Why Biodiversity Is Becoming the Next Financial Systemic Risk

For much of the past decade, climate change has dominated environmental risk discussions inside financial institutions. 

Carbon emissions, transition pathways, and physical climate shocks have shaped models, disclosures, and governance structures. 

But a quieter and potentially more complex risk is now forcing its way onto board agendas: biodiversity loss. 

For the Climate Risk Officer at a leading international bank, the challenge has been to reposition nature not as a peripheral concern, but as an essential pillar of enterprise risk management. 

From her perspective, biodiversity risk has long been underestimated by financial institutions, even as evidence mounts that ecosystem degradation poses material threats to economic activity. 

“Biodiversity loss is not a niche environmental issue,” the executive told a gathering of senior sustainability risk managers at a recent conference event. “It is a systemic financial risk that cuts across sectors, geographies, and value chains.” 

Her work reflects a growing recognition that nature-related risks must be assessed with the same rigor as climate exposures. 

Unlike climate risk, biodiversity presents a uniquely complex challenge. It encompasses the degradation of ecosystems, species loss, and the disruption of natural cycles that underpin food systems, water availability, and raw material supply. 

These risks are highly localized, often invisible in aggregated data, and deeply embedded in supply chains. 

While climate risk has benefited from years of policy development and increasingly standardized methodologies, biodiversity remains at a far earlier stage, with limited data, fragmented metrics, and few universally accepted frameworks. 

Faced with these constraints, the senior executive and her team chose a pragmatic path. Rather than waiting for regulatory clarity or perfect datasets, they began integrating nature-related considerations into the bank’s existing climate risk infrastructure. 

This approach treated biodiversity as an extension of established risk processes, rather than a standalone discipline competing for attention and resources. 

Tools designed to map nature dependencies and impacts at a sector level were used to identify areas of heightened exposure. 

The LEAP framework helped structure assessments around how business activities interact with ecosystems, while sector analysis tools enabled the team to focus on material risks rather than attempting to measure everything at once. 

Alongside this, the bank developed an environmental scorecard with more than 60 indicators, combining internal analysis with insights from external stakeholders in a deliberate test and learn process.