The assessment of nature-related risks: From ecosystem services vulnerability to economic exposure and financial disclosures

Nature-related risks can lead to financial losses. The connection between ecosystems and socioeconomic systems is complex and multifaceted. Ecosystem services are the ecological processes that serve human needs. The degree to which a specific ecological process fails to meet specific human needs could be a useful metric able to ground the cascade of risks to which companies, governments, financial institutions can be exposed. Linking the ecosystem services dimension and the risk dimension is the first step in building a framework that introduces ecosystems into sustainable finance. The growing need to factor nature into financial and business decisions prompted the formation of a Taskforce on Nature-related Financial Disclosures, meant to develop a risk management and disclosure framework to report and eventually act on nature-related risks and opportunities. This paper describes how to use the Integrated system for Natural Capital Accounts to measure and account for ecosystem vulnerability, which constitutes the first component of nature-related risk. Based on ecosystem vulnerability accounts, it is possible to also assess sectoral exposure to risk. Ecosystem vulnerability accounts could represent a valuable source of information for the TNFD, enabling it to assess impacts and dependencies. A case study of the agricultural sector in Europe is presented.