1. Overview

The report builds on the Climate Financial Risk Forum’s first nature-related risk paper, shifting from introductory guidance to a deeper focus on the climate–nature nexus and systemic risk. It targets banks, insurers and asset managers, with relevance for regulators. The paper aims to help firms integrate nature-related risks into existing climate risk frameworks, particularly through scenario analysis and the TNFD LEAP approach, and to recognise limits to firm-level control over systemic risks.

2. Introduction: The climate-nature nexus

Nature is defined as the entire natural world, including ecosystems, biodiversity, land, oceans and atmosphere, with climate as an embedded component. The report highlights that over USD 44 trillion of annual global economic value, more than half of global GDP, is moderately or highly dependent on nature. Climate change and nature degradation are shown to be mutually reinforcing through feedback loops. For example, forests, peatlands and mangroves store around 220 GtCO₂, equivalent to roughly 20 years of current global emissions, while oceans absorb about 30% of CO₂ emissions and 90% of excess heat. The report stresses that degradation of these systems can accelerate climate change, while poorly designed climate mitigation can harm biodiversity. Conversely, nature-based solutions such as wetland restoration could deliver around one-third of cost-effective climate mitigation by 2030. Financial institutions are encouraged to avoid siloed risk assessments and instead adopt integrated climate–nature analysis to better capture material risks and opportunities.

2.1–2.4 Climate–nature interconnectedness and systemic risk

The report documents reinforcing and dampening feedback loops. Examples include Amazon deforestation weakening rainfall recycling, potentially lowering forest collapse thresholds from 3°C to around 1.5°C of warming, and marine trawling releasing stored seabed carbon. In contrast, restoration of peatlands and mangroves enhances carbon sequestration and flood protection; UK evidence suggests peatland restoration can generate average economic and social returns of £4.62 for every £1 invested.
Systemic nature-related risks are characterised as compounding, cascading and contagious, propagating through supply chains, markets and institutions. The report adopts a taxonomy distinguishing planetary, economic and financial market risks, noting that many ecosystem services are non-substitutable. Firms are advised to use systems mapping, qualitative scoring and scenario-based analysis to understand vulnerabilities, recognising uncertainty and non-linearity. Case studies illustrate application to UK home insurance flood risk and to mining and European power sectors, where stress tests indicated potential cumulative earnings impacts of around 25% for mining and 10% for power over five years.

3. Potential financial materiality of nature-related risks

The report emphasises tipping points as increasingly likely, high-impact risks rather than remote tail events. Identified ecosystem tipping points include Amazon rainforest dieback, tropical peatland collapse and coral reef loss. Some scenarios referenced indicate plausible global GDP contractions of 15–20% over five years when severe climate–nature shocks are considered. Economic impact estimates vary widely due to model limitations. Hot-house world scenarios show GDP losses ranging from 2% to 44% by 2100, with more recent studies trending higher as additional risks are incorporated. Nature-specific studies estimate global GDP or GVA losses of roughly 2–16% by 2030, with much higher sectoral and regional impacts; agriculture output losses of around 12.9% have been estimated, and some vulnerable countries could see GDP declines near 20%. The report cautions that most models exclude tipping points, biodiversity loss, migration, conflict and health impacts, likely understating risk. Firms are encouraged to favour recent, higher-damage estimates and to embed qualitative narratives alongside quantitative analysis.

4. Evolving data landscape

Nature risk data is described as fragmented and less mature than climate data, lacking a single metric comparable to greenhouse gas emissions. The report highlights growing use of earth observation, geospatial datasets and emerging nature indicators, and encourages firms to build incrementally on existing climate data infrastructure. Practical next steps include targeted data use aligned to material exposures, iterative improvement of models, and collaboration across sectors to address shared data and methodological gaps.