Introduction

Biodiversity underpins economic activities by providing essential ecosystem services, yet it faces a 47% global decline, causing annual economic losses of US$479 billion. Over 50% of the world’s GDP depends on nature, exposing businesses and financial institutions to significant biodiversity-related risks, including legal, market, physical, and reputational risks.

Why is nature important for business and financial institutions?

Businesses depend on ecosystem services like water, soil quality, and climate regulation. Agriculture, forestry, and supply chain industries are particularly vulnerable. Climate change exacerbates biodiversity loss, weakening resilience against pests and extreme weather. Biodiversity degradation is a top-five global risk over the next decade, posing systemic challenges to economic stability.

Market signals to address biodiversity

Financial frameworks like the IFC Performance Standard 6 and the Equator Principles address biodiversity, focusing on impacts. However, systemic biodiversity integration remains limited. Emerging initiatives, including disclosure standards and biodiversity-positive practices, are encouraging shifts in the financial sector.

Developments in global policy

The Post-2020 Global Biodiversity Framework under the Convention on Biological Diversity (CBD) aims for no net loss of biodiversity by 2030. Policies such as the EU Green Deal and EU Biodiversity Strategy include legal commitments to ecosystem restoration and sustainable investments. Global reviews like the Dasgupta Review highlight biodiversity’s economic importance and call for transformative action.

Developments in the finance sector

Financial institutions are beginning to integrate biodiversity risks into strategies through frameworks like the Principles for Responsible Banking and TCFD. Institutions such as BNP Paribas and the Dutch Central Bank are actively assessing natural capital risks and opportunities. However, actionable methodologies remain under development.

Priority sectors for biodiversity target-setting by financial institutions

Which sectors impact and depend heavily on biodiversity?

Methodology overview

Using the ENCORE tool, production processes were evaluated based on their dependence on 21 ecosystem services and their biodiversity impacts (e.g., land use, pollution, and climate change contributions). Market capitalisation and revenue data were used to prioritise sectors with substantial financial flows.

Results

High-priority sectors include:

• Dependencies: Agricultural products, apparel and luxury goods, brewers, electric utilities, independent power producers.
• Impacts: Agricultural products, distribution, mining, oil and gas exploration, oil and gas storage.

For example, agriculture depends on pollination, water, and soil services, while mining significantly impacts land and water quality.

Using priority sectors to inform biodiversity target-setting by financial institutions

What do biodiversity targets look like for financial institutions?

Financial institutions can adopt SMART biodiversity targets aligned with global frameworks like no net loss or net gain of biodiversity. These should align with goals under the SDGs and the Post-2020 Global Biodiversity Framework.

Advancing approaches for financial institutions to develop biodiversity targets

Institutions can leverage frameworks like the IFC Performance Standard 6, Principles for Responsible Banking, and biodiversity-positive commitments (e.g., zero deforestation). Tools like ENCORE and the Science-Based Targets Network enable measurable target setting. Examples include ASN Bank’s net gain policy and BNP Paribas’ natural capital assessments.

How does the analysis of high-priority sectors help financial institutions in setting biodiversity targets?

Focusing on high-risk sectors allows institutions to systematically assess biodiversity risks and set targets. Steps include:

• Mapping sectoral exposure.
• Assessing material risks.
• Aligning with global goals.
• Setting and monitoring biodiversity targets.
• Adapting financing requirements.
• Reporting transparently.

Summary of next steps and further resources

Financial institutions must prioritise biodiversity risks by targeting high-priority sectors, integrating biodiversity into policies, and setting SMART targets aligned with global frameworks. Tools like ENCORE and the Integrated Biodiversity Assessment Tool (IBAT) support risk assessments, while collaboration through initiatives like the Science-Based Targets Network enables standardisation.

Immediate actions include aligning portfolios with global biodiversity goals, reducing negative impacts, and exploring biodiversity-positive opportunities, such as ecosystem restoration and sustainable agriculture. By integrating biodiversity into decision-making, financial institutions can mitigate risks, unlock opportunities, and contribute to economic resilience.