Introduction

This guide provides financial institutions with practical steps to address biodiversity loss, which poses systemic risks to economies and financial systems. The V-process, a five-step approach, supports institutions in understanding, assessing, integrating, acting, and tracking biodiversity impacts. It offers tools and frameworks for institutions at all stages of biodiversity integration.

Explore: Understanding the science behind biodiversity

Biodiversity underpins ecosystem services like pollination, water purification, and climate regulation. Financial institutions are linked to biodiversity through their financed activities, which depend on and impact nature. Key risks include:

• Physical risks: Ecosystem degradation (e.g., crop failure due to pollinator loss)
• Transition risks: Regulatory changes or reputational damage
• Systemic risks: Economic instability resulting from biodiversity collapse

The primary drivers of biodiversity loss—land-use change, overexploitation, pollution, climate change, and invasive species—highlight the urgency to avoid harm and shift financing to biodiversity-positive activities like regenerative agriculture and nature-based solutions. Financial institutions must also recognise the biodiversity-climate nexus, as addressing both issues together is essential for systemic stability.

Assess and prioritise: Learning about biodiversity measurement and metrics

Financial institutions can assess biodiversity through two main approaches:

• Footprinting tools: Metrics like Mean Species Abundance (MSA) measure biodiversity impacts across value chains
• Spatial tools: Platforms like IBAT provide location-specific data to identify biodiversity risks in sensitive areas.

Dependencies on ecosystem services can be mapped using tools like ENCORE. Prioritisation should focus on high-impact sectors and geographies. While reported biodiversity data remains limited, modelled data from footprinting tools provides actionable insights. Upcoming regulations, such as the EU CSRD, are expected to improve corporate biodiversity disclosures, enabling better risk assessment and decision-making.

Integrate: Getting started on biodiversity financial integration

Integrating biodiversity requires embedding it into risk frameworks, strategies, and policies. Key actions include:

• Developing risk mitigation policies to redirect capital away from harmful activities.
• Aligning with regulatory incentives such as the EU Biodiversity Strategy and global frameworks like TNFD and SBTN.
• Using a dashboard approach combining multiple metrics for a holistic view.
• Building internal capacity through training and partnerships with biodiversity initiatives.
• Financial institutions must address the biodiversity-climate nexus by supporting solutions like wetland restoration that tackle both climate and biodiversity risks.

Set targets: Developing a biodiversity target

Institutions should set science-based, time-bound, and measurable targets aligned with global goals, such as achieving “nature-positive” outcomes by 2030. Targets should focus on:

• Reducing negative impacts like deforestation and pollution.
• Financing biodiversity-positive solutions, such as circular economy models and sustainable agriculture.
• The location-dependent nature of biodiversity means targets must reflect specific geographies and supply chains. Interim targets are essential as data and measurement frameworks evolve. Alignment with global initiatives like SBTN ensures credibility and impact.

Track progress: Increasing transparency and continuously improving

Financial institutions must monitor biodiversity performance using both process indicators (e.g., transparency in value chains) and impact metrics. Tools like footprinting solutions and spatial analyses enable institutions to track progress at the portfolio level.

Upcoming regulations, including the EU CSRD and SFDR, will require detailed biodiversity disclosures. Institutions are encouraged to adopt a learning-by-doing approach, refining their strategies as new data and tools emerge. Engagement with investee companies will be key to improving biodiversity management and data quality.

The way forward

Biodiversity loss demands immediate action. Financial institutions must shift capital flows, engage with stakeholders, and align their targets with global frameworks to reduce systemic risks and unlock opportunities for nature-positive investments. Collaboration and peer learning are essential to overcoming data and methodological challenges.

The V-process offers a clear, actionable framework for financial institutions to address biodiversity loss, align with global scientific targets, and prepare for emerging regulatory requirements. By acting now, institutions can play a leading role in reversing biodiversity decline and ensuring long-term economic stability.