7. Biodiversity Risk Identification and Assessment: Integrating Biodiversity into Risk Management Frameworks

In an era of rapid environmental change, biodiversity loss has emerged as a critical yet often overlooked risk with far-reaching implications for economies and financial systems. While climate and ESG risks have gained significant attention, biodiversity risk, which is a distinct subset of environmental risk, remains underexplored. Biodiversity encompasses the diversity of life across terrestrial, marine, and freshwater ecosystems and the ecological interactions that sustain them. However, drivers such as land-use changes, habitat destruction, climate change, pollution, and the introduction of invasive species increasingly threaten biodiversity. The degradation of ecosystems poses significant financial risks, as businesses and financial institutions depend directly and indirectly on ecosystem services such as pollination, water purification, and carbon sequestration. This chapter examines biodiversity risk within the broader landscape of financial risk management, emphasizing its relevance to the stability of financial markets. Regulatory efforts are advancing, particularly in Europe, where the European Sustainability Reporting Standards (ESRS) require organizations to disclose biodiversity-related impacts, risks, and opportunities as part of the Corporate Sustainability Reporting Directive (CSRD). Beyond regulatory developments, this chapter reviews existing research on biodiversity risk, exploring methodologies for assessing financial exposure to ecosystem degradation. Financial institutions and researchers have developed various metrics to evaluate biodiversity risks across portfolios, such as the Global Biodiversity Score (GBS) and the Pollinator Abundance Index. Finally, we discuss the importance of integrating biodiversity risk into traditional financial risk models. By recognizing biodiversity as a key component of financial decision-making, this chapter aims to contribute to more resilient and sustainable financial practices, ultimately enhancing financial stability and promoting responsible investment strategies that align with long-term environmental sustainability.