Earth’s diverse, abundant ecosystems have long been a source of “natural capital” for economic growth and development. Today, scientists broadly agree that human activity is rapidly degrading ecosystems and causing biodiversity loss that may have grave consequences for human health, economic stability, and financial asset values. 
The economic cost of biodiversity loss
As carbon emissions accumulate, a growing number of species will be exposed to potentially dangerous climate conditions, which may threaten their long-term viability. While no single metric can capture the extent of biodiversity loss, scientists observe growing evidence of rapid acceleration. Global wildlife populations have plummeted by 69% on average since 19701, and an estimated one million species face extinction, potentially within decades.2
Estimates from the World Economic Forum (WEF) give an idea of what is at stake. WEF calculations suggest that approximately US$44trn of economic value generation — more than half of the world’s total GDP — is moderately or highly dependent on nature. The three economic sectors that WEF considers the most dependent on nature — construction, agriculture, and food and beverages — generate close to US$8 trillion of gross value added, roughly twice the size of the German economy.3
As markets increasingly recognize the value of biodiversity and the financial risks associated with biodiversity loss, natural capital such as water, soil, and forests may no longer be considered free inputs for industrial production, but rather as assets with associated values and costs that should be preserved and/or managed.
Better tools and metrics to capture biodiversity risks are needed
Capturing the full extent of the potential economic impact of biodiversity loss is challenging. Data is unreliable or inconsistent, measurement tools are scarce, companies and governments benefit from biodiversity and contribute to its loss, and industrial supply chains often contain hidden dependencies and extensive impacts on biodiversity.
In our view, closer cooperation between the climate science and finance communities is needed. At Wellington, we work with Woodwell Climate Research Center and the Joint Program on the Science and Policy of Global Change at the Massachusetts Institute of Technology (MIT) to understand the connections between biodiversity, climate change, and capital markets. A key goal is to understand how biodiversity-related risks may impact asset values.
As an extension of this research, the Climate Research Team aims to integrate more biodiversity assessments into its research on physical risks and has begun to evaluate relevant data sets and investor tools for conducting security-level analyses, particularly regarding water usage and deforestation.
Using our Climate Exposure Risk Application (CERA), for example, we have globally mapped water scarcity measures and can determine which geographies or municipal-, company-, and supplier-specific locations may have the greatest potential exposure to this biodiversity risk.
What steps can investors take?
- Deepen biodiversity knowledge: While the industry is still in the early stages of translating biodiversity data and risks into standardized metrics, investors can begin by developing their knowledge of biodiversity. A few useful information sources include:
Living Planet Report 2022 | WWF
Global Assessment Report on Biodiversity and Ecosystem Services | IPBES
WEF New_Nature_Economy_Report_2020 | World Economic Forum
Enhance stewardship: In parallel to knowledge-building, we suggest investors start to evolve their stewardship practices through corporate engagements and proxy voting. - Join industry collaborative initiatives: We advocate for participation in industry frameworks and initiatives. These include the Taskforce on Nature-related Financial Disclosure (TNFD), CERES, the Platform for Biodiversity Accounting for Financials (PBAF), the Global Impact Investing Network (GIIN), the Investors Policy Dialogue on Deforestation (IPDD), and several others.
- Invest in research; explore new ideas: Our research collaborations have resulted in a rich dialogue and invaluable insights on the physical and transition risks of climate change. These partnerships are aimed at bridging the gap between climate science and finance. We have begun to explore connections between finance and biodiversity as well.
In summary
Regulators and governing bodies, including the European Commission, have begun to enact polices aimed at conservation and preventing ecosystem degradation. There are currently several bills moving through the US Congress that address biodiversity loss. Most recently, nearly 190 countries approved a United Nations agreement at the COP 15 Climate Summit to protect 30% of the Earth’s land and ocean mass by 2030, a development that is likely to spur further regulatory and policy action across the globe
The lack of appropriate data and disclosure standards means that the asset management industry has a long journey ahead to integrate biodiversity considerations into investment decisions at scale. As tools, frameworks, and company disclosures develop, our research teams will continue to engage with companies and provide investors with information about biodiversity they may need to help inform investment decisions. Companies and their stakeholders may increasingly consider action to stem biodiversity loss as a means of reducing potential long-term risk exposure.
Historically, benefits from the use of nature accrued to producers and users, with the costs externalized across the rest of society. As biodiversity research and data expand, it is possible that the market will reevaluate the use of natural capital and ecosystem services. Investors should focus on building biodiversity knowledge, prioritising those areas where biodiversity risk is most pronounced, and developing sound stewardship practices.
Christopher Goolgasian is director of climate research at Wellington Management and Jenny Xie is a climate physical risk analyst. The views expressed above should not be taken as investment advice.
1 “Living Planet Report 2022 - Building a nature-positive society,” WWF, 2022
2 “Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science,” IBES, 2019
3 “New_Nature_Economy_Report_2020,” World Economic Forum