How disclosures of corporate pressure on biodiversity can improve nature-related financial decision-making

Financial actors are increasingly attempting to measure their impact on nature and related financial risks. Drawing on their experience with climate, they often seek a single aggregated biodiversity metric for reasons of simplicity and pragmatism. However, this carbon-inspired approach to biodiversity is unnecessary and harmful. There is a broad scientific consensus that no single metric can capture the multiple dimensions of biodiversity. The growing use of aggregated biodiversity footprints in finance risks producing misleading signals for financial practitioners, who sometimes treat these aggregated impact metrics as proxies for nature-related transition risks. Current biodiversity footprinting methods are coarse, highly model-dependent and often unable to distinguish between the best- and worst-performing companies within the same sector. Moreover, different footprinting models account for different direct drivers and, accordingly, often lead to different footprint estimates for the same company. Market participants can easily use this divergence to claim that more time is needed to devise better methods and metrics, thereby delaying action. Instead of waiting for improved metrics, policymakers should require more easily understandable, verifiable and actionable disclosures of corporate pressure on biodiversity. Such disclosures would address companies’ contributions to the direct drivers (pressures) of biodiversity loss: land-/sea-use change, greenhouse gas emissions, direct exploitation of organisms, pollution and the introduction of invasive species. These disclosures would be better proxies for nature-related transition risks than aggregated biodiversity footprints. Nonetheless, improved disclosures and the successful management and supervision of nature-related financial risks are far from sufficient by themselves. Addressing biodiversity loss and environmental degradation will require moving beyond the risk paradigm.