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

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 international commitments, the EU Sustainable Finance agenda mandates transparency, urging financial institutions to align with nature-positive strategies. Biodiversity and nature loss pose multifaceted risks, extending beyond 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.