations and technology to 
assess transition risks 

Country level or more 
granular 

Low 

Systemic risks 

Understanding contagion 
channels 

Global or country 
level 

Low 

Scenario analysis 

Assessing baseline values of 
key drivers and risks variables  

Regional level or 
more granular 

Average 

Impacts exposure 

Assessing entity’s impacts on 
an ecosystem 

Ecosystem level or 
more granular 

Average 

Dependencies 
exposure  

Assessing entity’s 
dependencies on an 
ecosystem and its services 

Ecosystem level or 
more granular 

Indirect exposure  

Mapping entity’s upstream and 
downstream value chain 

Global or regional 
depending on value 
chain 

Low 

Low 

Simple approach is 
recommended at this stag  

High level of granularity 
available for some nature 
variables e.g. water 
availability 

Regional 
regulations/commitments 
used as proxy, especially 
the EU 

Some elements feeding i
systemic risks (e.g. 
ecosystem collapse) wou  
need to be modelled at h
granularity 

Projecting variables at hig  
level of granularity can be 
computationally intensive 

The exact location of the 
impact can significantly 
change the consequence  
it 

The boundaries of an 
ecosystem are not always 
clear and need to be 
informed. 

Some value chains could 
very localized but in most 
cases they are internation  

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4.3.2.  Phase 2: Entity level assessment  

The entity-level risk assessment covers the core quantification of nature-related risks 
from their drivers to their financial consequences in the real economy.  

During the entity-level assessment phase, financial institutions will have to make 
numerous modelling and design decisions such as:  

•  What level of granularity should each risk be modelled at, and when can 

proxies be used? 

•  When to consider using scenarios for a forward-looking risk assessment and 

which scenarios to use? 

•  To what extent should the entity’s value chain be included? 
•  Which are the most likely transmission channels that will lead nature impacts 

and dependencies to materialise into economic risks? 

•  Which level of entity response can be considered as most likely?  

The current approach provides an initial guidance to support these decisions and clear 
steps on how to carry the analysis according to best practice. 

4.3.2.1.  Step 2.1 Sources of financial risks 

This step consists in the definition and assessment of key variables that will affect the 
magnitude  of  nature-related  transition,  physical  and  systemic  risks  for  the  entity. 
Financial institutions can define key variables and collect data on state of nature, nature-
related  policies  and  regulations,  and  market  dynamics  across  different  locations  and 
sectors.  These  variables  can  also  be  projected  in  the  future  according  to  different 
scenarios and can be combined to monitor potential systemic risks. 

Action 1 - Model physical risks 

Modelling physical risks requires financial institutions to first understand the changes in 
state of nature and ecosystem services likely to drive these risks. Then a list of variables 
to monitor or project these changes can be defined and data can be collected to measure 
these variables and combine them into an overall physical risk variable.  

1.  UNDERSTANDING PHYSICAL RISKS AND THEIR SOURCES 

Financial institutions can start by identifying a list of physical risks that could result from 
the  pre-selected  short  list  of  risk  drivers.  Two  categories  of  physical  risks  need  to  be 
considered: 

—  Acute physical risks: short term event-based risks such as droughts, 

floods exacerbated by the degradation of ecosystem services (e.g. 
coastal protection from mangroves) disrupting operations such as 
manufacturing facilities 

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—  Chronic physical risks: issues arising from long-term environmental 

changes and gradual loss in ecosystem services (e.g. pollinator decline) 

For each physical risk financial institutions can then 
identify the macro, meso and micro changes in the 
state  of  nature  (e.g.  climate  change,  river  basin 
water  flow)  and  drivers  of  nature  change  (e.g. 
water  consumption  at  macro  level)  that  generate 
this risk. These changes reflect the sources of risks 
which need to be quantified. 

For the agriculture and farming sector, for example, 
typical  chronic  physical  risks  include  the  loss  of 
pollinators  and  degrading  soils,  and  typical  acute 
risks  include  droughts  and  pest  invasion.  The 
sources of risks that will need to be monitored will 
include pollinator abundance, temperature change, 
aridity levels, drought and rainfall frequency.   

2.  QUANTIFYING PHYSICAL RISKS VARIABLES  

To  quantify  physical  risks,  financial  institutions  can  establish  a  list  of  measurement 
variables for all risk drivers and resulting physical risks to be modelled.  

For each variable, the most relevant data needs to be collected, in line within the spatial 
scope of the assessment (see Box. 4-2 on location-specific variations) 

Key consideration - What are the 
appropriate metrics to use? The choice 
of metrics can be guided by the end use of 
each metric, existing frameworks (e.g. 
TNFD and SBTN) and data availability. If 
using an external integrated modelling 
tool, specific metrics will be given. 

Key consideration - What is the 
appropriate level of spatial granularity?  
The spatial granularity can be guided by the 
initial location scoping of the assessment 
(e.g. country or sub-country activities). It is 
important to note that spatial data 
availability and quality vary greatly and very 
granular data might not be available for all 
risks. 

When relevant, the variables can be combined to estimate physical risks, this can be 
done through (i) using an existing integrated model, (ii) building an in-house simple 
model (e.g. water use and temperature change in targeted location combined into 
water availability), (iii) using externally modelled physical risk data (e.g. water risk 
data). 

Risks can be interlinked and share common risk sources, these interlinkages can be 
modelled by using common variables feeding into different risks. For instance, 

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temperature change and water availability will impact water scarcity and pollinator’s 
abundance.  

Key consideration - Do I need a model to estimate physical risks?  Physical risks result 
from a wide array of complex interactions between nature and human systems, when 
available, integrated models can significantly increase the accuracy of estimates. The use of 
such models should be guided by their accessibility and practicality for the aim of the 
assessment. A simple estimation may be sufficient when no established integrated model is 
readily available. 

Table 4-6 Data sources and guidance to model physical risks 

Data sources and tools  

Guidance 

• 

• 

• 

• 
• 
• 

• 

Platforms providing targeted physical risks variables: Aqueduct 
WRI, Ecolab Water risks, WWF Biodiversity risk filter 
State  of  nature  and  ecosystem  variables  from  EEA  indicators 
repository 
Integrated  physical  risks  model  (e.g.  Earth-Economy  model 
World Bank) 

IPBES Biodiversity Assessment (trends in ecosystem services), 
ENCORE ecosystem services list,  
ECB  good  practices 
management, 
TNFD V1.0 (Guidance on the identification and assessment of 
nature-related issues: the LEAP approach) 

for  climate  and  environmental  risk 

Key consideration - What is the main modelling difference with physical risks?  
Transition risks are often better captured by a combination of quantitative and qualitative 
data, as there is often only limited quantitative data currently available. 

Action 2 – Model transition risks  

Modelling  transition  risks  requires  financial  institutions  to  understand  the  market  and 
policy  context  that  could  drive  risk  exposure.  A  list  of  variables  to  monitor  or  project 
economic  activity,  market  trends  and  policy  trends  can  be  defined  to  capture  these 
potential risks. Data can then be collected to measure these variables and combine them 
into an overall transition risk variable.  

1.  UNDERSTANDING TRANSITION RISKS AND THEIR SOURCES 

Financial institutions can start by identifying a list of transition risks that could result from 
the  pre-selected  short  list  of  risk  drivers.  Four  categories  of  transition  risks  should  be 
considered:  

—  Policy or legal risks: e.g. ban of certain pollutants, water use restrictions, 

or restoration requirements 

— 

Technological risks: e.g. limited availability of low impact alternative to 
pesticides 

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—  Market risks: e.g. consumers shifting away from meat products 

—  Reputational risks: e.g. consumers boycotting brands linked to pollution 

For each transition risk, financial institutions can then identify the macro, meso and micro 
changes in local state of nature, policy trends and implementation, supply and demand 
for goods and services, consumer behaviour, that generate this risk.  These changes will 
be the sources of risks that will need to be quantified. 

For  example,  construction  and  operating  real  estate  can  result  in  significant  waste 
generation  and  pollution  (air,  soil  and  water)  which  may  lead  to  increased  regulation 
costs. In this case the sources of risk include the pollution levels, and the regulations on 
pollution in the locations targeted. 

Key consideration - What level of analysis is appropriate? At this stage the analysis can 
mostly focus on macro and meso trends, but when relevant some micro risk drivers can be 
identified (e.g. local communities pressure on pollution issues). 

2.  QUANTIFYING TRANSITION RISKS VARIABLES 

To  quantify  transition  risks,  financial  institutions  can  establish  a  list  of  measurement 
variables  for  all  risk  drivers  and  resulting  transition  risks  to  be  modelled.    For  each 
variable, the most relevant data needs to be collected, in line within the spatial scope of 
the assessment (see Box. 4-1 on location-specific variations). 

When  needed,  the  variables  can  be  summarised  or  combined  to  get  a  quantitative 
measurement  of  transition  risks.  These  variables  can 
take different forms: 

—  A purely quantitative continuous estimate 

e.g percentage change in demand for a 
commodity 

—  A categorical estimate e.g. binary 

variable indicating that a policy has been 
implemented  

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Key consideration - To what extent 
transition risks overlap with climate? 
Some policy, market and reputational risks 
identified for climate are also relevant for 
nature risks analysis, such as meat 
consumption, deforestation regulations and 
the phase out of coal mining. However, some 
trends will have opposite risk outcomes 
between nature and climate (e.g. increased 
renewable energy capacity putting pressure 
on land) and some transition risks are specific 
to nature (e.g. protected areas expansion). 

Key consideration - How to account 
for interlinkages between physical 
and transition risks?  Risks can be 
modelled in an integrated way by 
linking key drivers to one another 
(e.g. water use policies improving 
water availability). 

Table 4-7 Data sources and guidance to model transition risks 

Data sources and tools  

Guidance 

• 

Policy indices and trackers (e.g. EU quality of government index, OECD 
PINE database), EEA – EU Protected areas and pollution maps, Natura 
2000  maps  and  associated  site  specific  conservation  objectives 
(SSCOs) 

•  Market trends analysis / Demand analysis: e.g. EU Annual single market 

report 

• 

• 
• 
• 
• 

frameworks  –  Kunming  Montreal,  and 

Global  biodiversity 
commitments such as NBSAPs 
Nationally Determined Contributions, Biodiversity pledges,   
EU Green Deal regulations,  
ECB good practices for climate and environmental risk management,,  
TNFD V1.0 (Guidance on the identification and assessment of nature-
related issues: the LEAP approach) 

local 

Action 3 - Develop a forward looking analysis 

Financial institutions can enhance the relevance and accuracy of their risk assessment 
by  integrating  future  pathways.  Scenario-based analysis  can  help financial  institutions 
better  understand  risks  in  a  context  of  uncertainty  and  is  also  a  common  practice  in 
climate risk assessment. To model all key variables feeding into transition and physical 
risks in a forward-looking way, financial institutions will have to use scenarios reflecting 
different trajectory of policy, market, and state of nature. 

Although it is expected that nature scenarios will be developed in the future, there only 
a  very  limited  existing  nature  specific  scenarios  of  reference  available  –  the  main 
reference  is  the  UN  PRI  –  IPR  Forecast  Policy  Scenario  for  Climate  and  Nature338. 
Climate scenarios can also be used as a starting point for some variables of interest for 
nature, but should be adapted to nature specificities (e.g. temperature change and water 
availability can be extracted from some climate scenarios and be used to help project 
nature related risks).  

338 IPR Forecast Policy Scenario + Nature | Thought leadership | PRI (unpri.org) 

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A  forward-looking  analysis  first  requires  financial  institutions  to  establish  the  future 
pathways that are most relevant for their analysis, and then model these pathways using 
existing data or developing projections.  

1.  DEFINING FUTURE PATHWAYS 

First,  financial  institutions  can  establish  the  aim  of  the  forward-looking  analysis,  for 
instance, extreme risk testing or realistic risk forecasting.  

for 

the 

Then a time horizon can be set, that is 
targeted 
most  appropriate 
for 
assessment  (e.g.  up  to  2050 
strategic 
long-term 
planning 
modelling, up to 2030 for medium-term 
capital allocation decisions) 

Key consideration - What is a 
useful time horizon? The time 
horizon chosen should be guided 
by the aim of the assessment, 
existing risk assessment practices 
within financial institutions but also 
taking into account policy timelines 
(e.g. 30x30). 2030 and 2050 are 
generally used in climate analysis.  

Then  the  future  pathways  can  be 
developed  around  a  set  of  plausible 
qualitative  narratives.  These  narratives  explicitly  define  the  trajectories  of  change  for 
each priority risk driver, physical and transition risk selected for the analysis.  

2.  MODELLING FUTURE PATHWAYS 

The  narratives  and  trajectories  defined  for  each  risk  and  key  drivers  can  then  be 
translated into quantitative assumptions. These quantitative assumptions can then feed 
into the projections of physical and transition risks.   

Different  modelling  approaches  can  be  used  to  generate  the  projected  values  of  key 
variables: 

-  Using integrated models such as economic-land use models to model drivers 

of risks and transmission channels  

-  Developing a simpler in-house modelling for a targeted set of transition or 

physical risks variables, using off-the shelf variables for drivers 

Integrated models can provide financial institutions with more comprehensive view taking 
into  account  interdependencies  between  variables.  However,  the  outputs  of  these 
models can sometimes be complex to explain and communicate, and this may be further 

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complicated  by  financial  institutions  using  a  wide  variety  of  different  models  and 
approaches to evaluate future risks.  

In the short term, most financial institutions may have to focus on developing our own 
capabilities to evaluate these future risks, such as through in-house modelling tools that 
can fulfil their own risk assessment requirements. Over time, as the availability of more 
harmonised publicly available scenarios increases, financial institutions and supervisors 
may  seek  to  adopt  scenario  approaches  that  are  consistent  across  institutions,  as 
recommended  in  recent work  by  NGFS339.  This may  confer several  benefits  including 
increasing standardisation across institutions, increasing transparency and lowering the 
cost of model deployment. 

Key consideration - Which systems 
or sectors need to be incorporated 
in the model? The sectors and 
system incorporated in the model 
should at least include the selected 
sectors and locations defined during 
the risk identification process. 

Key consideration - Should climate 
considerations be incorporated? There are 
strong interlinkages between climate and 
nature Key drivers such as temperature 
change, water availability or demand for 
critical minerals should be integrated using 
existing climate-related assumptions. 

Table 4-8 Data sources, providers and guidance on scenario analysis 

Data sources and scenario 
providers 

Guidance 

• 
• 
• 

• 

• 

• 
• 

Inevitable Policy Response FPS+Nature scenario ,  
International Energy Agency (IEA) scenarios,  
IPBES also compiles different scenarios for drivers of biodiversity loss, 
impacts  on  nature  and  consequences  for  human  activity  such  as  the 
VOLANTE European VISIONS on sustainable land use,  
Globiom (IIASA) 

Kunming-Montreal Global Biodiversity Framework targets can serve as 
thresholds,  
Network for Greening the Financial System (NGFS),  
TNFD guidance on scenario analysis  

Action 4 - Identify systemic risks 

Systemic risks result from a complex combination of events that are difficult to predict. 
There are no established methods and models that reliably assesses systemic risks for 
climate  or  nature.  However,  it  is  possible  to  assess  exposure  to  some  key  drivers  of 
systemic  risks  by  focusing  on  3  different  systems:  (i)  nature  systems,  (ii)  industrial 
systems  and  (iii)  economic  and  financial  systems.  This  approach  is  based  on  the 
definition  of  systemic  risk  presented  in  Section  2.2.2.  This  framework  approaches 
systemic risk in a way that can be used for specific quantification exercise, allowing for 

339 See NGFS Recommendations toward the development of scenarios for assessing nature-related economic and financial 
risks https://www.ngfs.net/en/communique-de-presse/ngfs-publishes-technical-document-providing-recommendations-
development-nature-related-scenarios 

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stress-testing  of  specific  systems  independently  or  jointly  depending  on  data  and 
modelling capabilities.  

The  collapse  of  a  natural  ecosystem,  the  aggregation  of  risks  and  the  potential  for 
contagion are all key drivers of systemic risks which can be assessed using outputs and 
data generated in other components of the risk assessment. 

Nature systems 

Industrial systems 

Economic and 
financial systems 

Ecosystem 
collapse 

Aggregation of 
risks 

Contagion 

Combine with 
physical risk 
assessment (step 
2.1), focusing on 
critically important 
ecosystems.  

Consider potential 
compounding 
effects of physical 
and transition risks 
and how they 
cascade within 
value chains (after 
step 2.1 and 2.2) 

Consider risk of 
contagion across 
financial 
institutions in step 
3.1, and potential 
feedback loops 
with the real 
economy through 
transmission 
channels identified 
in step 2.3 

Specific  analyses  and  monitoring  can  be  conducted  to  evaluate  some  aspects  of 
systemic risks at different stages of the risk assessment and integrate the results into 
the overall risk assessment outputs. Some approaches are detailed below: 

1.  SENSITIVITY ANALYSIS FOR RISK ACROSS SYSTEMS 

Across each system, a systemic risk analysis can start by identifying and assessing 
the key drivers of chain reactions (e.g. keystone species, food prices), and estimate 
the expected reach of the contagion (e.g. global, sectoral, local). 

Financial  institutions  can  also  conduct  a  worst-case  scenario  stress-test  by 
developing  a  scenario  of  extreme  risks  to  reflect  one  aspect  of  systemic  risk  and 
understand  the  order  of  magnitude  of  potential  financial  effects  (see  step  2.1.3  on 
scenario analysis).  

2.  MONITORING NATURE SYSTEMS 

To monitor risks of ecosystem collapse within nature systems, ready-made tools 
and  data  can  be  used  for  the  tracking  of  indicators  of  ecosystem  health.  This  can  be 
done  at  micro,  meso  or  macro  levels  depending  on  the  unit  of  analysis  and  location 
targeted.  Indicators  can  include  population  of  keystone  species,  or  freshwater 
availability. Then information on thresholds indicating potential tipping points (physical 

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risk  modelling)  needs  to  be  collected.  Financial  institutions  can  also  explore  their 
exposure  to  potential  major  contributors  to  an  ecosystem  tipping  point  –  if 
identified. One example would be the contribution of a sector to some of the planetary 
boundaries (see step 2.2 for more details on impact exposure assessment, and section 
2.2.2 of this report for the full description of planetary boundaries). 

3.  MONITORING INDUSTRIAL SYSTEMS 

To monitor likelihood of risk aggregation in industrial systems, financial institutions 
can assess their exposure to sectors that have significant interactions with nature. These 
would  be  sectors  that  are  both  highly  dependent  on  nature’s  ecosystem services  and 
highly impacting nature, as these are likely to be at the forefront of systemic risks (step 
2.2.). 

4.  MONITORING ECONOMIC AND FINANCIAL SYSTEMS  

To  monitor  the  risk  of  contagion  in  economic  and  financial  systems,  financial 
institutions can stress test major contagion channels such as inflation and interest rates, 
using extreme assumptions. The cumulated exposure of financial institutions to financial 
risks can also provide an indicator of likelihood of contagion. 

Table 4-9 Data sources and guidance to model systemic risk 

Data sources and tools 

Guidance 

• 
• 

• 

• 

• 

• 

• 

Planetary boundaries indicators as drivers of systemic risks 
IBAT,  IUCN  Red  List  of  threatened  species  as  a  tool  to  assess 
ecosystem health  
ENCORE as an indicator of sectors with highest dependency on nature 

treatment  of 

European  Systemic  Board  advice  on  prudential 
environmental and social risks 
International risk governance council’s guidance on the governance of 
systemic risks 
European  Central  Bank,  paper  on  nature  physical  risk  implications for 
financial stability 
NGFS Nature-related Financial Risks: a Conceptual Framework to guide 
Action by Central Banks and Supervisors 

4.3.2.2.  Step 2.2 Impacts and dependencies exposure  

This step focusses on the assessment of entities’ impacts and dependencies on nature, 
which  will  influence  the  level  of  exposure  of  the  entity  to  risks  associated  with  these 
impacts and dependencies.  

Entities’  indirect  exposure  via  their  value  chain  can  also  be  assessed  in  this  step, 
attributing to them a share of the impacts and dependencies of sectors or products in 
their value chain. 

Action 1 - Estimate direct physical impacts on nature 

Financial institutions can assess entities’ impacts on nature by estimating their footprint 
across a set of physical metrics which are most relevant to the transition risks within the 
focus of the assessment.  

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Financial institutions can start by identifying the set of 
nature impacts linked to transition risks. This consists in 
listing  the  impacts  on  nature  that  are  likely  to  expose  a 
company  to  the  transition  risks  selected  and  modelled  in 
previous stages. For example, an established impact of the 
construction sector is the creation of large material waste, 
which  could  expose  companies  in  this  sector  to  stricter 
recycling and reuse regulations. Guidance and evidence on 
quantifying activity-specific nature impacts is emerging. The 
main references available presented in Table 4-9 below can 
be used a starting point. 

For  each  impact  identified,  footprint  data  can  be 
collected or estimated. For some impacts, data at entity-
level  can  be  derived  from  corporate  sustainability  reporting  (see  for  example  CSRD 
metrics, but also GRI and SASB reporting). If data is unavailable or complex to compile 
impacts  can  be  estimated  based  on  economic  activity  (e.g.  total  production  by 
company) and impact intensity factors (emissions per ton of products by type of activity 
and processes). This is further detailed in Box 4-2. below.  

Key consideration - What impact metrics should be used? The choice of metrics should be 
guided by the end use of the impact assessment: (i) if used for reporting or disclosure it should 
align with main guidance or requirements (SFDR’s principal adverse indicators, TNFD metrics), 
and (ii) it should be adequate to use as an input for further modelling of risk materiality if part of a 
broader risk assessment. Some studies by central banks – DNB, Banque de France - have used 
biodiversity metrics such as Mean Species Abundance to estimate their impacts, which provides 
a good reference point for comparison across institutions or entities but can be difficult to link to 
transmission channels and financial risks in the following steps. 

Key consideration - What level of granularity are appropriate for intensity factors? This will 
depend on the initial level of analysis set during the scoping phase. It is important to consider 
variation of intensity within a sector of activity. In order to increase accuracy, intensity factors can 
be collected for specific products and processes, however these might not always be available. 

Table 4-10 Data sources and guidance to quantify entities impact 

Data sources and tools 

Guidance 

• 
• 

• 
• 
• 

• 

EU Life-cycle impact assessment databases for process specific impact intensities   
Ecoinvent  or EXIOBASE  environmentally  extended  tables  for  impact  intensities  at 
sector level (averages)340 

PBAF v2023, biodiversity impact assessment  
SFDR Principal Adverse Impact indicators,   
TNFD  v1.0,   (LEAP step  E.2  and  E.3  and  metrics  architecture  (Annex  1  of  TNFD 
recommendations) 
ENCORE for impact levels 

340 See Section 2.3.1 of this report, Table 2-1 for more details different data sources such as EXIOBASE and Ecoinvent  

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Box 4-2 How to manage nature footprint data limitations?  

What is footprint data used for? 

Footprint data is used to understand the impact of an entity’s activity on nature, across a 
wide range of impacts which then can be linked to transition risk assessment. It helps 
understanding the sources and magnitude of entities’ exposure to nature risks. It is a key 
input into impacts and dependencies exposure assessment.  

What is the current state of data? 

Most large companies report on some impact variables in their sustainability reporting 
frameworks (e.g. CDP Water, CSRD). Currently these frameworks only cover some nature 
impacts such as water use and air pollution (e.g. ESRS does not include deforestation). 
Moreover, access to a compilation of these reported metrics across all companies can be 
limited and compilation can be a tedious exercise. Additionally, smaller, and non-listed 
companies are less likely to report their footprint, leaving a gap for financial institutions 
exposed to mostly smaller companies. The implementation of nature-related reporting 
regulations such as the CSRD are likely to increase the availability and quality of footprint 
data in the coming years.    

Different approaches to impact exposure assessment can be used depending on the 
granularity and coverage of footprint data:  

1.  High data quality – Entity-level footprint data 

When entity level footprint data is available this can be directly used as an input into the 
exposure assessment.  

Ideally the data would provide not only the magnitude of impacts (e.g. total NOx 
emissions/year) but also the location of impact (from geospatial point for asset-level 
analysis, to country or region for sector-level analysis). As there can be high variation in 
transition risks between locations. If location of impact is not available, assumptions can be 
made based on the entity’s production quantity by locations. 

2.  Partial availability – Entity-level production data with proxies for impact intensity 

When only entity economic activity data is available (location, production, processes) but no 
footprint data is available, impact intensity proxies can be used to estimate footprint. 
Average impact intensity factors by activity (product, sector, subsector),  location (country, 
region) and processes (production type) can be collected from life-cycle impact assessment 
databases such as OpenLCA, Ecoinvent, and scientific literature. 

Impact intensity factors are highly dependent on production processes rather than just 
product categories. If the entity’s main production process is known, impact intensity factors 
corresponding to that process would be preferred (e.g. conventional vs drip irrigation for 
wheat production) otherwise an average can be used. 

3.  Low data quality – Sector or country level footprint data 

When footprint data is only available at a very high level (e.g. a country or a sector from 
public databases), footprint can be downscaled. In this case. the share of entity economic 
activity over a higher level sector activity can be used as a proxy for the share of footprint 
that it is attributable to (e.g. wheat = 10% of agricultural production in volume or area, wheat 
= 10% of agricultural water consumption). 

This approach is only recommended for specific cases where there is expected to be little 
variation in impact intensity between different activity within a sector/subsector of activity. 

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Action 2 - Estimate direct physical dependencies 

Financial institutions can assess entities’ dependencies on nature by estimating their use 
of ecosystem services which are the most relevant to the physical risks in focus.  

Dependencies  are  sometimes  the  result  of  complex  interactions  between  ecosystem 
services and production processes which are difficult to reflect in one quantifiable metric. 
Unlike  impacts  which  are  supported  by  a  wide  knowledge  on  life-cycle  impact 
assessment,  dependencies  have  not  been  modelled  on  a  systematic  basis.  Financial 
institutions might need to start with most commonly estimated dependencies (e.g. water 
availability) or use qualitative inputs to define dependency levels before more data and 
tools become available. 

Financial institutions can start by identifying the 
set  of  nature  dependencies  linked  to  physical 
risks within the focus of the assessment. The list 
of  ecosystem  service  dependency  associated  with 
physical  risks  identified  and  modelled  in  previous 
stages can be used as a starting point. This list can 
be  enhanced  by  looking  into  additional  analysis 
specifically focusing on the area of activities in which 
the  entity  operates.  Each  entity  or  group  of  entities 
can  then  be  associated  with  a  set  of  ecosystem 
services  dependency  based  on  their  activity  and 
locations.  

The  dependencies  listed  can  then  be  linked  to 
through  a 
entities’  production  processes 
quantifiable  metric.  For  each  combination  of 
dependency  and  entity,  specific  metrics  that  reflect 
the  use  of  an  ecosystem  services  in  an  entity 
production  process  can  be  defined.  For  instance,  the  share  of  entity’s  total  crop 
production that are animal pollinated, or the volume of water used per ton of production. 

Then the values of these metrics can be estimated based on entities’ location and 
production  data,  and  external  studies.  Some  of  this  data  can  also  be  collected  from 
sustainability reports for resource use metrics such as water use. 

Key consideration - How can qualitative dependency indicators be integrated in the 
analysis when data is limited? If dependency modelling is unfeasible due to data 
complexity or limitation, it is possible to use qualitative data to build a dependency metric 
which can then feed into the risk assessment. For instance, entities could be tagged with 
numbers indicating high, medium or low dependency to soil quality. The transmission channel 
metric (defined in step 2.3 below) associated with this dependency might have to be adapted 
to this type of variable (e.g., % change in productivity by dependency level). 

Table 4-11 Data sources and guidance to quantify entities’ dependencies 

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Data sources and tools 

Guidance 

EU Life-cycle impact assessment databases  
LCIA databases (e.g. ecoinvent) or EXIOBASE for resource use 

• 
• 
•  Water Footprint Network for crop specific water consumption data 

• 
• 
• 

PBAF Standard v2023, assessment of dependencies,  
TNFD v1.0,  (LEAP step E.2 and E.3) 
ENCORE for dependency levels 

Action 3 - Estimate indirect exposure 

Financial institutions can include value chain related risks within their risk assessment 
by assessing entities’ exposure to impacts and dependencies within their value chain. 
More details and examples of indirect impacts and dependencies can be found in Section 
2.2.2.  2.2.3  and  2.3.1  of  this  report  (under  Task 1  –  Understanding  the types  of risks 
associated  with  biodiversity  loss). It  is  important  to  note that this  section  refers to the 
entity’s impacts on nature, which can be direct or indirect. For the financial institutions 
most of its impact on nature will be indirect – i.e. through the entity’s impacts.  

The  financial  effects  of nature-related  risks  are  likely  to  flow  down the  value  chain  as 
cost,  revenue  or  productivity  shocks  on  primary  commodities  which  will  translate  into 
increased  prices  or  disruptions  to  supply.  This  can  create  significant  risks  for  entities 
positioned  downstream  of  these  activities.  There  is  also  an  increasing  scrutiny  from 
regulators and consumers on value chain related impacts on the environment especially 
deforestation  and  pollution  -  as  reflected  in  the  EU  Deforestation  Regulation  recently 
adopted.341 Regulations on value chain impacts might pose direct risk to entities.  

Financial institutions can have higher exposure to entities in manufacturing and services 
sectors, which are likely to be mostly exposed to value chain related risks. Therefore, 
financial institutions wanting to get a comprehensive view of their risks should consider 
investigating value chain impacts and dependencies.  

Estimating indirect exposure aims to provide a clear picture of the entities’ value chain, 
allowing to link impacts and dependencies of other activities within this value chain to 
the entity’s exposure to risk. This requires answering the following three questions:  

341 See https://environment.ec.europa.eu/topics/forests/deforestation/regulation-deforestation-free-products_en for more details 

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1. What are the key 
sectors/products in 
the value chain?

3. How much entity 
value is exposed to 
each of these 
sectors/products 
impacts and 
dependencies ?

2. What are the 
impacts and 
dependencies of 
these 
sectors/products?

Link to the impacts and 
dependencies metrics 
combination developed in 
the previous actions (eg. 
water consumption from 
cocoa production) 

Firstly,  the  entity’s  value  chain  needs  to  be  mapped.  This  mapping  consists  in 
identifying  key  products  or  sectors  within  the  entity  value  chain,  focusing  on  most 
relevant inputs and outputs and classifying into a 2 to 3 steps chain. This can be collected 
directly from entity data or estimated using I-O tables and trade data (see Box 4-3 below 
on value chain data for more details). 

For each key sector or product in the value chain, financial institutions can use 
the outputs of the direct impact and dependency exposure assessment. Following 
the  same  process  as  detailed  in  Action  1  and  2  above,  the  direct  impacts  and 
dependencies of main activities in the entities’ value chain can be estimated. 

Then these impacts and dependencies can be weighted by the entities’ value chain 
exposure  to  these  key  sectors  or  products.    This  can  be  done  by  estimating  the 
shares of entity revenue or production dependent on value chain products/sectors and 
apply these shares to impacts and dependencies estimates. 

Key consideration – At what stage should value chain mapping be conducted? Although 
quantitative value chain estimates are only needed for the quantification of exposure to risk, a 
high level value chain identification at the beginning of the assessment phase can be useful 
for location and sector scoping to make sure all necessary sectors are included in the direct 
modelling to feed into the value chain modelling. 

Table 4-12 Data sources and guidance to assess indirect exposure 

Data sources and tools 

Guidance 

• 

• 
• 

• 
• 
• 
• 

Input-Output tables such as EXIOBASE, EU FIGARO to link upstream to 
downstream 
EU Trade databases to link production and import locations 
Trase for deforestation in value chains 

TNFD v1.0 
EFRAG’s value chain implementation guidance 
Align recommendations for corporate biodiversity measurement  
Finance 
approaches 

for  Biodiversity  guidance  on  biodiversity  measurement 

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Box 4-3 How to manage value chain data limitations?  

What is value chain mapping and when is it needed? 

Value chain mapping refers to the identification of upstream products and processes 
necessary for an entity’s activity, and its downstream destinations. Value chains are central 
to understanding cascading effects from nature risks from upstream sectors – primary goods 
often being the most exposed to nature risks due to their high impact and dependencies. 
They can be used to assess indirect exposure to physical and transition risks and to quantify 
their second-order economic impacts such as changes in prices. Given the complexity of 
value chains, a mapping exercise will require some level of simplification, for instance by 
focusing only on 2 steps within the value chain (upstream and downstream) and 
concentrating on the value chain sectors with the highest revenue dependency to the entity’s 
activity (e.g. main input sector to food manufacturer is agricultural products). 

What is the current state of data? 

Increasingly, trading in sensitive commodities integrates tracking systems to allow 
monitoring along the value chain route from harvesting site to final selling points (e.g. 
timber). However, these remain scarce, and most indirect exposure assessments rely on 
proxy data from inputs-outputs tables. I-O tables provide harmonized and detailed supply-
use tables at country level and at sector or subsector levels (See Section 2.3.1 of this report, 
Table 2-1 for more details). Eurostat compiles the ‘Full international and global accounts for 
research in input-output Analysis' (FIGARO) tables representing the EU inter-country supply, 
use, and input-output tables (IC-SUIOT). It covers 64 products (NACE Rev.2), 27 EU 
countries and 18 EU trade partner countries.  

Different approaches to value chain mapping can be used depending on the granularity and 
coverage of value chain data:  

1.  High data quality – Entity-level value chain data 

When entities can provide a detailed breakdown of their value chains including traceable 
production and selling locations and trade routes, this can be directly used as an input into 
the exposure assessment.  

Specific risks and responses assessed for these products and locations can then be applied 
to the entities’ upstream products and translated into second order impacts by modifying 
price or available quantities accordingly. 

1.  Partial availability - Entity’s activity data and production locations 

When entities main production locations are available, country-product level inputs-outputs 
tables can be used as a proxy for value chain. A 2-3 step (upstream, midstream, 
downstream) value chain can be built using inputs-outputs table which will provide an 
indicator of the value of product consumed for the production of one unit of a downstream 
product/service – which corresponds to the entity’s activity.  

Specific risks and responses assessed for upstream or midstream products can then be 
applied to then entity’s proxied upstream value chain (as detailed above). Location 
granularity can be further enhanced using trade data to identify where upstream products 
could be imported from.  

2.  Low data quality – Entity activity data only 

When entities production locations are not available global or EU-level inputs-outputs tables 
can be used as a proxy for value chain. Global or regional inputs-outputs table will provide 
less granular averages of transmission factors between upstream and downstream sectors 
than country-level but are still useful to identify major upstream to downstream relationships. 

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4.3.2.3.  Step 2.3 Risk materiality  

This  step focusses  on the  assessment  of the  likely  financial  impacts  of  nature-related 
risks on entities. This assessment relies on the estimations of sources of risks (Step 2.1) 
and impacts and dependencies exposure (Step 2.2) conducted in previous steps. The 
combination of these outputs together with an estimation of transmission channels allows 
financial  institutions  to  quantify  the  potential  financial  risks  to  the  entity,  providing  an 
indicator of the materiality of nature-related risks.  

When  identifying  and  quantifying  transmission  channels  and  resulting  risks,  financial 
institutions might want to consider the time horizon in which risks are most likely to arise. 
For instance, for transition risks the schedule of regulations and global agreements might 
be a good indicator of timeline for materialisation of risks for entities. For physical risks 
timelines can be indicated by most up-to-date scientific evidence on species decline and 
ecosystem  services  loss.  Although  most  physical  risks  can  already  be  seen  at  micro-
level (e.g. droughts, lowering because of pollinator decline), these risks are expected to 
become larger and more durable in the coming decades.  

Action 1- Define transmission channels  

Transmission channels can be defined as the linkages between transition and physical 
risks and economic impacts on entities. These can be used to quantify risk materiality 
through the definition of metrics linking each risk to an economic impact at macro, meso 
or micro- level.  

Financial institutions can identify a long list of variables which reflect how nature 
transition  and  physical  risks  can  materialize  into  an  economic  risk  and  could  affect 
entities. They can rely on existing examples of economic impacts from nature changes 
(e.g. drought events leading to drop in production of wine), as well as compile common 
transmission  channels  used  in  other  risk  assessment  such  as  climate  assessments. 
Some  common  transmission  channels  include:  change  in  production  processes,  fees 
and fines, litigation costs, productivity, input prices, and sales. 

Key consideration – How to prioritize a subset of transmission channels for the 
quantitative assessment?  Each risk could be associated with a wide variety of 
transmission channels, the selection of most relevant channels can be guided by (i) an 
analysis of existing market behaviours – especially looking into current economic impacts of 
climate change, (ii) the complexity of modelling required and data available, (iii) the sectoral 
scope of the assessment.  

Table 4-13 Examples of transmission channels 

Risk  Transmission channel 

Metric 

Physical risks 

Drought events  Supply disruption  

% drop in production 

Increased water scarcity  Productivity shock 

% change in productivity 

Transition risks 

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Ban on nitrogen fertilizers  Change in production 
processes, input prices 

% increase in costs 

Key consideration – Which level of transmission channels is most appropriate? All levels 
of transmission channels are relevant in a risk assessment. However, a focus on specific 
levels (micro, meso, macro) can be guided by the risk category itself and the potential reach 
of the risk (across a whole sector, for specific companies only). The transmission of major 
market trends should be captured at macro level while policy related transmission channels 
would tend to be assessed at meso or micro levels. 

Action 2 - Determine potential economic impacts  

Financial  institutions  can  then  quantify  the  transmission  channel  identified  and  the 
resulting  economic  impacts  by  combining  the  estimates  of sources  of  risks  (Step  2.1) 
and  of  impacts  and  dependencies  exposure  (Step  2.2).  The  magnitude  of  economic 
impact will thus result from (i) the level of initial risk, (ii) the level of exposure to impacts 
and dependencies, (iii) the influence of the transmission channel on economic outcomes.  

This step consists in mapping each transition and physical risk with a set of economic 
impacts, through transmission channels, and calculating these impacts.   

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Transmission channels can be used as a starting point to define the source of the 
economic impact which is then quantified via the change in key economic variables 
such as demand and costs.  

Assessing changes in demand may involve using several different types of tools and 
data sources, including forecasted changes in price and quantity demanded under 
different scenarios.  Demand impacts could be both positive and negative depending 
on market dynamics. 

Estimating changes in costs could be done in several ways. For direct transition 
costs, these could occur both for companies producing and selling in the EU. For 
instance, increased costs may accrue due to regulation of water pollution impacts for 
some companies. Alternatively, companies could face new financial penalties in some 
selling markets (e.g. EU) if they have deforestation in their supply chain. 

Table 4-14 Data sources and guidance to define transmission channels and assess economic impacts 

Data sources and tools 

Guidance 

•  Market analysis and economic theory (e.g EU energy market analysis) 
• 

Key references in transmission channels definition include Svartzman, 
R. et al. (2021) and CISL (2021) Handbook for Nature-related Financial 
Risks 

• 
• 
• 

ECB good practices for climate and environmental risk management, 
NGFS conceptual framework 
TNFD V1.0 (Step E.4 and A.1, A.3 and A.4) 

Action 3 - Quantify financial impacts at entity level 

Economic impacts on entities calculated in the previous action can then be applied to 
entities’  financials  to  estimate  the  impacts  of  nature-related  risks  on  their  financial 
performance.  

Financial  institutions  can  start  by  establishing  the 
baseline performance of each entity. This will allow 
financial institutions to understand where the entity is/or 
will be under a business as usual (BAU) context. It will 
also  provide  all  necessary  variables  to  calculate 
financial performance post impact. 

Then a new financial performance can be calculated 
by integrating nature-related economic impacts into 
entities’  financials.  The  estimated  economic  impacts 
generated  in  the  previous  action  can  be  aggregated 
across exposure to all risks into a set of metrics that can 
be  integrated  in  entities  financial  data.  These  metrics 
could  be  changes  in  revenue,  profitability  or  market 
value. 

Finally,  the  new  financial  performance  can  be 
compared with the baseline performance to assess 
the  magnitude  of  financial  impacts  from  nature-

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related risks. The financial impacts are reflected by the difference between entities’ BAU 
financial performance and post alteration (taking nature risk into consideration) financial 
performance (e.g. difference in profit).  

Key consideration – What financial variables can be considered? The financial variables 
used for this quantification should be common variables of financial performance modelling, 
they also need to be aligned with the metrics generated in the previous step. 

Table 4-15 Data sources and guidance to quantify financial impacts 

Data sources and tools 

Guidance 

• 
• 

• 
• 

Financial data service providers  
Entities’ business models 

ECB good practices for climate and environmental risk management 
TNFD V1.0 (LEAP Step A.4 and risk & opportunity metrics) 

4.3.2.4.  Step 2.4 Response to risk  

Financial  institutions  can  then  adjust  the  financial  impacts  estimates  at  entity-level  by 
estimating how entities are likely to mitigate these impacts in the short-term. This aims 
to  provide  a  more  realistic  view  of  financial  risks  at  entity-level,  as  revenue  and  cost 
shocks can usually be mitigated to some extent through operational, market or strategic 
responses.  

Action 1 - Define and model potential responses to risk 

Although  it  is  likely  that  financial  institutions  might  not  be  able  to  access  precise 
information  on  entities  actual  response  to  financial  impacts,  economic  analysis  can 
support the modelling of some of these responses using assumptions.  

Firstly,  the  field  of  potential  responses  to  nature-related  risks  needs  to  be 
identified. Financial institutions can conduct literature review and counterparty interview 
to  understand  the  actions  entities  could  take  to  respond  to  nature  risks.  This  could 
include: 

—  Operational response: Companies could take cost-efficient actions to 

mitigate the impact on nature e.g. Promote a regenerative agriculture 
programme to reduce agricultural impact footprint. 

—  Market response: Companies could work with suppliers to reduce regulatory 
risks or pass the costs down the value chain by increasing their prices. 

—  Strategic response: Companies could shift business activities away from 
nature risk e.g. changing production locations, offering new product lines. 

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Some  key  factors  should  be  taken  into  consideration  to  understand  the  likelihood  of 
response, these includes (i) the level of substitutability between ecosystem services and 
technology, (ii) the  cost-efficiency  of response  options,  and  (iii)  entities’ profit margins 

and investment capacity. 

Then financial institutions can use economic model to 
estimate  the  impact  of  these  responses  on  entities’ 
financial performance. For instance, the financial impacts 
of entities increasing their prices can be investigated and 
applied to the financial performance estimates.  

Key consideration – How can financial institutions assess the economic effects from 
companies' responses? Entities’ sensitivity to the shock and their ability to adapt will 
largely influence the magnitude of their response and it impact it can have on their financial 
performance. Key factors to consider include: Market structure (how much competition is 
there in the market?), elasticity (how does demand shift with price change?) and ability to 
shift production locations. 

Key consideration – How can scenario analysis be used to model response? A forward-
looking analysis can provide estimates for key drivers of responses such as technology 
availability and prices – influencing operational response, or state of nature and ecosystem 
services in different locations – influencing market and strategic responses. 

Table 4-16 Data sources and guidance to determine entity level response 

Guidance 

• 
• 
• 

ECB good practices for climate and environmental risk management 
TNFD V1.0 (Step A.2) 
NGFS conceptual framework 

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4.3.3.  Phase 3: Financial institution level risk assessment 

and mitigation 

The  last  phase  of  the  nature-related  risks  assessment  covers  the  estimation  of  the 
financial impact of real economy risks on financial institutions. The approach to financial 
institution-level  risk  assessment  is  similar  to  what  already  exists  for  climate,  which 
includes using existing financial modelling and risk classification to translate entity-level 
risks into risks for the financial institutions. 

This phase also includes the potential next steps for financial institutions on how to use 
the risk assessment results to mitigate and better manage nature-related risks.  

This phase covers a set of key questions which can guide financial institutions:  

●  What types of risks do nature-related risks fit in, within the common financial 

risk classification? 

●  What are the indicators already in use to assess risks?  

●  How could nature-related risks be further integrated into risk management 

decisions and risk modelling?  

●  What are the first potential response to mitigate nature-related risks?  

● 

4.3.3.1.  Step 3.1 Financial impacts assessment  

This step focusses on the translation of entity-level financial impacts into financial risks 
for  the  financial  institution  through  aggregation  and  financial  modelling,  and  the 
classification of these risks. 

Action 1 - Quantify financial impacts on financial institutions’ performance  

Using the results from the entity-level financial impact and financial modelling tailored to 
their  activities,  financial  institutions  can  conduct  an  assessment  of  risks  to  their 
performance.  

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Firstly, the entity-level results generated in the previous stage 
can  be  aggregated  at  the  level  most  appropriate  for  the 
financial  institutions’  needs.  This  will  guide  the  level  of 
analysis  for  financial  performance,  which  could  be  an 
investment  portfolio,  a  loan  book,  or  an  aggregation  of  all 
national-level operations. 

into 

translated 

results  can  be 

financial 
Aggregated 
performance indicators using financial models already in use 
by  financial  institutions  to  estimate  other  financial  risks.  For 
example, banks could estimate changes in default probability 
based on entity level financial results. It can also prove useful 
to  refer  to  relevant  guidelines  like  the  European  Banking 
Authority (EBA) final guidelines on high-risk exposures under 
Capital Requirements Regulation (CRR)342, to define the level 
required. 

Financial  institutions  can  then  estimate  exposure  to  nature-related  risks  based  on 
estimated financial impacts. For example, for banks, changes in loan book value can be 
estimated  with  the  cumulative  impact  of  changes  in  annual  expected  losses  due  to 
nature-related risks. 

Key consideration – Which financial impact metrics are relevant for financial institutions 
risk management? For banks, metrics typically used to assess credit risk (e.g. probability of 
default) are relevant as it can drive other types of financial risks e.g. market risk and liquidity 
risk. For investors, valuation model would depend on counterparties financial metrics. For 
insurers, nature risks might have an impact on number and value of claims. 

Key consideration – How should systemic effect be taken into account?  It could be 
important to recognise and model the interconnectedness between risks and channels 
through which nature risks translate into financial impact. Financial institutions can consider 
conducting a downside case where nature events might lead to a systemic effect and stress 
their financial performance indicators according to this extreme case. 

Table 4-17 Data sources and guidance to quantify financial impacts on financial institutions’ activity 

Data sources and tools 

Guidance 

• 

• 
• 
• 
• 
• 

Financial market data and analysis (ECB financial market data) 

ECB good practices for climate and environmental risk management 
TNFD V1.0 (LEAP Step A.4) 
NGFS conceptual framework 
ECB guide to internal models 
EBA guidelines on stressed value-at-risk 

342 For more details see https://www.eba.europa.eu/regulation-and-policy/single-rulebook/interactive-single-rulebook/504 

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Action 2 - Classify financial impacts into risks for financial institutions 

The results of the financial impact assessment can be linked to specific types of risks 
usually managed by financial institutions, namely:  

-  Credit or underwriting risk 
-  Market risk 
-  Liquidity risk  
-  Operational risk  

This action aims to provide clarity and alignment on what nature-related risks represent 
for the financial institutions, and under which framework they can be apprehended and 
managed, along with other risks. 

Entity-level changes in financial performance due to nature risks are most likely to lead 
to  credit  (for  banks),  underwriting  (for  insurance)  and  liquidity  risk  (for  all  financial 
institutions), while financial impacts on the value of financial institutions’ products could 
materialize  into  market  risks  (for  all,  especially  asset  managers  and  investors).  This 
framework focusses on these 3 types of risks as they appear to be the most relevant for 
financial institutions. 

Financial institutions can analyse their nature-related credit risk using the metrics 
quantified during the financial impact assessment. They can also identify other factors 
that  could  affect  credit  risks  factors  (refer  to  2.2.4  of  this  report  for  micro  and  macro 
factors).  The  credit  risk  analysis  can  be  conducted  by  sector  and  location  to  inform 
operational decisions. 

Key consideration – How can nature risks translate into credit risks?  Consider the impact 
from physical drivers, through the damage/destruction of assets, and transition drivers, 
through increasing credit costs in polluting industries following legislation. At a 
macroeconomic level, the loss of nature could subsequently increase sovereign risk through 
reduced economic performance. 

Financial institutions can estimate their market risk based on changes in product 
rating and reputation trends. They can build on existing capabilities to analyse how 
changes in product rating and reputation resulting from their exposure to nature-related 
risks could negatively affect their market valuation. 

Financial  institutions  can  investigate  their  liquidity  risk  and  other  risks  that  may 
arise from nature-related risk exposure.  Liquidity/refinancing risk can arise from default, 
drop in value, or increase in claims resulting from broader nature risks’ impacts across a 
sector or an economy; other risks include operational risk, and reputational risk. 

Financial institutions can also explore the likelihood of systemic risk in the financial 
industry. They can conduct stress testing on major contagion channels such as feedback 
loops between financial sector/real economy, inflation and interest rates for sectors with 
high exposure to nature-related risks. 

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Key consideration – How can financial institutions take macroeconomic factors into 
considerations?  The modelling of macroeconomic impact could present challenges, 
particularly in terms of substitution within a computable general equilibrium framework. Thus 
financial institutions could try to understand qualitatively how changes in macro environment 
(e.g. shift in customer demand, change in economic activity) affect financial risks, leveraging 
external resources. 

Table 4-18 Guidance on risk classification 

Guidance 

• 
• 
• 
• 
• 

ECB good practices for climate and environmental risk management 
NGFS conceptual framework 
TNFD V1.0 (Step A.4) 
EIOPA staff paper on nature related risks for insurance 
Finance for Biodiversity, Nature Loss and Sovereign Credit Ratings 

4.3.3.2.  Step 3.2 Mitigation actions  

This final step focusses on how financial institutions can use the learnings and outputs 
of the risk assessment to start acting on nature-related risks. This covers the integration 
into  broader  risk  management 
of  nature-related  risk  assessment/management 
frameworks, and the development of an initial plan for risk mitigation actions.  

Action 1 - Integrate the assessment results into management frameworks 

Using key learnings from the assessment, financial institutions can get started with the 
integration  of  nature  considerations  into  risk  management  frameworks  to  build  their 
resilience to nature-related risks. 

Financial institutions can initiate this process by identifying the key entry points 
for  nature  in  their  risk  management  frameworks.  This  can  involve  the  review  of 
existing policies, procedures and processes for risk management, in particular for climate 
risk if available. Potential entry points include: risk appetite framework, credit policies, 
rating, underwriting, pricing, stress testing, capital estimation, reporting and disclosure. 

Key consideration – To what extent does the nature risk consideration align with 
existing climate risk management frameworks? Many financial institutions have 
incorporated climate metrics and considerations into their risk management model. A natural 
move would be to build from existing climate models and expand to model the wider nature 
metrics. However, some aspects of nature might require separate initiatives and assessments 
as nature risks might have to be integrated in sectors and areas where climate risks are not 
material.  

Financial  institutions  could  then  establish  an  integration  roadmap  with  clear 
action points. The roadmap can set out key actions to gradually integrate nature risks 
into  existing 
their 
implementation. For instance, financial institutions could start integrating nature-related 

frameworks  with  dedicated 

to  provide  oversight  on 

teams 

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metrics and KPIs, developing screening and exclusionary policies for high- and adverse-
impact  activities,  adjusting  their  pricing  models  to  include  nature-related  profit 
impairments.  

Financial institutions could also integrate nature-related disclosure and reporting 
within their systematic reporting processes. This could involve integrating nature-related 
risks  exposure  and  risk  management  framework  adjustments  into  regular  annual 
reporting, considering both regulatory requirements, e.g. SFDR, CSRD and ECB risks 
disclosure, and voluntary frameworks like TNFD. 

Table 4-19 Examples of entry points for nature-related risks integration 

Potential entry points  Potential actions 

Risk appetite framework  Include financed deforestation metrics 

Credit policies  Sustainable supply chain sourcing policy 

Capital allocation  Maximum exposure to uncertified agricultural companies 

Rating  Incorporate nature risk exposure into credit models 

Underwriting  Revenue and profit impairments 
Pricing  Existing risk pricing schedule 

Stress testing  Expected credit losses 
Capital estimation  Nature risk-weighted assets 

Table 4-20 Guidance on nature-related risk management 

Guidance 

• 
• 
• 
• 

ECB good practices for climate and environmental risk management 
TNFD V1.0 (Step A.2, P1-4), 
ECB guide on climate and environmental risks 
TNFD guidance for financial institutions 

Action 2 - Prioritise and plan mitigation actions 

Financial  institutions  can  start  identifying  and  planning  key  actions  to  mitigate  their 
exposure to nature-related financial risks.  

Financial  institutions  could  develop  a  plan  towards  specific  and  quantified 
objectives for mitigation. This would consist in the definition of clear actions, such as 
minimising  expected  losses  from  credit  risk  through  capital  reallocation  or  reducing 
reputational  risk  through  communication.  Section  2.3.1  of  this  report  provides  insights 
into  potential  mitigation  actions  for  financial  institutions.    Two  types  of  actions  can  be 
considered: (i) programme-level actions such as working with counterparties to reduce 
nature  exposure,  through  lending  policies,  due  diligence,  and  environmental  impact 
assessments  requirement,  and  (ii)  institution-  level  actions,  such  as  reallocating 
capital  to  low-impact  clients,  or  carrying  operational  transformation  such  as  ESG 
integration.  

Where possible, financial institutions can then analyse the expected impact each 
action would have on their exposure to key nature-related risks, and group actions 
into sets that would maximise the integrated benefits. 

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The actions with most promising impacts can then be further shortlisted based on 
their  feasibility.  Depending  on  data  and  capacity,  financial  institutions  could  analyse 
the feasibility to implement each action based on a review of capabilities and needs.  

The mitigation plan could then be developed by phasing the prioritised actions. 
This plan could include targets and metrics to monitor progress and a communication 
strategy for stakeholders. 

Key consideration – What is the ambition level of the mitigation plan? The ambition level 
could be guided by risk metrics like expected loss from nature as guidance e.g. aim for 30% 
reduction, or by exposure metrics e.g. % share of investments exposed to high water risks. 

Key consideration – To what extent should nature-related mitigation actions align with 
existing climate actions? Nature strategy goes beyond climate considerations; While the 
objectives of nature and climate actions are aligned most of time, complexity exists where 
there are conflicts between climate and nature impacts. 

4.4.  Illustrative case studies  

This section presents different examples of how financial institutions can implement the 
framework for assessing nature-related risks. It provides a framing of key design choices 
for different use cases spanning from a high-level qualitative assessment to a detailed 
asset-level  quantification  of  nature-related  risks  across  different  scenarios.  These 
illustrative case studies aim to show how specific assessments in the three most exposed 
sectors in the EU, as identified in section 3.3, could be conducted. This section aims to 
give  financial  institutions  concrete  examples  of  how  to  apply  the  framework,  present 
different use cases, aims, capabilities and levels of analysis. It should be noted that these 
are indicative and do not present all the different ways in which the framework can be 
used.  

The case studies were chosen to provide insights on the variety of potential uses of the 
framework and include 4 different approaches: 

—  Case study 1: Bank portfolio qualitative heatmap of nature-related risks  

—  Case study 2: Asset manager’s counterparty-level assessment for 

portfolio of investments in apparel sector 

—  Case study 2: Quantitative risk assessment for an investment into a real 

estate project 

—  Case study 3: Quantitative risk assessment for an investment into a farm 

asset 

Each  case  study  covers  a  different  level  of  spatial  and  sector  granularity,  as  well  as 
different levels of quantification and forward-looking projections. In some cases,  steps 
of the framework are combined. The overall assessment can be carried using qualitative 

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risk metrics (see Case Study 1). The level of complexity and risk coverage will depend 
on the initial use case of the assessment. In some cases, quantitative data and forward-
looking analysis is necessary (Case Study 2 to 4), but in many cases a static qualitative 
view can already provide a good starting point to financial institutions. 

4.4.1.  Case study 1 : Qualitative heatmap assessment 

In this case study, the financial institution is a national bank, for which it is the first effort 
to assess nature-related risks associated with its corporate lending operations. It covers 
the  key  steps  and  design  choices  to  identify  and  assess  risks  through  a  qualitative 
analysis which is then presented as a heatmap across sectors and drivers of risks.  

1.1 Intention setting 

The national bank first defines the main purpose of this nature-related risks assessment. 
Given the current findings of the European Central Bank (ECB) on financial institutions’ 
dependency to nature, the bank’s board has asked to get an initial view of the nature-
related risks that the bank is exposed to. The outcomes of the assessment should help 
the bank define its strategy on how to go forward and start including nature issues into 
its activities in the coming year.  

The  bank  would  also  like  to  be  able  to  report  to  the  ECB  initial  requirements  on 
environmental risks as well as making a voluntary report of its nature-related risks under 
the TNFD disclosure recommendations.  

The bank has all its operations in France and provide corporate loans for a wide range 
of companies across different sectors of activities. The banks’ analysts decide to carry 
an assessment at sector-level to get a full view of the bank’s exposure to nature-related 
risks, focusing on corporate lending which represents more than 70% of its activity. The 
approach  used  will  be  a  qualitative  heatmap  assessment,  as  it  gives  the  bank  an 
opportunity  to  easily  produce  an  initial  view  of  its  nature-related  risks,  and  identify 
hotspots  for  future,  more  in-depth,  assessments.  The  heatmap  will  require  minimal 
resource to produce and will be a good tool to onboard the bank’s staff on nature-related 
risks.  

1.2 Risk identification 

Based  on  the  aim  of  the  assessment,  a  broad  coverage  of  nature-related  risks,  the 
analysts  decide  to  include  all  major  sectors  of  the  economy  covered  by  the  banks’ 
corporate  lending  books.  These  sectors  include  financial  services,  electronics 
manufacturing,  agricultural  production,  wholesale  and  retail  trade  (food  and 
apparel), utilities and power generation, and education.  

The  analysts  review  different  sources  to  understand  what  kind  of  nature-related  risks 
exist  for  these  sectors.  They  look  into  publicly  available  resource  such  as  the  IPBES 

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Global and Regional assessment reports on biodiversity and ecosystems343, ENCORE 
materiality ratings344 and TNFD sector guidance345 to define a long list of potential risk 
drivers. They decide to select the risk drivers which have only high or very high materiality 
ratings in the ENCORE database for the sectors listed initially.  

This includes:  

-  Land use change 
-  Water pollution 
-  Water availability  
-  Soil quality / Erosion control 
-  Pollination services  

These risk drivers were prioritized as they reflect 3 of the 5 key drivers of biodiversity 
loss (change in land use, pollution and exploitation of nature resources), and are relevant 
to the sectors which the bank lends to. They are also highly relevant for France, based 
on  the  regional  assessment  of IPBES,  analysts  see  that  soil  quality,  water  availability 
and pollination services are threatened in France. They also see that regulations around 
water pollution and land use are likely to tighten, and therefore are more likely to lead to 
transition risks. This information is collected through a literature review of evidence on 
biodiversity loss and its drivers globally and in France, as well as a review of EU and 
French  regulations  on  key  drivers  of  nature  loss  (eg.  Nature  Restoration  Law,  Green 
Deal). 

2.1 Sources of financial risks 

After having identified a set of key risk drivers for the sectors of interest to the bank, the 
analysts collect further information to identify the potential magnitude of different drivers 
of risks for the bank’s counterparties.  

To do this, the analysts start collecting actual data on the state of nature in France, for 
areas relevant to the drivers selected. This data will support the assessment of physical 
risks by giving an indication of the location and magnitude of risks. The data collected 
includes: 

-  Water availability: map of water scarcity levels in France (WRI Water Risk 

Atlas346, WWF water risk filter347) 

−  Soil quality: map of soil organic carbon levels in agricultural land in France, soil 

erosion risk in France from publicly available sources such as the EEA 
database348 

343 Available at: https://www.ipbes.net/global-assessment  
344 Available at: https://www.encorenature.org/en  
345 Available at: https://tnfd.global/tnfd-publications/?_sft_framework-categories=additional-guidance-by-sector#search-filter  
346Available at: https://www.wri.org/applications/aqueduct/water-risk-
atlas/#/?advanced=false&basemap=hydro&indicator=w_awr_def_tot_cat&lat=30&lng=-
80&mapMode=view&month=1&opacity=0.5&ponderation=DEF&predefined=false&projection=absolute&scenario=optimistic&sco
pe=baseline&threshold&timeScale=annual&year=baseline&zoom=3  
347 Available at: https://riskfilter.org/water/explore/scenarios  

348 Available at: https://www.eea.europa.eu/  

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−  Pollination services:  map of pollinators abundance from academic paper 

The analysts can then assign different scores for each risk drivers, based on the data 
collected. For some sources, the risk levels might already be assigned at granular level 
(eg. Water Risk Atlas), in that case the analyst can derive a score by aggregating to a 
less granular level (eg. if more than 50% of data points for France are scored as high for 
water scarcity, the aggregation for France could be high). If there are no pre-established 
scores, analysts can refer to experts to understand what thresholds could be defined to 
assign the scores (eg. soil erosion is evaluated in mega grammes (Mg) of soil loss per 
hectare per year, a threshold for high erosion rate is above 40 Mg per hectare per year, 
as detailed in the European Soil Data Centre349). The analysts can assign a score for the 
average across France.  

Analysts  can  decide  to  use  this  data  to  get  more  granular  view  of  risks,  by  assigning 
scores  for  each  region  within  France,  following  the  same  approach  as  above  but 
averaging the data at regional level.  

In  order  to  explore  the  sources  of  transition  risks  associated  with  the  banks’ 
counterparties’ activities, the analysts collect information on (i) regulations and policies 
related to land use change and water pollution in the EU and France, (ii) market trends 
for potentially sensitive sectors associated with high environmental impact such as food, 
apparel and electronics consumer goods.  

To collect information on regulations and policy, the analysis team can refer to ongoing 
work  under  different  initiative  of  the  EU  including  action  plans  and  policies  developed 
under the Green Deal – for instance on pollution reduction targets.350 The analysts can 
look for records of cases of large companies having to pay fines related to pollution in 
France,  as  well  as  details  about  the  water  pollution  thresholds  in  French  regulations, 
directly  from  government  websites.  Similarly,  analysts  can  get  a  sense  of  future 
developments around land use regulations including expansion of protected areas and 
associated regulations, and restriction in land use by exploring regulations such as the 
EU  Nature  Restoration  Law,  and  cases  of  restriction  in  land  use  in  France  affecting 
companies’ operations.  

Based on the likelihood of stricter regulations to be implemented in France in the next 5 
years,  as  well  as  records  of  existing  cases  of  fines  and  restrictions  on  operations, 
analysts  can  establish  a  score  for  water  pollution  regulation  and  land  use  change 
regulation risks in France. This can be further refined by consulting legal experts.   

At the end of this process the analysts have produced data-based qualitative scoring of 
sources of risks for France and in some cases for different regions within France. These 
scores will be combined with exposure scores in step 2.3 to provide a full view of the 
magnitude of risks.  

349 See: https://esdac.jrc.ec.europa.eu/content/global-soil-erosion  
350 More details on pollution action plan at https://environment.ec.europa.eu/strategy/zero-pollution-action-plan_en  

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2.2 Impacts and dependencies exposure 

At  this  stage  the  analysis  team  is  trying  to  assess  how  exposed  each  of  the  sectors 
targeted  are  to  nature-related  risks.  This can  be directly reflected  in the magnitude  of 
impacts and dependencies on nature of each sector.  

The  analysts  start  by  collecting  materiality  ratings  for  each  sector  and  risk  driver 
combination from the ENCORE database (see above). However, since this database is 
not region or country-specific, the team decides to tailor the scores further to the French 
context. To do so they collect data relevant to the risk drivers targeted. This could include 
the average water consumption per ton of product or € of revenue generated for each 
sector,  and  water  pollutants  emissions  for  each  sector,  derived  from  Life-Cycle 
Assessment  databases.351  Comparing  this  data  between  France  and  other  countries, 
analysts estimate if these impacts and dependencies scores are likely to be higher or 
lower than the global average provided in the ENCORE database. 

2.3 Risk materiality 

In this step the analysis team combines the impacts and dependencies exposure scores 
by sector (step 2.2) with the magnitude of sources of risks scores assessed in step 2.1. 
For instance, in the case of water pollution, if regulations around water pollution were 
scored  as  high  in  France  during  step  2.1,  the  sectors  scored  as  medium  on  water 
pollution  globally  could  be  considered  high  for  France.  The  final  score  for  the  water 
pollution-electronic manufacturing score could for instance be “high”. Conversely if land 
use  regulations  have  been  scored  as  low  under  step  2.1,  the  score  for  land  use-
agriculture might be downgraded from high (step 2.2) to medium.  

After combining each qualitative scores based on a pre-established decision rule (e.g. 
high+medium = high, low+high = low), the results can be summarised in a two-entry table 
with all sectors and risk drivers. 

Illustrative output - Example sector-driver heatmap 

351 See for example EU Life-cycle impact assessment databases  

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3.1 Financial impacts assessment 

In order to understand how the risk scores by sector translate to potential financial risks 
for  the  bank,  the  analysts  need  to  understand  the  exposure  of  the  banks  corporate 
lending activity to each sector and combine it with the sector-level nature risks scores 
established in step 2.3.  

The team first collects data on the bank’s activity, getting loan books exposure by sector 
from  different  teams  across  the  bank  and  making  sure  all  sectors  match  the  same 
categorisation as used for the sector-level scoring of nature risks. To do this the bank 
can use sector correspondence tables such as the EU NACE sector categories.352 The 
team can then get a view of the value of loans by sector for a specific representative year 
(or time in the year).  

A financial risk score is then derived from the combination of the financial exposure of 
the bank to each sector and each sector’s nature risks scores. A set of decision rules 
can be established to define how to calculate the final score. For instance, if the financial 
exposure is higher than 10% of the total loan book value, then the final score is equal to 
the sector’s initial nature risk score, and if the financial exposure is lower than 5% then 
the  final  score  is  one  rank  below  the  sector’s  nature  risk  score  (eg.  high  becomes 
medium).  

This can be compiled into a heatmap to give a transparent view of nature risk scores, 
financial exposure and final financial risk scores.  

Illustrative output - Example financial risk heatmap 

352 See : https://ec.europa.eu/competition/mergers/cases/index/nace_all.html  

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The heatmap produced provides an initial understanding of how the bank is exposed to 
nature  risks.  Its  lending  to  wholesale  and  retail  trade  counterparties  and  utilities  and 
power generation counterparties exposes the bank to moderate risks, mostly related to 
potential  disruptions  in  these  counterparties’  financials  due  to  water  scarcity  and 
regulations on pollution and land use in France.  

Although, the bank has little exposure to companies in the agriculture sector, it still needs 
to pay attention to any counterparty in this sector given the high nature risks associated 
with these activities.  

This  provides  the  bank  with  valuable  insights  on  where  it  could  focus  its  attention  for 
further assessment of risks and engagement on nature with clients.  

3.2 Mitigation actions 

Based  on  the  results  of  the  heatmap  the  bank  can  initiate  some  actions  to  start 
mainstreaming nature-related risks into its activities and meet regulatory requirements. 
The bank can use the heatmap as an initial submission on environmental risks to the 
ECB and to TNFD.  

Further assessment will be required to fully meet regulatory requirements, and this will 
include the quantification of nature-related financial risks. The bank could start building 
capabilities to quantify risks for the three sectors which were considered as moderate 
risk for the bank lending portfolio.  

The bank could also decide to start engaging with counterparties in this sector to get a 
view on ongoing actions to mitigate their impacts on nature, and to collect any relevant 
data.  

The sustainability team of the bank also takes the opportunity of the release of the nature 
heatmap to identify where the bank already has policies to exclude harmful activities (for 
example on deforestation).  

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4.4.2.  Case study 2: Comprehensive counterparty level 

assessment  

In  this  case  study,  the  financial  institution  is  an  asset  manager,  which  has  never 
conducted  a  quantitative  nature  risk  assessment  of  its  portfolio  but  had  in  the  past 
developed qualitative heatmaps.  It covers the key steps and design choices to identify 
and  assess risks through  a  quantitative  analysis  of risks for  a  large  set of  companies 
within a portfolio, relying on company-level financial data and nature data at country and 
regional levels.  

1.1 Intention setting 

This  asset  manager  would  like  to  focus  on  its  largest  portfolio  of  investments,  in  the 
apparel sector, which includes companies operating across the world, and with global 
value  chains.  The  asset  manager  needs  to  assess  nature-related  risks  to  inform  its 
investment strategy in the apparel sector. 

The main aim of the assessment is therefore to inform investment decisions across the 
next 5 years and include nature-related risks into portfolio risk assessment procedures. 
On top of this, the asset manager sees the opportunity to use the assessment to start 
integrating nature into investment due diligence processes for apparel companies. The 
assessment  should  also  be  compliant  with  reporting  requirements  from  the  ECB  on 
environmental risks, and aligned with TNFD so that the asset manager can report on its 
nature-related risks under these frameworks.  

The assessment is conducted at counterparty-level to get results that are specific to the 
asset manager’s portfolio and reflect variation in counterparties’ risk profiles. 

1.2 Risk identification 

More than 50% of the asset manager’s targeted portfolio concentrate on global apparel 
companies. The analysis team decides to focus on the apparel segment of the portfolio 
as  it  most  relevant  to  the  asset  manager  and  is  known  to  have  material  impacts  and 
dependencies on nature. Focusing on a specific sector will reduce the complexity of the 
assessment and associated data requirements. However, the analysis team notes that 
other sectors within the apparel sector’s value chain need to be included in this analysis. 
Moreover, remaining sectors covered by the portfolio will need to be assessed later in 
the year during another effort. 

The assessment will span across apparel companies’ value chains, as significant risks 
are  expected  to  be  stemming  from  upstream  sectors  with  larger  nature  impacts.  The 
team identifies three main components of the apparel sector value chain: 

−  Upstream materials: fibers – cotton, leather, Polyethylene terephthalate (PET) 
−  Midstream processing: textile manufacturing (spinning, weaving, dying, 

finishing) 

−  Downstream: Retailers 

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The team reviews key sources to establish a list of relevant risk drivers for the apparel 
sector.  This  includes  ENCORE,  SBTN  materiality  screening  tool353  and  other  reports 
such as CISL’s primer on apparel sector targets354 and IUCN guidance.355 They define 
a long list of risk drivers including: 

−  Three impacts: land use change, water use, water pollution  
−  Two dependencies: water availability (quality and quantity), flood protection 

These risk  drivers  were identified  as  highly material  for  the  apparel  sector companies 
and their value chains. Expected impacts on land use water use and water pollution are 
expected  to  be  large,  and  the  vulnerability  to  lower  water  availability  and  floods  is 
expected to be high in many locations for upstream products and manufacturing sites.  

2.1 Sources of financial risks 

After having identified a set of key risk drivers, the analysts collect data that will inform 
the potential magnitude of different drivers of risks for the portfolio companies.  

To do this, the analysts start collecting data on the state of nature globally, at country 
level or, when available, at higher granularity. This data will support the assessment of 
physical and transition risks by giving an indication of the location and magnitude of risks. 
The data collected includes: 

−  Water availability: Water scarcity levels in different river basins, at subcountry 

level   

−  Flood risks maps: global coverage with high granularity, and records by country 
−  Deforestation rates by country 
−  Water pollution levels of main river basins  

The  analysts  compile  the  data  into  quantitative  variables  with  baseline  values  –  e.g. 
water availability gap by river basin (in m3), flood risk score by country (high, medium, 
low). 

The team collects further qualitative and quantitative information on potential sources of 
transition risk, specific to the apparel sector, including: 

−  Policy/regulations: review of emerging regulations on water pollution thresholds 
from azo dyes and heavy metals, review any regulations on water use and 
recycling for industry, regulations on deforestation 

−  Demand: review historical market trends for cotton and leather, and expert 
insights on current and future trends in sustainable apparel (vegan apparel 
demand, organic apparel demand) 

353 Available at: https://sciencebasedtargetsnetwork.org/resources/  
354 See: https://www.cisl.cam.ac.uk/news-and-resources/publications/raising-ambition-nature-fashion-apparel-and-textile-sector-
primer  
355 See: https://portals.iucn.org/library/efiles/documents/Rep-2016-001.pdf  

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−  Technology: review trends in availability and cost of alternative man-made fiber, 

natural dyes, wastewater treatment technologies  

The analysts compile and combine data into quantitative variables with baseline values:  
e.g. % growth in demand for sustainable apparel, cost difference between organic and 
traditional  natural  fibers,  cost  of  wastewater  treatment  for  apparel  manufacturers, 
environmental policy index by country.  

The  team  also  decides  to  include  a  forward-looking  analysis  for  the  assessment  to 
integrate potential future risks to the apparel sector and better inform future decisions. 
For this they decided to compare 2 scenarios with a business-as-usual case. They take 
the following steps to define scenarios and project relevant variables: 

1. 

Define scenarios: 1. business-as-usual, 2. rapid nature and climate action, 
3. extreme risk scenario, and associate narratives for each. 

2. 

Project key variables using collected data or estimating based on research:  

(a)  Use PRI IPR FPS scenario value drivers for projections on cotton and 

leather related transition risks, 

(b)  Project other quantitative variables based on expert insights and 
scenario narrative (e.g. doubling BAU values of physical risks for 
extreme risks scenario, larger demand for sustainable apparel under 
the rapid nature and climate action scenario) 

The  variables  reflecting  the  different  sources  of  risks  are  projected  for  the  different 
scenarios studied and will be used as a main component of the quantification of risks in 
step 2.3.  

Systemic risk at industrial system level:  The team also aims to consider how water 
scarcity and flood risks in main cotton and leather production location could significantly 
disrupt  the  supply  chain  and  lead  to  yearlong  shortages  on  essential  inputs  for  the 
apparel  sector.    Then  assess  potential  impacts  through  an  extreme  risk  scenario 
analysis, with extreme pressure on input prices for apparel manufacturer and retailers.  

2.2 Impacts and dependencies exposure 

At this stage the analysis team is trying to assess the level of impact and dependencies 
of apparel sector companies to nature. This can be assessed using company specific 
data or sector averages. 

For assessment of companies’ impact the team collects counterparty level footprint data 
on water use, water pollution from sustainability reports. For companies not reporting on 
these  metrics,  the  team  decides  to  use  life-cycle-assessment  databases  to  collect 
average values on water use and water pollution of apparel manufacturer and combine 
with revenue or production data at counterparty level.  

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The  team  collects  data  on  main  production  locations  of  counterparties,  directly  from 
counterparties  or  from  third  party  provides.  They  overlay  this  location  data  with  water 
scarcity and flood risks maps, to identify potential hotspots of dependency-related risks.  

For  the  assessment  of  indirect  (value  chain)  exposure,  the  team  collects  data  on 
counterparty suppliers and customers (location of sales, purchase and sale quantity and 
revenue by supplier/customer). When this is not available, they decide to estimate the 
quantity  of  upstream  material  (fiber)  used  per  year  (e.g.  cotton,  leather)  and  assume 
potential  production  locations  based  on  trade  data.  Using  these  sources,  they  then 
estimate footprint of upstream products, using average fiber land use and water footprint, 
and average PET production water footprint from LCA databases. 

The  team  also  collected  data  on  main  production  locations  of  primary  commodities  – 
cotton, leather – and overlaps this information with deforestation rate data by country to 
flag potential for deforestation impact by country of production in the apparel value chain 
– this can be compiled in a qualitative variable. 

2.3 Risk materiality 

In  order  to  estimate  the  economic  impacts  of  counterparty’s  nature-related  risks,  the 
team defines the list of transmission channels which reflects how sources of risks and 
exposure can translate into economic impacts for companies. This includes an increase 
in  cost  of  production  due  to  strict  water  pollution  regulations,  an  increase  in  cost  of 
production due to decrease in water availability, a drop in demand due to exposure to 
deforestation in supply chain. They combine data on risks, exposure and transmission 
channels to quantify economic impacts for each counterparty.  

For instance, they combine the following data: 

−  Water pollution risk - combining % production in high regulation country, m3 

wastewater produced per t-shirt, cost of additional wastewater treatment per m3 
= % increase in cost of production  

−  Water scarcity risks = combining % of fiber input is water intensive (eg, leather), 
% of water intensive fiber is produced in water stressed area, % increase in 
price of leather due to water scarcity = % increase in cost of production of 
leather products 

As the input data varies across scenarios and time, the outcomes of this analysis will 
provide different costs and revenues estimates for the 2 scenarios analysed.  

The team had initially collected revenue, cost and profit data for each counterparty. They 
then  apply  the  change  in  costs  and  revenue  data  to  calculate  new  profits  for  each 
counterparty.  

Illustrative outputs – counterparty-level profit impacts 

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2.3 Response to risk 

The analysts observe that many apparel sector companies have the capacity to mitigate 
some of the economic impacts of nature-related risks through market and operational 
responses  which  can  be  implemented  rapidly.  They  identify  price  increase  and 
alternative sourcing as most likely short-term response from counterparties to mitigate 
risk. They collect data on price elasticity of main apparel products and costs of alternative 
sourcing to estimate new cost and revenue after mitigation. 

They then apply new cost and revenues variables, integrating changes from mitigation 
actions to counterparty profit estimates, to get a mitigated view of profit impacts of nature-
related risks. 

3.1 Financial impacts assessment 

The  analysis  team  then  integrates  the  counterparty-level  financial  impacts  into  a 
portfolio-level financial analysis, to get an estimate of the changes in value of the portfolio 
for different scenarios. To conduct this part of the analysis they follow three main steps: 

1. 

2. 

3. 

Assess potential portfolio valuation change based on counterparty value 
analysis using internal portfolio valuation tool and quantify resulting value at 
risk. 

Based on the nature and magnitude of the risk, classify the outcomes of the 
value-at-risk analysis as a credit risk. 

Stress-test the potential for contagion using the results of the extreme risk 
scenario, extrapolating across the whole sector.  

The  analysts  compile  the  outputs  of  the  financial  assessment  into  a  set  of  metrics 
commonly used within the risk framework of the asset manager.   

Illustrative outputs – portfolio value projections compared to baseline 

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3.2 Mitigation actions 

Based on the outputs of the assessment the asset manager decides to start engaging 
with the counterparties that showed the highest risk profile. This include discussing any 
existing mitigation plans and policies in place to reduce their impacts and dependencies 
on nature. 

The  asset  manager  takes  this  opportunity  to  engage  into  sizing  the  investment 
opportunities for  companies  with  low  or  nature positive  impacts  in the  apparel  sector, 
investigating client’s appetite of low impact portfolios and estimating potential returns to 
inform product development teams.  

The  asset  manager  includes  the  risk  assessment  approach  into  risk  frameworks  for 
apparel sector counterparties to be used in further portfolio risk assessments within the 
organization. They also decide to submit the results of the assessment to the TNFD to 
further  collaborate  with peers  on  improvements and  extension  to  the  risk  assessment 
approach.  

4.4.3.  Case study 3 : Project-level assessment in real 

estate  

In  this  case  study,  the  financial  institution  is  an  investor,  which  already  has  some 
experience assessing nature-related risks across its portfolio, but it is their first project-

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level  assessment.    It  covers  the  key  steps  and  design  choices  to  identify  and  assess 
risks  through  a  quantitative  analysis  of  risks  for  a  targeted  activity,  relying  on  highly 
granular data on the project’s sites and financials.  

1.1 Intention setting  

The investor is considering financing a real estate development project across multiple 
cities in Italy. The investor needs to be able to report on a biodiversity risk score for this 
project to feed into the overall due diligence process.  

−  Aim of assessment: assess the nature-related risks of a specific project for 

investment  

−  Use case 1: contribute to due diligence process  
−  Use case 2: feed into overall nature-related risk assessment of project portfolio 

across time 

−  Unit of analysis: The assessment will be at asset-level, to account for all asset-

specific risks in the project 

−  Scope: The investor would like to carry an assessment for all assets of this real 

estate project   

1.2 Risk identification 

The investment will be covering both the construction and management of the real estate 
project, the risk assessment should therefore include these two areas of activities as well 
as some key components of the value chain including building materials such as wood, 
cement and steel. 

The  analysis  team  has  defined  a  long  list  of  key  impacts  and  dependencies  of  the 
construction and real estate sector including:  

-  Solid waste generation from construction and demolition  
-  Soil and water pollution from construction sites 
-  Air pollution from construction sites  
-  Land conversion and deforestation 
-  Water consumption and dependency for construction and management 
-  Flood risks for management 
-  Soil erosion risk for management  

Based on ENCORE materiality rating and project data availability, the investor decides 
to focus primarily on land conversion, water consumption and solid waste generation, as 
these have been identified as highly material for real estate activities. 

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2.1 Sources of financial risks 

The main physical risk identified is related to decreasing water availability, with risk of 
droughts and water prices increase affecting the project and its value chain (price of raw 
materials,  construction  costs,  requirements  to  put  water  efficient  systems  within  the 
buildings). The investor compile data on water scarcity levels in all regions of focus for 
the project, using projections specific to Italy, and water availability gap by site (m3) and 
on the cost of alternative water source.  

The  analysis  decides  to  collect  information  on  sources  of  key  transition  risks  around 
waste, water and land use. They carry the following research:  

−  Policy/regulations: review Italy’s plan for protected areas expansion and maps 
of high biodiversity areas around selected sites for the projects, review EU 
regulations or draft regulations on solid waste for the real estate sector  

−  Technology: review trends in availability and cost of water treatment 

technologies, water efficient building materials, and construction waste 
recycling options  

The team compiles qualitative and quantitative data on these risks and translate them 
into  quantitative  variables  with  baseline  values:    e.g.  score  for  vicinity  to  a  potential 
protected area, cost of solid waste recycling.  

FORWARD-LOOKING ANALYSIS: 

The  investor  decides  to  take  a  forward-looking  view  of  risks  with  the  relevant  time 
horizon, for instance looking into a 5 years risk assessment for risks emerging from the 
construction  phase  of  the  project  (e.g.  regulations  on  waste  and  pollution,  prices  of 
construction  materials).  For  risks  emerging  in  the  management  phase,  such  as  water 
scarcity and pollution from demolition, the investor looks into a much longer time towards 
2050.  

For  the  construction  phase  of  5  years,  a  static  view  is  used  to  assess  nature-related 
risks, which means that the analysis relies on current values for water scarcity, pollution 
regulations and technology availability.  

For  the  longer  timeline  the  investor  decides  to  compare  2  scenarios:  one  in  which 
stringent regulations on solid waste and water are put into place and one where water 
scarcity becomes extreme in some of the targeted sites. To build the extreme water risk 
scenario the analysis team uses water scarcity projections under 4C climate change from 
the WRI Aqueduct Water Risk Atlas. To build the strict regulations scenarios the analysis 
team assumes all solid waste will have to be recycled and wildlife protection measures 
will have to be implemented on the real estate sites by 2030.  

Systemic risk at industrial system level:  Consider how water scarcity risks in Italy 
could affect real estate investments across the country, with a significant drop in demand 

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which could lead the value of real estate in the country to collapse as it spreads across 
the whole sector.  

2.2 Impacts and dependencies exposure 

For  each site the  investor  collects  project  data which  will  enable  to  estimate  potential 
impacts of the project on nature through land use, waste generation and use of natural 
resources. This data includes: 

-  Specific locations of building sites,  
-  Estimated raw materials inputs needs, 
-  Estimated waste generated during construction and demolition phase.  

Similarly,  the  investor  collects  project  data  on  estimated  water  consumed  during 
construction  and  by  unit  during  management  phase.  This  should  be  included  in  the 
project design documentation and will directly feed into the estimate of the magnitude of 
risks related to water scarcity for the project. As each m3 of water consumed could be 
linked to increased cost of production and operation.  

2.3 Risk materiality 

The investor then combines exposure data with risk variables to estimate the potential 
additional costs related to nature physical and transition risks for the project, both for the 
construction and management phase, and across the relevant timelines. 

For instance, they combine the following data: 

−  Water scarcity risk: combining number of sites in high water scarcity risk area, 
m3 water consumed per unit for construction and management (per year), cost 
of alternative water source ($/m3)   

−  Land use risks: combining number of sites located in or near a potential future 

protected area, additional cost of construction for design that minimize 
disturbance to local ecosystem (e.g. reducing noise during construction, limiting 
soil disturbance around site, installing wildlife corridors on site) 

The investor can combine the relevant variable and apply the additional costs estimated 
to the Profits and Losses (P&L) estimations of the project, including the construction and 
management phase. The investor can estimate cost for a business-as-usual scenario, 
and an “extreme risk scenario” and compare P&Ls calculated with baseline P&L for the 
project.  

Illustrateive outputs - Project profit estimates including nature-related risks 

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2.3 Response to risk 

The analysts then list potential actions that the real estate developer and manager could 
take to minimize risk of losses. This includes rent or selling price increase, water efficient 
building  design,  alternative  locations.  The  team  then  collects  data  on  potential  cost, 
revenue implications of each of these actions. 

Based on consultations with expert from the sector the analysts select the most likely 
response  and  integrate  the  cost  and  revenues  variables  for  these  responses  to  the 
project P&L estimates to get an alternative view of potential financial impacts. 

3.1 Financial impacts assessment 

The analysts team integrates the new estimates of profits and losses for the project into 
their internal valuation modelling to get an estimate of the potential return-on-investment 
across the two scenarios analysed. Depending on the results, the investor could classify 
the nature-related risks estimated for this project as potential market risk or credit risk.  

3.2 Mitigation actions 

The  investor  integrates  the  results  of  the  financial  assessment  into  the  overall  due 
diligence of the project. This will ensure that nature-related risks are taken into account 
in the investing decision.  

Before taking  a  decision  on  the  investment, the  investor  engages  with  the  real  estate 
developer  and  manager  on  their  plan  to  mitigate  nature-related  risks  and  how  it  is 
included  in  the  project  financials.  They  can  also  discuss  potential  mitigation  options, 
relying on the options selected in step 2.3. 

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4.4.4.  Case study 4 : Asset-level risk assessment for a 
bank’s business with an agricultural crop grower 

In this case study, the financial institution is a regional bank, which already has some 
capabilities  on  nature-related  risks  assessment  and  needs  to  carry  a  more  targeted 
assessment  to  make  a decision  on  investment  into  a  specific  asset.  It  covers the  key 
steps and design choices to identify and assess risks through an asset-level quantitative 
analysis. 

1.1 Intention setting  

A regional bank is planning to invest into the main asset of one of its farming clients, who 
is  purchasing  a  new  farm.    Before  investing  the  bank  would  like  to  assess  the  farm’s 
exposure to nature-related risks.  The bank will use the results of the assessment to feed 
into the overall risk scoring of the asset, which will guide the investment decision.  

The assessment will be carried out for a farm unit with data at product and site level. 
After completion, this study can be used by the bank as an effective template for future 
assessments of similar agricultural assets. 

1.2 Risk identification 

The assessment will focus on the activities carried on the farm which are the growing 
and  processing  of  two  main  crops  :  soybean  and  maize.  The  farm  is  located  in  the 
Eastern part of Brazil. 

Based on TNFD sector guidance and news reports about soy and maize farming impacts 
on  nature  in  Brazil,  the  analysis  team  decides  to  prioritize  three  main  risk  drivers:  (i) 
water  scarcity,  (ii)  air  and  water  pollution  from  fertilizers  and  pesticides,  (iii) 
deforestation. 

A special attention in this step might be required to ensure compliance of the farmer to 
local nature protection regulations. Non-compliance would be an immediate indicator of 
excessive risk and, for that reason, would most likely imply suspending the assessment 
until  compliance  is  ensured.  While  there  might  be  multiple  sources  and  particular 
procedures to obtain the required compliance information, in this case study we assume 
that the preliminary check of the farm passed successfully. The analysis team was able 
to  access  necessary  information  based  on  client  documentation  and  government 
resources.356  

356 This includes reviewing the online database of the Brazilian Institute of the Environment and Renewable Natural 
Resources / Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis, 
https://servicos.ibama.gov.br/). 

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2.1 Sources of financial risks 

In  order  to  quantify  the  sources  of  physical  risks  for  this  asset,  the  analysts  collect 
geospatial data covering the asset location. The data provides insight for key state of 
nature  variables  including  water  scarcity  levels  maps  and  drought  records.  They  also 
collect state-level future projections of water scarcity.357   

The analysis team uses the data to assess the levels of these risk drivers in the area 
relevant  to  the  farm  site  and  other  locations  for  comparison.  This  provides  an  initial 
reference point on the positioning of the farm among similar assets regarding key nature 
risk drivers. 

In  order  to  better  understand the  sources  of transition  risks  in the  context  of the farm 
asset, the  analysts collect  a  set  of  qualitative  and  quantitative  information  on  relevant 
policies, regulations, market trends and technologies. This includes:  

−  Policy/regulations: review of emerging regulations on water pollution, review 
restoration and protection trends in Brazil, review any restrictions on fertilizer 
and pesticides use in agriculture; review of official database on active 
environmental bans in farm’s location 

−  Demand changes: review historical market trends and expert insights on the 

targeted crops: soy and maize 

−  Technology: review costs of low impact farming practices – e.g. available 
technology and cost for precision agriculture including ag tech solutions  

Based  on  the  data  and  information  collected,  the  analysis  team  decides  to  establish 
scores for each transition risks identified – i.e. regulations on pesticides use, regulations 
on  water  pollution.  They  also  define  a  set  of  variables  to  quantify  additional  transition 
risks  such  as  shift  in  demand  from  Brazilian  soy  related  to  deforestation  risks.  They 
review their scoring and assumptions with legal and market experts.   

2.2 Impacts and dependencies exposure 

The analysis team is now aiming at assessing the potential impact of the farm on nature, 
especially for impacts directly linked with the risk drivers targeted for this assessment 
(pollution, land use, water scarcity). The team requires the client to provide estimates of 
main physical inputs and outputs of the farm including :  

-  Water consumption per ton of products (annual) 
-  Wastewater discharge per ton of products 
-  Pesticide and fertilizers use per ton of products 
-  Land used (exact location, size in ha, details of characteristics of the location 

before development)  

357 Here climate projections can be used as reference points, international and national institutions can provide 
estimates, see for instance World Bank’s climate knowledge portal: 
https://climateknowledgeportal.worldbank.org/sites/default/files/2021-07/15915-WB_Brazil%20Country%20Profile-WEB.pdf  

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The quantitative data obtained in this step are systematized by the bank into an input-
output table for the farm on a per ton basis. The team also estimates potential air and 
water pollution emissions per ton of products based on pesticide and fertilizer used, using 
life-cycle-assessment  database  as  reference  (e.g.  kg  NOx  emitted  per  kg  of  pesticide 
used).   

2.3 Risk materiality 

The analysis team can now estimate potential economic impacts of nature-related risks 
on the farm’s operations, by combining data on the sources of risks and on the farm’s 
impacts  and  dependencies  and  linking  them  to  transmission  channels  variables.  For 
instance,  water  pollution  risks  will  be  assessed  by  combining  (i)  the  likelihood  of 
regulations  tightening  on  fertilizers  use  in  Brazil,  (step  2.1)  (ii)  the  expected  use  of 
fertilizers by the farm (step 2.2), and (iii) the expected increase in cost of using fertilizers 
due to pollution prevention measures or risk of fines.  

The  analysts  use  integrated  sector/country  level  forward-looking  scenarios  to  inform 
pricing of inputs and outputs from step 1.2 as quantified in step 2.2. An example of such 
scenarios is the “IPR Forecast Policy Scenario + Nature”358. Using historical baseline, 
the  analysts  calculate  the  relative  changes  of  parameters  of  interest  (step  1.2)  as 
informed by a scenario into absolute value for estimating the materiality risk implications 
for each relevant input/output item. 

Example historical baseline parameters and their scenario-informed projections (the numbers are used as 
placeholders for illustration purposes only) 

At this stage the analysts compile a set of cost and price variables which reflect changing 
conditions due to nature-related risks for the farm. This includes increase in cost of water 
supply per ton of product, increase in cost of pesticides use per ton of products, changes 
in prices of products due to demand changes (directly derived from scenario outputs), 
increase in land management cost due to stricter restoration regulations.  

The analysts team collect the baseline financial data from the client, to build a baseline 
profits and losses profile of the asset. They then adapt the profile by changing costs and 
revenues based on the variables modelled above. The resulting annual profit projection 
(see  Figure  below)  provides  information  on  combined  environmental-economic  risks 
implied by the considered scenario.  

Illustrative outputs - Combination of scenario-level risk indicators and asset-level  
financial data to estimate costs, revenues, and profits 

358 See: https://www.unpri.org/inevitable-policy-response/ipr-forecast-policy-scenario--nature/10966.article  

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800

600

400

200

0
2020

-200

-400

2025

2030

2035

2040

2045

2050

1p5degInn

1p5degSoc

2degCoord

2degForec

BAU

(A) expected profits generated by the asset ($/ha) over the planning period under five 
scenarios  

3.1 Financial impacts assessment 

The analyst team integrates the new estimates of profits and losses for the asset into 
their  internal  asset  valuation  modelling  to  get  an  estimate  of  the  potential  return-on-
investment across the different scenarios analysed above.  

The outcomes of this analysis show that the asset could lose significant value under a 
strict regulation scenario, if the farm does not take steps to mitigate its impact on nature.  

Based  on  the  P&L  and  ROI  profile  of  the  asset,  and  an  analysis  of  financial  volatility 
within  relevant  commodity  markets,  the  bank  qualitatively  estimates  whether  financial 
risk is acceptable for carry the investment forward. 

3.2 Mitigation actions 

The  bank  integrates  its  assessment  of  financial  impacts  of  nature  risks  into  the 
investment  profile  of  the  farm  asset  and  undertake  a  set  of  precautionary  actions  to 
support the mitigation of risks for this investment. This includes: 

  Collecting and reviewing client’s sustainability safeguards and transition planning 

  Engaging  with  the  client  on  specific  mitigation  actions  to  mitigate  the  most 
material  risks  such  as  water  scarcity  and  pollution  regulations;  e.g.  achieving 
fertilizer use reduction through high-precision application 

  Establishing continuous monitoring and reporting on client’s transition plan for the 

farm 

4.5.  Roadmap  

Nature-related  risks  remains  an  evolving  field,  with  fast-changing  circumstances  for 
financial institutions. As capabilities, data and regulations emerge, financial institutions 
can build towards best practice and explore how nature-related risks assessment can 
support their activities and efforts towards financing a sustainable future.  

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This section provides an initial roadmap to help financial institutions frame plan how they 
can  implement  the  risk  assessment  framework  detailed  above,  through  a  phased 
approach. Financial institutions can define their next steps and structure their approach 
in three main phases: (i) a short-term exploratory and planning phase (~1 year), (ii) a 
medium-term deepening phase building strong capabilities (~3 years), (iii) a long-term 
mainstreaming phase integrating nature in their frameworks (~3-5 years).  

• Understanding exposure 
to nature-related risks 

• Undertaking initial 

assessment 

• Developing a vision and 

plan on nature risks 
assessment and 
management 

• Conducting detailed 

• Integration of climate 

quantitative assessment 
across multiple activities 

• Building capabilities for 
forward-looking analysis 

• Engaging with clients 

and initiating mitigation 
actions 

and nature risk 
assessment models into 
broader risk assessment 
infrastructure 

• Mainstreaming climate 

and nature across 
organization’s decision 
making processes  
• Integrate climate and 

nature in risk 
management 
frameworks 

Short-term: Exploration and 
planning

Medium-term: 
Deepening 
capabiltiies for nature 
risks assessment and 
management 

Long-term: 
Mainstreaming nature 
risks assessment and 
management

4.5.1.  Short-term – exploration and planning 

Although alignment the data, metrics and approaches to assess nature-related risks is 
expected to improve over time, financial institutions can already start implementing this 
framework by piloting high-level or targeted assessments and building their capabilities 
towards best practice. 

4.5.1.1.  Key actions  

In the short-term financial institutions can explore risk assessment methods and plan for 
future assessment and management through the following actions:  

1.  UNDERSTANDING EXPOSURE TO NATURE-RELATED RISKS  

Financial institutions can benefit from getting a first view on potential exposure to nature-
related  risks.  This  would  entail  getting  an  overall  view  of  the  concentration  of  their 
activities by sectors and locations. Then financial institutions can start listing potential 
nature-related risks most commonly observed in the sectors and locations where their 
activities are most concentrated. 

This high-level exposure overview can be conducted following the guidance presented 
in Step 1.2 – risk identification of this framework.  

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2.  UNDERTAKING AN INITIAL ASSESSMENT  

Financial institutions can learn from undertaking different approaches to nature-related 
risks  assessment,  especially  identifying  areas  for  further  capabilities  development. 
Depending on the types of activities, existing capabilities and access to data, financial 
institutions can decide to conduct an assessment at different levels of granularity. For 
instance,  financial  institutions  interested  in  understanding  their  overall  exposure  and 
report at high level can develop a heatmap combining qualitative materiality ratings and 
quantitative exposure data.  Financial institutions could also decide to conduct a more 
focused assessment integrated into a specific investment. This could take the form of a 
quantitative  assessment  for  a  specific  sector  or subsector  for  only  one  or  two  nature-
related risk drivers (e.g. water or land use). 

3.  DEVELOPING A VISION AND PLAN ON NATURE RISK ASSESSMENT AND 

MANAGEMENT  

At  this  stage,  financial  institutions  can  establish  their  ambition  regarding  nature  risks 
assessment and management, defining clear objectives and timelines to reach these. 

To  build  this  plan  financial  institutions  might  have  to  start  by  evaluating  their  different 
options  for  quantitative  risk  assessment  methodologies.  Assessing  their  existing 
capabilities, data and synergies with ongoing climate risk assessments, they can define 
which  methodological  approach  could  be  most  relevant  to  develop.  Based  on  this 
assessment of methodological approaches, financial institutions can also highlight which 
areas to focus on for future capabilities building and data acquisition.  

Financial institutions could also start identifying a set of risk mitigation and management 
actions  and  prioritize  them  to  be  included  into  the  plan.  This  could  cover  specific 
approaches for engagement with clients on nature-related risks, policies to be developed 
or reviewed.   

4.5.1.2.  Capabilities development 

In  the  short-term  financial  institutions  can  focus  building  capabilities  on  data  and 
establishing dedicated nature teams. Financial institutions could first assess their data 
needs and start building the data infrastructure for future collection. Establishing of small 
team  dedicated  to  nature  topics,  or  increasing  the  knowledge  on  nature  within 
sustainability teams can also be a first step towards building organizational capabilities 
for nature risk assessment. 

4.5.1.3.  Methodological framework implementation  

Financial  institutions  can  focus  on  implementing  Step  1.2  -  Risk  identification  of  this 
framework as means to understand their exposure at high-level and get started with initial 
knowledge on the main driver of nature-related risks. 

To undertake an initial risk assessment, financial institutions can follow the 8 steps of 
this framework, especially phase 1 on scoping and phase 2 on entity-level assessment. 
This can be conducted using qualitative data or with a reduced scope. 

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4.5.2.  Medium-term – deepening capabilities for nature 

risks assessment and management 

In  the  medium-term  financial  institutions  will  want  to  establish  robust  capabilities  for 
nature risk assessment, paving the way for a more systematic integration of nature into 
broader risk assessment and management approaches. 

4.5.2.1.  Key actions  

Financial  institutions  can  deepen  their  capabilities  on  nature-related  risks  assessment 
by conducting more comprehensive quantitative analysis, including exploring scenario 
analysis.  They  might  also  want  to  start  implementing  risk  management  measures  by 
engaging with clients and initiate preliminary mitigation actions.  

1.  CONDUCT DETAILED QUANTITATIVE ASSESSMENTS ACROSS MULTIPLE 

ACTIVITIES  

Financial institutions can refine and reproduce nature-related risk assessments across a 
broader set of activities and with increasing sectoral and locational granularity, as data 
becomes more available, and methodologies are refined.  

More  comprehensive  risk  assessments  can  cover  a  larger  set  of  risk  drivers  and  be 
applied  across  multiple  areas  of  activities.  For  instance,  all  activities  covered  by  an 
investor  top  portfolio  could  be  assessed.  A  more  detailed  analysis  could  include 
quantitative  value  chain  analysis  using  input-output  tables.  Financial  institutions 
investing in projects could conduct high granularity asset-level assessments across all 
their new investments over a few years.  

Financial institutions might also want to undertake a combined climate and nature risk 
assessment  to  evaluate  the  complexity  of  integrating  both  approaches  into  one 
assessment. 

2.  BUILD CAPABILITIES FOR FORWARD-LOOKING ANALYSIS  

Financial  institutions  may  want  to  start  introducing  forward-looking  analysis  in  their 
nature-risk assessments, as the capabilities and understanding of nature risks becomes 
more established and scenario start to emerge.  

Financial institutions can decide to use existing scenarios to undertake a forward-looking 
analysis  for  at  least  one  sector  and  driver.  They  could  also  build  their  own  in-house 
scenarios following the approach described in step 2.1.   

3.  START ENGAGING AND INITIATE MITIGATION ACTIONS  

As  financial  institutions  multiply  and  refine  their  nature-relate  risks  assessments,  they 
could  use  the  results  to  start  engaging  with  clients  on  risk  mitigation  and  transition 
initiatives. Financial institutions could target high risk counterparties to discuss existing 
and additional measures put in place, and further establish timed risk mitigation targets.  

Financial institutions can also start implementing mitigation actions defined previously, 
for instance starting to review their policies and implement nature-related exclusions or 
criteria in their risk management processes.  

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4.5.2.2.  Capabilities development 

During this phase financial institutions can focus on refining capabilities around locational 
granularity and scenario modelling to enhance the robustness of their risk assessment 
approach. 

Financial institutions could also start integrating the different approaches developed for 
each  sector  and  risk  drivers  into  one  common  risk  assessment  model  which  can  be 
reproduced across the organization.  

4.5.2.3.  Methodological framework implementation  

At this stage all elements of the framework can be implemented, with particular emphasis 
on granular entity-level assessment, integration of company or asset-level footprint data 
and scenario modelling.  

4.5.3.  Long-term- Mainstreaming nature risks assessment 

and management 

In the  long-term  financial  institutions  might  work towards  making  nature an  integrated 
part of their sustainability risk assessment and management, especially by integrating 
climate and nature models and management processes.  

In the future, nature-related risks assessment could become a systematic component of 
risk  assessment,  integrated  into  due  diligence  requirements  or  stress-testing  for 
instance. Financial institutions could mainstream climate and nature risk assessments 
across  their  organization  by  integrating  them  into  key  decision-making  and  reporting 
frameworks.  This  can  include  capital  allocation  strategies,  lending  policies,  annual 
reporting and combined TCFD-TNFD disclosures.  

Climate  and  nature  risks  assessment  models  could  also  be  fully  integrated  into  the 
organization’s  existing  risk  modelling,  which  could  then  directly  feed  into  key  risk 
management indicators such as risk appetite and risk ratings.  

Financial institutions might also consider mainstreaming nature across the organization 
by ensuring that nature and climate is included in decision frameworks at all levels and 
across all divisions, beyond risk teams.  

In the long-term mitigation actions can be fully developed with effective monitoring of risk 
mitigation targets with clients and the development of transition opportunities. 

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5.  Annex A – Tools and sectoral assessment  

Table 5-1 Non-exhaustive overview of assessment tools principle 

Tool  

Description  

Exploring Natural 

A tool and database to help users better understand and visualise the impact and dependencies of 

Capital 

environmental change on the economy. By focusing on the goods and services that nature provides 

Opportunities, 

to enable economic production, it guides users in understanding how businesses across all sectors 

Exposure assessment tools 

of the economy potentially depend and impact on nature, and how these potential dependencies 

and impacts might represent a business risk by means of qualitative materiality ratings. 

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

X 

X 

X 

✔ 

✔ 

The tool provides a biodiversity footprint of the economic activities in which a financial institution 

invests and hence can be used as an investment criterion or monitoring progress.  The 

methodology is based on Life Cycle Assessments and allows the calculation of the environmental 

pressures and the biodiversity impact of investments within an investment portfolio, an asset class, 

a company, or a project. The BFFI combines a quantitative footprint calculation (e.g. the number of 

X 

ha where biodiversity loss occurs) and a qualitative analysis. In absence of company specific data, 

the environmental data in the EXIOBASE input/output-database (see further below) is applied for 

X 

Inclusio

n of 

location

specific 

charact

eristics 

is 

limited 

✔ 

✔ 

✔ 

359 ENCORE is developed by the Natural Capital Finance Alliance in partnership with UNEP-WCMC and was financed by the Swiss State Secretariat for Economic Affairs (SECO) and the MAVA Foundation. 
360 Developed together with ASN Bank, PRé and CREM 

217 

Risks and 

Exposure 

(ENCORE)359 

Biodiversity 

Footprint for 

Financial 

Institutions 

Methodology 

(BFFI)360 

 
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Tool  

Description  

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

the assessment of land use, water use, emissions, etc. (pressures). EXIOBASE takes into account 

worldwide trade flows between countries and between sectors. 361 

Integrated 

Biodiversity 

IBAT offers visual geolocated data on global biodiversity by offering access to biodiversity datasets 

on 1) key biodiversity areas 2) protected areas and 3) distribution maps for IUCN Red List species. 

Assessment Tool 

If the location of an investment activity is known, IBAT data can be helpful to inform the early-stage 

X 

✔ 

✔ 

✔ 

X 

(IBAT)362 

biodiversity risk screening and due diligence process. Ultimately, it can help to avoid investing in 

harmful activities in high biodiversity areas.  

Global Biodiversity 

The Global Biodiversity Score (GBS) is a corporate biodiversity footprint assessment tool which 

score363 

focuses on the biodiversity impacts of economic activities across their value chain. GBS’s results 

are expressed in the MSA.km2 unit where MSA. The methodology makes it possible to quantify a 

business’s biodiversity footprint all the way along the value chain. The CDC Biodiversité offers two 

types of GBS-based solutions for financial institutions. Non-listed assets (e.g, real estate, 

infrastructure, private equity) are grouped under the brand GBS for Financial Institutions (GBS FI). 

For listed assets (stocks and bonds), the Biodiversity Impact Analytics powered by the Global 

Biodiversity Score® (BIAGBS) database is co-developed with the data provider Carbon4 Finance 

(C4F). 364 

Global Biodiversity 

The tool is based on the GBS®, and hence provides information on the measured by the Mean 

Score for Financial 

Species Abundance. In summary, the GBSFI provides an overall and synthetic vision of the 

Institutions 

(GBSFI)365 

biodiversity footprint of financial assets (e.g., listed equity) considering the full value chain of 

underlying economic activities (associated companies businesses). 

X 

X 

Indirectl

y via 

Globio 

model 

Indirectl

y via 

Globio 

model 

✔ 

✔ 

✔ 

✔ 

✔ 

✔ 

361 Finance for Biodiversity Pledge (2022). Guide on biodiversity measurement approaches 
362 IBAT is developed by BirdLife International, Conservation International, IUCN and UNEP-WCMC.  
363 Developed by CDC Biodiversité’s 
364 CDC Biodiversité & Club B4B+ (2021). Global Biodiversity Score: Establishing an ecosystem of stakeholders to measure the biodiversity performance of human activities 
365 Developed by CDC Biodiversité 

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Tool  

Description  

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

Biodiversity Impact 

BIA-GBS provides an estimate of the potential biodiversity footprint of portfolios or indices 

Analytics powered 

considering the full value chain of underlying companies. BIA-GBS applies the GBS’s Biodiversity 

by the Global 

Footprint Assessment tool which links economic activity to pressures on biodiversity and translates 

Biodiversity Score 

these pressures into biodiversity impacts. The current broad coverage of BIA-GBS makes it 

(BIA-GBS)366 

possible to evaluate a large number of portfolios as well as to estimate the first orders of magnitude 

for listed assets with sectoral benchmarks and indexes.  

Global Impact 

GID provides environmental, social and economic impact estimates for countries and sectors in the 

Database (GID)367  

global economy, for the purpose of impact reporting and impact management. GID’s biodiversity 

model offers quantitative estimates biodiversity impact of companies, investment portfolios, and 

value chains.  

✔ 

✔ 

Indirectl

y via 

Globio 

model 

Indirectl

y via 

Globio 

model 

The Biodiversity 

The Biodiversity Risk Filter is a tool that enables companies and financial institutions to Inform (i.e. 

Risk Filter368 

providing an overview of the industry-specific dependencies and impacts on biodiversity), Explore 

(i.e. collection of spatially explicit maps of the importance and local integrity of biodiversity), Assess 

X 

✔ 

✔ 

(i.e. physical and reputational risks description), and Respond (identifying suitable actions to 

respond to the identified risks (under development)) to biodiversity risks.369  

Biodiversity Impact 

The Biodiversity Impact Assessment Tool (BIAT) assesses the biodiversity impact of a company’s 

Assessment Tool 

business activities and supply chain, considering a set of environmental pressures on species and 

X 

✔ 

X 

(BIAT)370 

habitats. It enables investors to better understand and assess biodiversity risk in their portfolios in 

✔ 

✔ 

✔ 

✔ 

✔ 

✔ 

✔ 

X 

✔ 

X 

366 database is co-developed with the data provider Carbon4 Finance (C4F). 
367 Developed by the Impact Institute  
368 The BRF is developed by WWF  
369 WWF (2023) Tackling Biodiversity Risk – A biodiversity risk assessment guide for companies and financial institutions, WWF Switzerland and WWF Germany in cooperation with Climate & Company, 
January 2023. 
370 The Biodiversity Impact Assessment Tool is developed by ISS ESG  

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Tool  

Description  

alignment with two of the most widely accepted biodiversity assessment metrics: Potentially 

Disappeared Fraction of Species (PDF) and the MSA. 

Underpinning economic and environmental models 

ReCipe371 

ReCiPe is one of the most advanced and up-to-date impact assessment approaches accessible to 

practitioners of life cycle impact assessments. It deals with various environmental issues at the 

midpoint stage and subsequently consolidates these midpoints into three endpoint categories 

concerning the impact on Areas of Protection: damage to human health, damage to ecosystems, 

and damage to resource availability.372 ReCipe expresses the potential disappearance of species in 

a certain area during a given time (Potentially Disappeared Fraction).  

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

✔ (due to 

the 

inclusion of 

years as 

part of the 
Potentially 

Disappeare

d Fraction) 

X 

✔ 

✔ 

X 

GLOBIO Model373 

GLOBIO is a model used to simulate the impact of different human pressure scenarios on 

biodiversity, in the form of the Mean Species Abundance (MSA). It also has derivations: GLOBIO-

Aquatic, GLOBIO-Species and GLOBIO-ES. All these were designed to inform and support 

decision-makers by quantifying global human impacts on biodiversity. The various anthropogenic 

pressures included are infrastructure, hunting, nitrogen deposition, habitat fragmentation, land use 

✔ 

✔ 

and climate change. The GLOBIO model calculated changes in MSA due to increasing 

environmental pressures over time which can be attributed to different responsible economic 

sectors. The model is closely connected to PBL’s IMAGE model: an integrated assessment model 

that simulates the global environmental consequences of human activities by assessing the impacts 

Globio: 

n/a 

Image: 

energy & 

agricultur

e 

✔ 

X 

371 It was first developed in 2008 through cooperation between RIVM, Radboud University Nijmegen, Leiden University and PRé Sustainability. 
372 European Commission and Business for Biodiversity (2021). Biodiversity Measurement Approaches – Summary descriptions. cooperation between RIVM, Radboud University Nijmegen, Leiden University and PRé 
Consultants (lead). The current 2016 version was developed through cooperation of Radboud University in Nijmegen, RIVM, NTNU Trondheim and PRé 
373 The GLOBIO model was developed by PBL Netherlands Environmental Assessment Agency. 

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Tool  

Description  

on Impacts on climate change, land-use change, biodiversity loss, modified nutrient cycles, and 

water scarcity. Globio  assesses the consequences of three of the Shared Socio-economic 

Pathways (SSPs) for terrestrial biodiversity intactness.374 

Exiobase375 

EXIOBASE is a global, detailed Multi-Regional Environmentally Extended Supply-Use Table (MR-

SUT) and Input-Output Table (MR-IOT). It was developed by harmonizing and detailing supply-use 

tables for a large number of countries, estimating emissions and resource extractions by industry. 

The MR-IOT can be used for the analysis of the environmental impacts associated with the final 

consumption of product groups. E.g. BFFI applies the environmental data in the EXIOBASE 

input/output-database to assess what land use, water use, emissions, etc. (pressures) are linked to 

the economic activities unless more accurate data (like company data) is available. EXIOBASE 

takes into account worldwide trade flows between countries and between sectors.  

EORA376  

EORA is a global supply chain database that consists of a multi-region input-output (MRIO) table 

model that provides a time series of high-resolution IO tables with matching environmental and 

social satellite accounts for 190 countries. The database includes, among others, 2720 line item 

environmental indicators covering GHG emissions, labour inputs, air pollution, energy use, water 

requirements, land occupation, N and P emissions, and primary inputs to agriculture (including 172 

crops) from FAOSTAT.  

Biodiversity Metrices and Indexes 

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

X 

X 

✔ 

X 

✔ 

X 

X 

✔ 

X 

✔ 

374 See GLOBIO  
375 See https://www.exiobase.eu/index.php/about-exiobase 
376 EORA  

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Tool  

Description  

Biodiversity 

The Index shows how local terrestrial biodiversity responds to human pressures such as land use 

Intactness Index 

change and intensification. The BII is an estimated percentage of the original number of species 

(BII)377 

and their abundance that remains in any given area, despite human impacts. The BII projects how 

index will change in response to future management decisions. This can help businesses and 

policymakers to evaluate different management strategies and opportunities. By combining satellite 

imagery, data collected in the field, existing studies, and algorithmic modelling, the BII can be 

applied across the world. The BII includes a baseline of the number and diversity of species at near-

undisturbed sites and compares this baseline with biodiversity at sites with high human activity. 

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

X 

✔ 

X 

✔ 

X 

Species Threat 

Abatement and 

The (STAR) Metric allows quantification of the potential contributions that species threat abatement 

and restoration activities offer towards reducing extinction risk across the world (drawing from the 

Restoration (STAR) 

IUCN Red List of Threatened Species). As such, STAR helps identify actions that have the potential 

Metric 378 

to bring benefits for threatened species, and it supports the establishment of science-based targets 

X 

✔ 

X 

Positive 

impact 

for species biodiversity, and commitments relevant to the post-2020 biodiversity framework. STAR 

is one of the derived data layers in IBAT.  

Mean Species 

The Mean Species Abundance (MSA) metric is an indicator of local biodiversity intactness. The 

Abundance (MSA)  

MSA values range from 0% to 100%, where 100% represents an undisturbed pristine ecosystem. 

(ratio between the observed biodiversity and the biodiversity in its pristine state). 379 The MSA is 

applied in the GLOBIO Model.  

Potentially 

Disappeared 

The Potentially Disappeared Fraction (PDF) metric quantifies the proportion of species richness that 

may face loss or extinction as a result of various environmental pressures, including land use 

changes, climate change, and other factors.  

X 

✔ (due to 

the 

✔ 

✔ 

X 

X 

✔ 

✔ 

X 

X 

X 

377 The BII is developed by the Natural History Museum  
378 STAR is developed by BirdLife International, Conservation International, IUCN and UNEP-WCMC. 
379 GLOBIO 

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Tool  

Description  

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

Fraction of Species 

(PDF) 

The PDF can have a max value of 1 (or 100%), and all species disappeared or zero, meaning that 

all species are still there. Loss of species is calculated in a certain terrestrial area (hence m2) or 

marine/freshwater area (hence m3), during a certain time (hence the addition of years).380 PDF is 

inclusion of 
years) 

applied in the ReCipe model.  

Biodiversity Impact 

The Biodiversity Impact Metric is a practical risk-screening tool for supply chain businesses that 

Metric (BIM)381 

source agricultural commodities.  For an agricultural commodity sourced from a particular location, 

the metric assesses impact based on: 1) the land area needed for the production of the commodity, 

2) the proportion of biodiversity lost when the land is transformed to produce the commodity, related 

to the type of land use and its intensity; and 3) the relative global importance of that biodiversity. 

X 

✔ 

X 

✔ 

X 

BIM is calculated by multiplying the three variables together. The outcome is expressed in 

"weighted hectares," which represent hectares weighted by biodiversity impact. Additionally, the 

metric can be divided by the total amount of purchased commodities to determine the impact per 

unit sourced. The BIM is a fully additive metric that encompasses commodities and geographies. 

Supporting databases and assessment tools  

MSCI – ESG 

controversy 

database382 

MSCI allows institutional investors to analyze a company’s significant social, environmental, and 

governance impacts by identifying company involvement in major ESG controversies, adherence to 

international norms and principles, and assessing company performance with respect to these 

norms and principles. In risk assessment analyses, the database can be used to assess the 

reputational risk as was done in the biodiversity risk assessment by the Dutch National Bank 

(2020) 383 

X 

✔ 

(depend

ing on 

relevanc

X 

✔ 

X  

380 https://pre-sustainability.com/articles/biodiversity-one-our-impact-on-biodiversity/ 
381 Developed by Cambridge Institute for Sustainable Leadership (CISL) 
382 MSCI (2023) MSCI ESG Controversies and Global Norms Methodology. MSCI ESG Research  
383 DNB (2020). Indebted to nature. Exploring biodiversity risks for the Dutch financial sector 

223 

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

Tool  

Description  

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

RePRisk 384 

RepRisk offers a largest database of ESG risks, combining advanced machine learning with human 

intelligence to identify material ESG risks to companies, real assets and countries. This database 

can support organisations in their due diligence processes and inform the reputational risk 

assessment 

X 

e to 
report) 

✔ 

(depend

ing on 

relevanc

e to 
report) 

X 

✔ 

X 

Other useful tools that inform financial institutions on the drivers of biodiversity loss (but do not express it in biodiversity impact) 

Trase Earth tool 385 

Trase is a data-driven transparency initiative that maps the trade and financing of commodities 

driving deforestation worldwide. This supply chain mapping approach brings together disparate, 

publicly available data to connect consumer markets to deforestation and other impacts on the 

ground. Trase Earth offers insights into risk management specifically for financial institutions (Trase 

Finance). Trase Finance uses regional and sector-level supply chain386 information to assess the 

X 

✔ 

✔ 

✔ 

✔ 

exposure of financial institutions to deforestation exposure. In doing so, Trase Finance brings 

transparency to hundreds of billions of dollars that directly and indirectly finance tropical 

deforestation each year. This enables financial institutions to improve the sustainability of their 

portfolios. 

384 See RepRisk 
385 Trace is a partnership between the Stockholm Environment Institute and Global Canopy 
386 Note that only specific commodities and countries are included, such as Soy in Brazil and Beef in Paraguay.  

224 

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

Tool  

Description  

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

The Agrobiodiversity Index collects data on biodiversity across the often-disconnected domains of: 

Nutrition, Agriculture, and Genetic Resources. The Index can help Investors with rating of policies 

Agrobiodiversity 

and performance of food and agriculture companies, and make appropriate decisions. ABDI 

Index (ABDI)387 

assesses risks in food and agriculture related to low agrobiodiversity. The framework evaluates 

X 

X 

✔ 

n/a 

n/a 

various facets of agrobiodiversity in consumption (healthy diets), agricultural production, genetic 

resource management, and relevant actions, commitments, and status through 22 indicators. 

READS 388  

READS is a natural capital valuation and accounting approach that examines the connection 

between the activities of the energy sector and the various components of natural capital stocks 

(such as plants, animals, air, water, etc.) and the resulting ecosystem services. The relationship is 

measured in economic terms and dimensionless (no unit) Impact Units. 

InVEST is a collection of models employed to map and value the goods and services from nature 

that sustain and fulfil human life. It enables the examination of the impacts of alterations to 

ecosystems on the provision of diverse benefits to people. The suite includes distinct ecosystem 

service models designed for terrestrial, freshwater, marine, and coastal ecosystems, as well as a 

X 

✔ 

X 

number of “helper tools” to assist with locating and processing input data and with understanding 

and visualizing outputs.  

Integrated 

Valuation of 

Ecosystem 

Services and 

Tradeoffs 

(INVEST)389 

X 

✔ 

X 

✔ 

✔ 

Positive 

impact 

(e.g., tons 

of carbon 

sequester
ed 

✔ 

The Biodiversity 

The Biodiversity Monitor for Dairy Farming employs Key Performance Indicators (KPIs) to measure 

monitor for Dairy 

the impact of individual dairy farms on biodiversity, both on and beyond the farm. This standardized 

X 

✔ 

X 

✔ 

X 

Farms390 

approach allows for the monitoring of dairy farmers' contributions to the preservation of the 

387 ABDI is developed by Alliance of Bioversity International and CIAT 
388 READS is developed by Repsol  
389 INVEST is developed by Stanford University  
390 The Biodiversity Monitor is developed by FrieslandCampina, Rabobank and World Wide Fund for Nature.  

225 

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

Tool  

Description  

Tempo
ral  

Spati
al 

Inters
ectora
lity  

Negati
ve 
Impac
t 

Depen
dencie
s 

landscape. In addition to providing a metric for assessing the impact on the environment (both 

positive and negative), the Monitor proposes specific measures dairy farmers can take to improve 

biodiversity.  

226 

 
TEC6548 

Table 3-1A: Alignment of affected industries with NACE codes, complemented 
by corresponding data on gross capital formation, employment and gross 
value added 

Industry 

NACE codes 

Gross 
Capital 
Formati
on 
(2021), 
in 
millions 
of Euros 

Employme
nt (2021), 
in 
thousand 
persons 

Value 
added, 
gross 
(2020) 
in 
millions 
of Euros 

EU 
economi
c 
relevan
ce (%) 

A. Agriculture, Forestry and Fishing 

Agriculture and 
Farming 

A1: Crop and animal production, 
hunting and related service 
activities 

65,012  

      6,388  

191,232  

2.28% 

Forestry 

A2: Forestry and logging 

      8,660  

         451  

Fishing and 
Aquaculture 

A3: Fishing and acquaculture 

      2,462  

         140  

B. Mining and Quarrying 

B7: Mining of metal ores 

      1,714  

          53  

B6: Extraction of crude petroleum 
and natural gas 

      1,714  

          57  

24,482  

5,448  

6,797  

6,797  

0.23% 

0.06% 

0.05% 

0.05% 

C29: Manufacture of motor 
vehicles, trailers and semi-trailers 

 12,487  

      3,210  

C30: Manufacture of other 
transport equipment 

 2,449  

         837  

249,055  

1.53% 

Biotechnology 
and 
Pharmaceutics 

C21: Manufacture of basic 
pharmaceutical products and 
preparations 

22,346  

         881  

95,400  

0.64% 

Chemicals (and 
Biofuels) 

C20: Manufacture of chemicals 
and chemical products 

12,891  

      1,225  

131,644  

0.70% 

Household and 
Personal 
Products  

C22 Manufacture of rubber and 
rubber products, including C22.2: 
manufacture of plastic plates, 
sheets, tubes and profiles;  

      4,406  

      1,450  

92,384  

0.90% 

C32: Other manufacturing, except 
for C32.5 

      2,200  

      1,245  

44,518  

Construction 
Materials 

C23: Manufacture of other non-
metallic mineral products 

      3,756  

      1,149  

70,551  

0.43% 

C26: Manufacture of computer, 
electronic and optical products, 
except for C26.6 

 35,902  

      1,126  

82,627  

Electronics 

1.40% 

C27: Manufacture of electrical 
equipment 

10,879  

      1,435  

94,863  

227 

Metals and 
Mining 

Oil and Gas 

C: Manufacturing 

Automobiles 
and 
Components 

 
     
       
         
          
          
          
 
 
 
       
     
         
     
       
         
         
         
         
     
  
         
TEC6548 

Industry 

NACE codes 

Gross 
Capital 
Formati
on 
(2021), 
in 
millions 
of Euros 

Employme
nt (2021), 
in 
thousand 
persons 

Value 
added, 
gross 
(2020) 
in 
millions 
of Euros 

EU 
economi
c 
relevan
ce (%) 

Food and 
Beverages  

C10: Manufacture of food products  

C11: Manufacture of beverages 

19,269  

      3,977  

         396  

251,278  

1.63% 

Machinery and 
Equipment 

C28: Manufacture of machinery 
and equipment n.e.c 

12,337  

      3,132  

211,882  

1.24% 

Medical 
equipment and 
supplies 

C32.5: Manufacture of medical 
and dental instruments and 
supplies 

C26.6: Manufacture of irradiation, 
electromedical and 
electrotherapeuthical equipment  

      3,084  

         311  

 7,420  

 5,129  

         161  

11,804  

0.22% 

Metal 
processing  

Oil and Gas - 
Mid and 
Downstream 

C24: Manufacture of basic metals 

      5,224  

 1,003  

C25: Manufacture of fabricated 
metal products, except machinery 
and equipment 

      6,355  

 3,466  

54,870  

172,606  

1.50% 

C19: Manufacture of coke and 
refined petroleum products 

      3,568  

 145  

8,791  

0.09% 

Pulp and Paper 
products 

C17: Manufacture of paper and 
paper products 

      3,867  

 612  

44,918  

0.27% 

C13: Manufacture of textiles 

 588  

Textiles, 
Apparels, 
Footwears and 
Accessories;  

C14: Manufacture of wearing 
apparel 

C15: Manufacture of leather and 
related products 

D. Electricity, Gas, Steam and Air Conditioning Supply 

      2,093  

 940  

59,109  

0.52% 

 426  

Energy 
Production 

Transmission 
and 
Distribution 

Water and 
Waste Services 
/ Water 
Utilities 

F: Construction 

Construction 
and 
Engineering 

D35.11: Production of electricity 

13,485  

 249  

41,627  

0.29% 

D35.12 and 13: Transmission and 
distribution of energy 

      6,743  

 125  

20,814  

0.15% 

E: Water supply, sewerage, waste 
management and remediation 
activities 

37,140  

      1,617  

118,097  

0.98% 

F41: Construction of buildings 

      3,932  

C43: Specialized construction 
activities 

83,195  

      7,649  

118,097  

3.38% 

C42: Civil engineering 

      1,294  

G. Wholesale and Retail Trade; Repair of Motor Vehicles and 
Motorcycles 

228 

     
       
     
       
         
         
       
          
         
         
 
 
 
     
         
         
     
       
 
 
 
     
       
 
 
 
TEC6548 

Industry 

NACE codes 

Gross 
Capital 
Formati
on 
(2021), 
in 
millions 
of Euros 

Employme
nt (2021), 
in 
thousand 
persons 

Value 
added, 
gross 
(2020) 
in 
millions 
of Euros 

EU 
economi
c 
relevan
ce (%) 

Retail sale 

G47: Retail trade, except of motor 
vehicles and motorcycles 

35,994  

     16,198  

528,146  

4.58% 

H. Transportation and Storage 

Air 
Transportation 

Water 
Transportation 

H51: Air transport 

      8,985  

         341  

H50: Water transport 

      2,582  

         284  

11,734  

26,685  

0.18% 

0.15% 

I. Accommodation and Food Service Activities 

Hospitality, 
Food and 
Beverage 
Services  

Hotels and 
Lodging / 
Accommodatio
n 

I56: Food and beverage service 
activities 

      9,769  

      5,959  

107,810  

1.41% 

I55: Accommodation  

      9,769  

      1,816  

107,810  

0.71% 

J. Information and Communication 

Media and 
Communication 
/ Digital 
Communication 

Real Estate and 
Services 

Health Care 
Delivery 

Total 

J60: Programming and 
broadcasting activities,  

1969.35 

         277  

26,707  

0.96% 

J61: Telecommunication 

24,712  

      1,073  

139,876  

L68: Real estate activities 

939,576  

      1,609  

1,360,04
9  

13.65% 

Q86: Human health activities 

55,661  

     12,179  

646,558  

4.42% 

3,208,10
3  

   192,846  

12,094,2
34  

99.00% 

229 

     
       
 
 
 
         
         
 
 
 
       
       
 
 
 
         
     
       
   
     
     
       
 
   
 
TEC6548 

6.  Annex B – Stakeholder interview synthesis 

report 

Introduction 

This report provides an overview of approach, responses and results of the interviews 
conducted as part of this study. They key objectives of the interviews were:  

•  Task 1 – to identify methodologies deployed by financial institutions to integrate 
nature-related risk to risk their risk assessment frameworks. This includes their 
approaches to risk exposure (physical and transition) and materiality analysis, 
gaps in these approaches, and key data sources which are fed into these 
analytical procedures. In addition, mitigation practices will be sought.  
•  Task 2 – to assess the materiality exposure of sectors and understand how 

exposures to the physical and transition risks that highly sensitive sectors are 
exposed to, transmit into financial risks for financial institutions.  

In the selection of interviewees, two types of stakeholder groups were taken into account: 

1)  International organisations working on nature-risk assessment frameworks. These 
organisations have an overview of what is happening in the financial sector with 
respect to nature-risk assessments and have experience in developing 
(conceptual) frameworks applicable to various financial institutions. This type of 
organisation also includes non-governmental organistations (NGOs) 
2)  Financial institutions developing and implementing nature-risk assessment 
frameworks. They will have detailed knowledge about the challenges and 
opportunities in developing and applying the nature-related risk assessments and 
can inform us on how this study can support their work. 

A long list with potential interviews was collected based on the project’s team knowledge of 
the active players in this field, and complemented by stakeholders identified in the literature. 
The list was presented and discussed with, and approved by, the commissions. 

The interview questions were developed based on the extensive literature that was 
conducted as part of Tasks 1 and 2. Interview questions served to validate findings as well 
as to inform any information gaps. While the interview questionnaire aimed to ensure the 
comparability of interview outputs, it was also customised to suit the specialisms and 
backgrounds of each stakeholder or stakeholder group.  

The draft interview questions were shared with DG ENV prior to interviewing.  

In total, 7 interviews were conducted between May and August 2023. The interviews have 
provided a variety of interview minutes, written feedback, and additional attachments and 
studies. All of this information is synthesised and analysed in the sections below to 
contribute to the interim report.   

230 

 
 
 
TEC6548 

Risk definition and identification 

Response to the question of importance of nature-related risk assessment 
approaches, now and for the future 

The interview responses underscore the importance of a nature-related risk 
assessment frameworks for both the short and long term. It is also recognized that 
nature plays an important role in mitigating climate change. For Central and National 
Banks it is part of their mandate to maintain price stability, and hence it is important to 
understand both the financial and economic risks of climate change, biodiversity loss, 
and ecosystem degradation.  

The primary drivers pushing financial institutions to adopt such risk frameworks are 
regulatory and stakeholder pressures. Upcoming regulations like the ERSS, along with 
voluntary standards like TCFD and TNFD, further drive the adoption of nature-related 
risk assessments. In addition, the ongoing work by financial institutions and voluntary 
standards shows the significance of raising awareness within the banking community 
about the existence of (e.g., physical, transition, and systemic) risks and their potential 
transmission into financial systems. The understanding of these risks at the financial 
sector level might help better shaping of economic sectors in face of a transition to a 
greener future. 

Response to the question on how nature-related risks are conceptualised and 
what progress is made in this. 

Various stakeholders are at different stages of conceptualizing and evaluating nature-
related risks and appropriate assessment approaches, while the majority of 
stakeholders are basing themselves on definitions and conceptualisation of the TNFD, 
and for risk assessments on ENCORE. The concept of nature-related ecosystem 
services is accepted and applied in risk assessment tools such as ENCORE. In one 
interview it was stated that financial institutions mainly apply footprinting, rather than 
assessing risks related to nature dependencies, due to more emerging footprinting 
tools available. However, the overall understanding remains qualitative, and more 
empirical research and analysis are required to quantify risks effectively. 

The Task Force on Nature-related Financial Disclosures (TNFD) offers practical 
guidance on nature-related risk assessments. These assessments can inform 
strategies and decision-making for financial institutions and corporates. For financial 
institutions, risk assessments usually informs portfolio allocation, risk management, 
and investment strategies, while for corporates, they can support stress test their 
business strategies, identify options for risk mitigation and inform peer engagement to 
create industry-wide initiatives with positive impacts on nature. TNFD provides practical 
guidance around three risk assessment methods of varying complexity, these include 
heatmaps, asset tagging, and scenario-based approaches, to assess nature-related 
risks in specific sectors or companies with financial exposure. The three risk 
assessment methods can accompany each component of LEAP but especially Scoping 
(for heatmaps) and Assess (asset tagging and scenario-based approaches) 

231 

 
 
TEC6548 

Response to the question what are the key components of climate risk 
assessments which you see as aligned/ similar to nature-related assessments? 

Respondents highlighted the linkages between climate risk assessments and nature-
related assessments. Often climate change risks frameworks are used as a starting 
point. As such,  

Respondents highlighted the linkages between climate risk assessments and nature-
related assessments. Often climate change risks frameworks are used as a starting point. 
As such, the TNFD is seen as an augmentation of TCFD, building on its risk definitions. 
By having climate frameworks in place, organizations can be encouraged to conduct 
nature-related risk assessments, as the existing TCFD framework can be used as a 
basis, reducing the burden on resources. 

TNFD is closely monitoring the work of NGFS (Network for Greening the Financial 
System) on nature risk definitions and concepts. They anticipate the need for further 
work, potentially beyond version 1, to define systemic risk and possibly litigation risk in 
the context of nature-related assessments. 

Risk assessment approaches 

Responses to question on applied metrics to assess biodiversity-related 
financial risks 

The stakeholders use various metrics and tools to assess biodiversity-related financial 
risk. The tools specifically mentioned in the interviews were ENCORE & IBAT. 
However, it was also mentioned that banks do not select one tool, but rather base the 
selection of various tools on the specific needs of the assessment.  

ENCORE is used by Banks and other financial institutions to assess physical risk, 
footprint/impact on nature, and materiality. It maps the loan-to-loan data, including 
borrower characteristics to ultimately maps a borrower’s dependency and impact on 
certain ecosystem services per country. This information is important to determine the 
exposure of a bank. In addition, EXIOBASE is deployed to describe supply chain 
dependencies. If a borrower is regarded as indirectly highly dependent on certain 
ecosystems,, then this information is complemented by supply chain information as per 
the ENCORE score. In their estimations, banks can define and apply a threshold to 
determine what can be regarded as ‘high risk’.  

Another approach taken to understand the exposure of a bank or company is to apply a 
‘relative scoring’ (see also the Biodiversity Risk Filter by WWF). In an interview, it was 
referred to SBTN’s approach for target setting for land and freshwater.391 

IBAT is a tool to assess the impacts of financed activities in a certain location. The tool 
provides granular location-specific information about the importance of nature (e.g. 
number of species under threat levels of extinction) in a certain area.  

391 https://sciencebasedtargetsnetwork.org/how-it-works/set-targets/ 

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TEC6548 

The Global Biodiversity Framework is taken into account when focusing on transition 
risks, which are linked to regulatory matters. The MSCI was also mentioned in one of 
the interviews as an important data provider (e.g., for assessing reputational risks), 
although most of these databases are private.  

The quantification of risks at the macro level is often expressed in percentage of likely 
changes in GDP and banks apply micro approaches to assess the risk at the company 
level, but there is a risk of double counting if used together. Tools such as ENCORE 
and IBAT are a good starting point to understand nature-related risks, but it is 
challenging to translate those risks into financial risks. For instance, ENCORE provides 
basic exposure level, but without showing the potential impacts on profit, nor probability 
of default, as these are conditional (among others) also on regulatory developments, 
which is another dimension to company’s impacts and dependencies on nature.  

Footprinting tools, such as models and estimates, require caution to prevent 
overinterpretation since they are fundamentally built on assumptions. Whether utilising 
an MSA or PDF approach, the varying assumptions can lead to distinct outcomes. 
Although the footprint number may appear precise, it's important to acknowledge the 
underlying assumptions that influence its calculation. Subsequently, it footprinting is 
better applicable at sectoral level to understand biggest drivers. Using these tools at a 
higher level, will increase the number of assumptions and reduce the quality of results.  

In addition, other challenges related to risk assessment tools were mentioned in the 
interviews, namely  

•  One significant gap is location data that is often not disclosed by 

companies. Knowing the location of economic activities and protected 
areas is crucial in assessing dependencies and impacts. 

•  On the financial risk side, it is the modelling that presents challenges, 
particularly in terms of substitution within a CGE (computable general 
equilibrium) framework. The substitution can occur between ecosystems 
or between natural capital and produced capital. Additionally, there could 
be a third dimension of substitution involving consumer choices, like 
shifting between products, which can impact risk assessments. 

To address the challenges, interviewees promote a mix of quantitative and qualitative 
approaches, using available data for quantification and exploring qualitative methods to 
fill in the information gaps. It is important to improve data quality and connect 
assessment with reporting data, aiming at legislation on disclosure providing aid in 
obtaining relevant data. 

In addition, the importance of an integrated approach is emphasized during the 
interviews, working collaboratively with climate risk assessments due to the strong 
feedback loop between climate and nature-related risks. One respondent believes that 
a joint climate and nature framework is the way forward. 

Responses on the use of biodiversity-specific indicators in risk assessment 
approaches.  

233 

 
TEC6548 

Two respondents indicate not to use biodiversity-specific indicators but use ENCORE 
as a starting point. One respondent is concerned with addressing the problem of scale 
for biodiversity-related indicators. The very detailed ones are difficult to use and the 
very aggregated ones are too difficult to zoom in. It could be an option to explore 
indicators for specific realms (like water) and start examining each realm separately. It 
would be ideal if there could be the same type of indicator as for climate change, i.e., 
GHG emissions, but this is impossible for biodiversity. 

Responses on the use of financial indicators in risk assessment approaches 

While the probability of default is an important indicator of financial stability, developing 
reliable models for nature-related risk assessment frameworks remains a challenge 
due to the multidimensionality of nature. To express the risk magnitude, it is sufficient 
for some banks to say “high” or “very high”. It is sometimes argued that the current 
nature-related risk assessment frameworks calculate exposure and not risks. Exposure 
does not communicate complete information to investors, and it would be best to use 
financial indicators like the probability of default, reduction in profit or GDP, or other 
financial indicators. 

The probability of default is used in climate change stress testing scenarios (e.g. 
climate change results in a temperature increase leading to economic damage, which 
can lead to a drop in GDP. However, for nature and biodiversity, there are no models to 
estimate a change in the economics of a firm resulting from nature change e.g. -20% 
change in “nature” results in a +10% increase in the probability of default. 

As such, one respondent indicates that monetization is meaningless due to the range 
of uncertainty. At the same time, for financial estimates, the information needs to be 
granular e.g. what are the costs if one has to artificially replace water supply or 
pollination?  

Responses to the question on transmission channels and on what level the 
assessments take place 

Transmission channels are important to capture supply chain effects and 
intersectorability. This information is required to capture the macroeconomic impacts. 
The macro-level assessments are most applied by National and Central Banks. One 
interviewee indicates that the sector level is also useful to connect the marco with the 
micro level. However, another interviewee is less interested in the sectoral approach 
and would rather focus on finer assessment at the firm level. Recent studies show that 
a bottom-up approach is also useful to understand how companies may affect macro-
level e.g. 75 per cent of companies (corresponding to around three million individual 
companies) are highly dependent on at least one ecosystem service392. These 
calculations are based on ENCORE, and the next step is to add spatial location 
information on firms and come up with bank-related estimates. The respondent argues 
that to obtain meaningful information, it is important to avoid employing too basic 
methods. That is the reason why they would not focus too much on sectors and see a 
greater value in providing more detailed examples at a sub-sectoral resolution.  

392 See https://www.ecb.europa.eu/press/blog/date/2023/html/ecb.blog230608~5cffb7c349.en.html & 
https://www.ecb.europa.eu/press/inter/date/2023/html/ecb.in230608~7247c0aaca.en.html 

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Responses to the question on sector-specific approaches 

The responses emphasize the complexity of sector analysis, the importance of 
understanding supply chains, and the need for fine-grained assessments at the 
company and location-specific levels. The focus on risk assessment and stress testing 
is central, with regulators playing a critical role in addressing the gaps in climate and 
nature-related risks. 

The impact on the supply chain is important to include, as without supply chain impacts 
the overall impact is significantly lower which in turn affects the ranking across 
countries. In the EU, we can say that we are green, but if we consider the supply 
chains of our imported products, this picture will change.  

On of the difficulties with sectoral approaches is that there is no common definition of 
sectors, and that models use different sectoral typologies, which Banks and other 
financial institutions needs to translate to their sectoral classification.  

In response to the question of handling variability within sectors it was answered that 
Banks assume that on the portfolio level, there will be a representative average.  One 
can also differentiate between companies through use of case studies. Another way to 
show variability is to include location-specific information.  

Data gaps and limitations 

The multidimensionality and over-specificity of the issue of financial risks of biodiversity 
loss are the main limiting factors to the development of a comprehensive framework, as 
it requires a lot of location-specific data per company and to track value chains which 
are often limited available. In addition, it required complex modelling approaches to 
capture the non-linearity of biodiversity loss, ecosystems degradation, and the 
feedback loops with climate change. Below we summarise the data gaps, limitations, 
and challenges in more detail:  

4)  Understanding dependencies and (climate) feedback loops in ecosystems is 

crucial for assessing their impact on the global economy. While estimations of 
the impact of the collapse of a single ecosystem service, such as pollination, 
are possible, the existence of cascading effects and interconnections with other 
ecosystems, like the Brazilian forest’s climate effects, makes isolated estimation 
impractical. Incorporating trade-offs with climate change into risk assessment 
tools is challenging because certain strategies for climate change mitigation and 
achieving net-zero goals may unintentionally cause negative effects on natural 
systems. This is also true for nature strategies that aim to support the 
achievement of net-zero goals or improve climate adaptation, such as nature-
based solutions. The complexity of these interactions calls for a more 
comprehensive and holistic approach to risk assessment and policy-making;  

5)  The absence of location-specific data for most companies in FIs portfolios, 
which does not allow proper consideration of company-level risks beyond 
sector-wide considerations; 

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6)  Use of relevant data. While the availability of data is an issue, it was also 

stressed that often financial institutions do not know how to prioritize the data. 
This goes hand in hand with lacking expertise in financial institutions and 
understanding the impacts and dependencies of companies on nature (see also 
points 1 and 7).  

7)  The lack of corporate reporting is an issue as the lack of company-specific data 
prevents steering corporations in the right direction (due to lack of transparency 
and traceability) and hampers risk assessment by financial institutions due to 
limited available company-specific data;  

8)  Obtaining the right data, with barriers such as paywall data, particularly for 

small banks with limited resources to conduct assessments and pay for data;  
9)  Difficulty to develop scenarios due to the complexity of biodiversity and limited 
available data, as well as less concrete (inter)national biodiversity targets 
compared to the climate change targets (e.g. limiting global warming to 1.5°C 
above pre-industrial levels). The readily available scenario of ‘IPR Forecast 
Policy Scenario + Nature393’, focuses on transition risk; despite the challenges 
associated with the development of scenarios reflecting biodiversity and 
ecosystems degradation risk, there does not seem to be an alternative 
approach providing tractable inputs for the related financial risk assessment; 

10) The lack of resources employed by financial institutions to get started with the 
incorporation of nature-related risks into their risk frameworks,  if not via 
external support of consultancies or third-party data provider. Financial 
institutions are often occupied enough with the incorporation of climate-related 
risk in their overall risk assessment frameworks; 

11) The need for inclusion of both impacts and dependencies in risk assessment 
tools (and how they relate to transition and physical risks and their inter-
dependencies);  

12) Sector-specific risk classifications do not account for value chain impact but 

only focus on direct operations (which is the case with ENCORE).  

Respondents emphasised that regulation is key in addressing the above-described 
limitations. In addition, it was mentioned that industries and respective companies with 
similar or overlapping supply chains should collaborate on traceability. These 
collaborations are slowly starting, but there are concerns about confidentiality.  

In addition, it was asked to what extent this project could be beneficial or 
complementary to the ongoing work in the development and implementation of 
nature-risk assessment frameworks.  

One respondent expressed the need for a systematic framework that includes a step-
by-step approach. Two respondents indicated the need for a European-specific nature-
risk assessment framework as other frameworks under development have a more 
global approach. 

Mitigation approaches and integration into processes 

393 See https://www.unpri.org/inevitable-policy-response/ipr-forecast-policy-scenario--nature/10966.article 

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Mitigation approaches mentioned in the interviews involve client engagement, 
exclusion policies394, and a focus on improving practices through supply chain 
engagement and positive investments. Asset managers take a leading role in mitigation 
due to their experience with client engagement, while commercial banks face 
challenges in assessing their clients' actions. Stakeholder pressure and the influence of 
multilateral development banks (showcasing best practices by project-based nature 
finance) are crucial factors in driving effective mitigation strategies. 

Considering the early stage of nature-related risk assessment approaches and the 
numerous underlying assumptions, one interview revealed that no direct action (e.g., 
rebalancing portfolios) has been taken. Instead, financial institutions tend to emphasize 
raising awareness among their clients. However, they are also struggling with 
questions regarding how their clients can effectively manage these associated risks, in 
particular if they are bound to EU policies.  

A bank representative noted that the focus - at this moment - is on assessing risks 
rather than seeking positive impacts. However, the long-term mitigation of these risks is 
very important. This development should go similar to climate change-related risk 
mitigation approaches: starting from understanding and assessing physical risks to 
improving investments in positive activities.  

One NGO indicates that there is no fixed pathway for mitigation, but the preference is 
for engaging with companies. Ideally, to engage and work along the supply chain, 
instead of the bad guys staying behind.  

Conclusion 

The responses from the interviews highlight the importance of nature-related risk 
assessment frameworks for both the present and the future. Regulatory and 
stakeholder pressures are driving financial institutions to adopt nature-related risk 
frameworks, with upcoming regulations like the ESRS and voluntary standards like 
TCFD and TNFD playing significant roles in this adoption. While progress has been 
made in conceptualising and assessing nature-related risks, more empirical research 
and analysis are needed to quantify these risks effectively. The TNFD offers practical 
guidance in this area and the definitions provided by the TNFD are used as a starting 
point.  

Stakeholders employ various metrics and tools to assess biodiversity-related financial 
risk. Two specific tools mentioned in the interviews are ENCORE and IBAT. However, 
banks do not rely on a single tool; instead, they choose from a range of tools based on 
the specific requirements of each assessment. 

Challenges and data gaps exist in quantifying nature-related risks due to the 
multidimensionality and complexity of the issue. Location-specific data, a lack of 
corporate reporting, and limited expertise and understanding of impacts and 
dependencies on nature are some of the hurdles faced in risk assessment. To address 
these limitations, interviewees advocate for a mix of quantitative and qualitative 

394 Like the Do No Significant Harm principles as part of the Taxonomy regulation 

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approaches, utilising available data for quantification and exploring qualitative methods 
to fill information gaps. 

Mitigation approaches involve client engagement, exclusion policies, and supply chain 
engagement to improve practices. Asset managers are leading in this space due to 
their experience with client engagement, while commercial banks face challenges in 
assessing their clients' actions. Stakeholder pressure and the influence of multilateral 
development banks are instrumental in driving effective mitigation strategies. 

Overall, an integrated approach to risk assessment, collaborating with climate risk 
assessments, is emphasised due to ongoing progress made in climate risks 
assessments frameworks and the strong feedback loop between climate and nature-
related risks. The development of systematic nature-risk assessment frameworks, 
along with regulatory support, can address the current data gaps and limitations and 
guide the financial sector and corporations in mitigating nature-related risks effectively. 

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Getting in touch with the EU 

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Written by Maha Cziesielski, Cosima Dekker-Hufler, Timea Pal,  
Graeme Nicholls, Foivos Petsinaris, Lisa Korteweg (Trinomics) 
Michael Obersteiner, Nikolay Khabarov (IIASA) 

February 2024 
Updated in June 2024