The Director of ECI’s Global Finance and Economy Group is working with fellow scientists and businesses in considering how trends in environmental decline are leading to new risks to business models and investments. Their aim is to help business leaders to understand the latest science on the ways in which the natural world is changing, the risks their businesses face as a result, and actions that will help mitigate those risks.
Speaking at the Royal Society’s conference ‘How does ecological risk relate to commercial risk?’ earlier this month Dr Nicola Ranger said:
When we consider the nature related-risks everything we said in the Stern Review 20 years ago seems out of date. The climate crisis and the biodiversity crisis are intimately linked; for example, our work with the Network for Greening the Financial System showed that nature-loss doubles climate-related damages and we cannot get to net zero unless we protect and restore our natural carbon sinks.
What my team and I at the ECI are doing is to try and understand the materiality of these risks and what we can do about them. Half of all nature related risks to our economy and financial system are related to supply chains which is important in how we manage these.
Climate and nature risks have many similar characteristics but also many different characteristics. One of the reasons climate is such a difficult problem to manage is that we get a few big emitters which are creating a global impact which is not felt that directly - usually with a delay of over 20 years given the science.
That’s not how it works with nature related risks. There is a global side, but it’s much, much more local. So often, the companies that are creating the risk through activities such as deforestation and pollution, actually feel that risk in their revenues. Big financial institutions are literally shooting themselves in the foot through the activities that they are financing.”
The conference convened key stakeholders from science, commodity supply chain businesses, and financial services to build on the findings of global initiatives such as the Global Biodiversity Framework. A major focus was on the challenge of measuring nature and ensuring businesses have the information they need to develop and implement a strategy to both reduce their nature-related risks and make the most of investment opportunities.
Over the course of the two-day conference the discussions aimed to help identify shared research priorities, promote collaboration, and identify consensus policy recommendations to protect nature.
Sustainable Finance Live
Speaking at the Sustainable Finance Live conference in London earlier this month Dr Nicola Ranger outlined how nature risks are priced and which methods the Green Finance Institute (GFI) has put forward to assess nature-related risk.
Dr Ranger emphasised that nature is a material financial risk which companies need to be thinking about, since the economy does revolve around it. She added that 25% of species are threatened with extinction and that biodiversity risk is critical from the perspectives of corporates and supply chains.
The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) accumulates data on nature, and has revealed that 14 out of the 18 critical ecosystem services have declined, which is an urgent concern for the state of our planet.
Dr Ranger said:
20 years ago I came into this as a climate scientist. When we were making climate projections, we would never have expected the level of temperature change that we're seeing today. In 2023, the scientific community was shocked, globally, by the level of temperature rise. It was the warmest year on record by a large margin. You see here the variation year-on-year and 2024 is above it again.”
When analysing nature-related risk, there are significant overlaps with climate-related risk. When assessing nature risk, companies need to keep in mind that risks can cascade across supply chains, and nature and climate risks amplify each other. Dr Ranger emphasised that climate and nature cannot be disconnected from each other, so when assessing risk, both need to be taken into account.
Turning to the key sources of nature-related risk, Dr Ranger underlined pollinators' decline as well as soil quality changes and water-related risk. Dr Ranger closed her keynote by reminding the audience that while transition risks are considerable, they also represent strong investment opportunities. Those pertaining to biodiversity, carbon, and water are expected to grow in the near future.
Integrating Finance and Biodiversity
Dr Ranger, also recently featured on a podcast by Integrating Finance and Biodiversity, (IFB), which is a £7 million programme co-led by the Natural Environment Research Council (NERC) and Innovate UK to develop the solutions needed to embed the values of biodiversity in financial decision making, to help deliver a nature positive future. As Co-Director of the programme Dr Ranger spoke about her work on the Greening Finance for Nature Initiative, looking at how we bring nature and environmental risks into decision making across the financial sector.
