As biodiversity losses accelerate, insurance and risk management professionals are under increasing pressure to quantify, disclose and mitigate nature-related risks. Martin Allen-Smith reports


For years, climate risk has dominated the corporate sustainability agenda. But as understanding of natural capital deepens, attention is turning to the quieter, more complex crisis of biodiversity loss. From the degradation of soil and freshwater systems to the collapse of ecosystems underpinning global supply chains, the erosion of nature is now recognised as a systemic financial risk, and one that demands integration into mainstream risk management.

“We’ve realised that nature is not an externality, that it is essential to our well-being, so societies are increasingly seeking to protect what remains,” says Chandler Morris, a regional head of environmental impairment liability at Allianz Commercial. “For instance, a 2019 report from the OECD estimated that natural ecosystems provide a global value of US$125 to US$140 trillion (£95 to £106 trillion) annually. Indeed, over 50 per cent of global GDP depends on natural capital and ecosystem services, but many ecosystems are close to tipping points beyond which they may be unrecoverable.”

Unlike carbon emissions, biodiversity loss is multi-dimensional, localised, and harder to quantify. Yet its implications are no less profound. For insurers, it threatens to reshape exposure models; for corporates, it creates supply volatility, regulatory scrutiny, and reputational vulnerability.

Figures from the European Insurance and Occupational Pensions Authority suggest that around one in five insurance undertakings mention biodiversity in their governance and risk management systems, and risk and solvency assessments. This figure doubles for large undertakings. EIOPA adds that when undertakings explicitly mention conducting a biodiversity risk assessment, most of these are qualitative in nature. A smaller portion combines both qualitative and quantitative elements, while only a few are purely quantitative.

The extremely broad and varied scope of biodiversity risks also adds to the challenge from a risk management and underwriting perspective. Physical risk can arise from damage to nature, changes in natural stocks and flows, or the decline of ecosystem services, which can lead to increased losses in investments or liabilities.

EIOPA says that for underwriting, different lines of business are affected in different ways by some of these physical biodiversity risks. For example, environmental liability risks may be particularly relevant for industrial insurers; maritime biodiversity risks for transport insurers; and biodiversity risks relating to the preservation of natural resources for agricultural insurers. Additionally, health insurers may face risks from invasive species; while property insurers may be concerned with risks associated with water or land use.

In many ways, the industry’s experience with climate risk has provided the scaffolding for this new challenge. Enterprise risk management systems already account for long-term physical, transition and liability risks associated with climate change.

Now, the task is to expand those frameworks to include nature dependencies – the ecosystems and resources on which business operations directly rely.

For insurers, that means understanding how environmental degradation might influence claims frequency or asset valuation. For corporates, it involves mapping dependencies within supply chains, assessing exposure to ecosystem decline, and translating those findings into financial metrics.

Some insurers are already exploring how ecosystem resilience could be priced into underwriting models. Others are investing in ‘nature-positive insurance’ – products designed to incentivise conservation or restoration activity, echoing the early evolution of green insurance lines seen during the first wave of climate adaptation.

The regulatory landscape around nature-risk disclosure is tightening fast. The Taskforce on Nature-related Financial Disclosure framework, formally launched in 2023, provides a structure for organisations to identify, assess and disclose their nature-related dependencies and impacts. It mirrors the successful architecture of the Taskforce on Climate-related Financial Disclosures, but extends its reach to the broader ecosystem of environmental risk.

Meanwhile, the EU Corporate Sustainability Reporting Directive, which came into force in 2024, obliges thousands of companies to report on both climate and biodiversity impacts. Under the CSRD’s European Sustainability Reporting Standards, firms must outline their material dependencies on ecosystem services and their plans for mitigation or restoration.

New risks in practice

For risk managers, these developments are no longer theoretical. They signal a compliance expectation that requires new data streams, cross-functional collaboration and, in many cases, a cultural shift in how nature is valued. Professor Ben Groom, Dragon Capital chair in biodiversity economics at the University of Exeter Business School, says: “TNFD is gathering momentum. CSRD is being taken seriously in the EU. In terms of metrics, there are many tools that measure biodiversity footprints, but these tend to measure impact of activities on nature rather than risk to companies from nature-related losses.

“The problem with these individual company or portfolio-level measurements is that they ignore the public good nature of nature and biodiversity losses. The damages caused by an individual firm affect all other firms or users of the ecosystem in the wider area. Just registering the damages to the single firm, and then acting on that, does not reflect the wider social damages. So, acting on this fraction of the damages caused is just a fractional response. While potentially better than nothing, this is a key challenge to the efficient allocation of capital.”

Quantifying biodiversity loss remains a big challenge. Unlike carbon, there is no single unit of measure for nature. A forest’s value can be expressed in carbon sequestration, water filtration, pollination, flood mitigation or cultural significance, often all at once.

Katherine Lampen, sustainability and climate lead at Deloitte, comments: “Insurers have a big opportunity to innovate in nature-related risk transfer, developing products that help customers manage biodiversity loss. The key challenge lies in measurement – fundamentally, ecological datapoints cannot easily be translated into financial risk metrics.

“Although some progress has been made on sector-level data for corporate products, there is very little data on how personal products depend on or impact nature. However, over the next few years, access to public and corporate data will improve as nature rises in importance on corporate and regulatory agendas, as will the tools and methodologies to make meaningful business decisions.”

Risk managers are therefore experimenting with multi-metric assessment models, combining physical indicators, such as land-use change or species abundance, with financial proxies for ecosystem services. Remote sensing technologies, AI-driven environmental monitoring, and partnerships with conservation data providers are helping fill information gaps, but the data remains patchy and difficult to standardise.

New opportunities for cover

While biodiversity loss represents a material risk, it also opens new avenues for innovation. The emergence of nature-based insurance products is one sign of this shift, covering areas such as ecosystem restoration, flood resilience or agricultural diversification.

At a strategic level, businesses that proactively engage with biodiversity management can position themselves ahead of regulatory and market expectations. Those that do not risk facing higher insurance premiums, restricted access to capital, and reputational damage as stakeholder scrutiny intensifies in the future.

In this evolving landscape, the role of the risk manager is becoming both broader and more strategic. Traditional risk models – focused on probability and impact – have to adapt to address interdependence, embracing the way environmental, social and governance risks overlap and amplify one another.

“Businesses increasingly find themselves facing regulations and unlimited fines for harming ecosystems,” Morris explains. “For example, in 2023, the UK lifted the cap on environmental fines, allowing for unlimited penalties against polluters. This strengthens enforcement across industries and removes the previous cap of £250,000 on penalties for environmental offences, allowing regulators to impose unlimited fines on polluters.

“This kind of regulatory shift forces companies to re-evaluate their operations and ensure compliance to avoid financial penalties and long-term damage to their reputation. Companies have already started to act ahead of these regulations. One global firm restructured its entire waste management process to meet stricter biodiversity standards.”

The transition to nature-aware risk management is not just about regulation or reputation; ultimately it is based around resilience. Businesses that ignore biodiversity dependencies may be unaffected in the short-term but risk facing long-term instability. Those that engage meaningfully can reduce exposure, secure investor confidence, and contribute to systemic resilience in the face of ecological decline.

In that sense, nature-related risk management is not a niche sustainability issue but a core business function for the decade ahead. Just as climate disclosure transformed corporate accountability over the past five years, biodiversity may soon redefine what it means to manage risk responsibly.

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