Why is biodiversity relevant to the financial sector?
“Financial institutions have a crucial role to play in preventing further biodiversity loss and restoring nature. The role of banks, insurers, asset managers and investors is becoming increasingly relevant due to pressures such as strengthening liability regimes, intensifying scrutiny of supply chain practices and shifting consumer preferences.”
– Finance for Biodiversity, Guidance to the Pledge
Financial sector’s activities and investments affect biodiversity and, in turn, are exposed to risks resulting from its loss.
Specifically, biodiversity loss may translate into three types of risks for asset managers, pension funds, and other financial institutions investing in companies with a highly negative impact on biodiversity: physical risks, transition risks, and reputational risks. Ultimately, such risks translate into financial risks, leading to macroeconomic deterioration, which, in turn, undermines the financial system’s stability.