Hannah Layman
Annalisa Tonetto
Attila Balogh
Billy Geary
Mark Burgman
On 22 May 2026, the United Nations marks its annual biodiversity day, an event aimed at increasing the understanding and awareness of biodiversity issues. This year’s theme is “acting locally for global impact”.
But what does biodiversity mean for investors and how can it be approached using today’s data and analytical tools?
Biodiversity loss as a source of financial risk and dependency
Biodiversity—the variability among living organisms, including between and within species and ecosystems—is increasingly recognised as financially material, yet it remains difficult to assess in investment portfolios.
Biodiversity matters for investors because it underpins economic activity and affects corporate cash flows. Firms depend on living systems for inputs, production stability and the provision of ecosystem services such as water regulation, soil fertility and climate buffering. If those systems degrade, financial risks emerge through higher operating costs, supply chain disruptions, asset impairments, regulatory exposure and shifts in consumer and investor sentiment.
The scale of potential exposure is significant: the World Economic Forum estimates that more than half of global GDP is moderately or highly dependent on nature and its services, underscoring why biodiversity risk is a portfolio-level consideration. [note1]
Many downstream industries inherit material dependencies through complex value chains, while firms whose activities contribute to biodiversity loss may face transition, litigation or reputational risks as policy, disclosure expectations and market norms evolve.
These dynamics mean a loss of biodiversity can affect both the level and certainty of future cash flows, even when impacts are indirect or delayed. Biodiversity considerations can inform the management of downside risk and capital allocation towards business models and activities better aligned with the maintenance and restoration of natural systems.
Limitations of current biodiversity measurement approaches
Despite growing attention, biodiversity remains difficult to integrate into investment analysis because of a persistent gap between ecological science and financial measurement.
From an ecological perspective, biodiversity is commonly understood through three dimensions: species, ecosystems and ecosystem services (see Figure 1). Each dimension addresses a different aspect of biodiversity and impacts investors in different ways. In Figure 1, we also summarise how the three dimensions of biodiversity map to financial materiality and the types of tools commonly used to assess biodiversity exposures and risks.
Figure 1. Ecological dimensions of biodiversity and related investment tools
Definition |
Impacts, dependencies, and financial materiality |
Tools |
|
|---|---|---|---|
Species |
Species comprise individual organisms, their genetic diversity and the populations they form within a habitat. |
Economic activity can affect species through changes in extinction risk, population abundance, range or habitat availability. Species loss can create material risks for firms through direct dependencies on biological resources such as pollinators, fisheries or raw materials, as well as indirect effects including reputational and workforce impacts. |
International Union for Conservation of Nature: Red List of Threatened Species
Living Planet Index
Species Threat Abatement and Restoration (STAR, nSTAR) metrics |
Ecosystem |
Ecosystems consist of the diversity and abundance of species in a location, their interactions with one another and with the physical environment. |
Firm activities can alter ecosystem structure, composition or function. Ecosystem degradation can expose firms to systemic risks by undermining production systems, increasing exposure to natural hazards and reducing the long-term viability of resource-dependent business models. |
International Union for Conservation of Nature: Red List of Ecosystems
Mean Species Abundance
Potentially Disappeared Fraction
Biodiversity Intactness Index |
Ecosystem Services |
Ecosystem services are the benefits humans derive from biodiversity. |
Firm activities can degrade ecosystem services, with impacts evident in declining yields, reduced pollination and worsening water availability or quality. Disruptions to these services can increase operating costs, reduce productivity and heighten exposure to supply chain disruption or regulatory intervention. |
UN Environment Programme: Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE)
InVEST
Ecosystem Services Valuation Database |
Source: FTSE Russell. For informational purposes only.
Challenges arise when metrics designed to assess one dimension of biodiversity are used as proxies for another, or when portfolio-level conclusions are drawn without clarity on what is being measured. These challenges are compounded by the fact that biodiversity impacts are highly context- and location-dependent, shaped by interconnected ecosystems and subject to non-linear change, making simple aggregation or standardisation difficult.
To bridge the gap between ecology and investment, investors need to be explicit about what aspect of biodiversity they are assessing and why it is financially relevant.
How emerging tools can be used to make better biodiversity-informed decisions
Biodiversity metrics are not yet fully mature, and no single indicator can capture the full range of nature-related risks and dependencies. That said, significant progress has been made. A growing set of tools allows investors to improve risk identification, comparison and capital allocation—provided they are applied thoughtfully and with a clear understanding of their limitations.
Recent research has also explored how biodiversity considerations might be integrated into investment analysis using approaches that build on existing financial reporting practices. [note2] These include the use of disclosure-based assessments, which focus on how companies acknowledge, manage and plan for biodiversity-related risks, and classification-based approaches, which seek to identify revenues or activities aligned with biodiversity-positive outcomes.
Practical next steps for investors and researchers
For investors, the priority is not to wait for perfect biodiversity metrics, but to make disciplined use of what is available to identify material risks, prioritise engagement and direct capital towards companies and activities better positioned for a future where biodiversity is maintained and encouraged to grow. Importantly, the current tools should be treated as signals rather than definitive measures, complemented by judgement and ongoing review.
For researchers and data providers, the next phase is testing and refinement. Biodiversity metrics will need to be stress-tested against evolving data, changing ecological conditions and real-world investment use cases.
Understanding biodiversity risk is an evolving challenge, and practical implementation will look different across investment strategies and objectives. FTSE Russell engages with asset owners and asset managers on how nature-related data, frameworks and tools can support real-world investment decisions. We welcome continued conversations on biodiversity risk and the broader sustainable finance landscape as this field develops.
Sources
[1] World Economic Forum, Nature Risk Rising, 2020. | Back to Note 1
[2] Layman, Hannah, H. Resit Akçakaya, Amanda Irwin, Sophus zu Ermgassen, Prue Addison and Mark Burgman, Short-term solutions to biodiversity conservation in portfolio construction: Forward-looking disclosure and classification-based metrics, Business Strategy and the Environment 33, no. 3 (2024): 1778–1793, first published online 2023 | Back to Note 2
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