A Holistic and Decision-Useful Approach to Assessing Nature-Related Risks and Opportunities

Key Insights:

Investor and company commitments to mitigating and halting biodiversity loss continues to gain momentum, especially in terms of reporting.¹ For instance, uptake of the recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD) has, arguably, been greater than anticipated. Over 500 companies have registered as “early adopters.”²

This adoption of the TNFD and its associated commitments are welcomed by investors. According to a survey by the World Economic Forum, increased data availability and quality were cited by 86% and 78% of investors respectively as necessary for them to “increase financing to the nature-positive transformation.”³ These figures indicate that investors are hoping for, among other things, enhanced reporting, the development of state of nature metrics and the adoption of science-based targets for nature, to support their nature-related investment activities.

These developments are encouraging, but I argue that they come with uncertainty. I believe there is already enough data to assess nature-related risks and opportunities and to inform business decisions. I also agree with Andrew Liley, Europe sustainable investment lead at Mercer, who argues that the issue lies not in data availability, but in “interpreting data.”⁴

In this article, I show how investors can incorporate existing company-level data into their assessment of nature-related risks and opportunities and use this assessment in management and investment decisions.

Challenges to Addressing Nature-Related Financial Risks

In recent years, investors have greatly contributed to addressing the financial risks caused by biodiversity loss. During the 15th meeting of the Conference of the Parties to the Convention on Biological Diversity (COP15) in 2022, the financial community was instrumental in the adoption of Target 15 of the Kunming-Montréal Global Biodiversity Framework, which calls for businesses to, “assess, disclose and reduce biodiversity-related risks and negative impacts.”⁵

To that end, investors have started to measure the impacts and dependencies of their portfolios at a high level, relying mostly on state of nature metrics, especially biodiversity footprinting.⁶ They have also assessed impacts and dependencies at a sectoral level, with tools such as ENCORE.⁷

Yet, these tools do not fully meet the needs of investors or Target 15. An analysis of more than 800 reports by French investors found that, “the state of methodologies and data does not in practice allow aggregated indicators to be used for steering purposes.”⁸ As for sectoral tools, they do not allow for company differentiation and, as such, are of limited use for decision-making.

Possible solutions put forward include increased and standardized reporting, the emergence of a consensus on nature metrics, and the adoption of science-based targets for nature. However, we should manage expectations regarding the quality, timeliness and decision-usefulness of this data. By "decision-useful" (used in the title and throughout), I refer to the ability to make management and investment decisions at the company level.

I expect growing pains when it comes to the quality of nature reporting. Those concerns are echoed by Sandra Carlisle, head of responsible investment at Universities Superannuation Scheme, warning that taking the same approach as the Taskforce on Climate-related Financial Disclosures (TCFD) "in a much less mature area is probably not a good solution."⁹

Establishing a consensus on nature metrics and their adoption will take time, in spite of the ongoing work led by the Nature Positive Initiative.¹⁰ Besides, the ability of investors to fully understand state of nature metrics and their decision-usefulness remains an open question.¹¹

So far, company adoption of science-based targets has been slow. The Science Based Targets Network (SBTN) created foundations for companies to assess materiality, take action and track progress. However, six years after it was launched, only three companies – GSK, Holcim, and Kering – have adopted such targets.¹² Against this backdrop of uncertainty, and alongside the urgency to act, I’ll outline how there already exists decision-useful data, provided we follow the right method.

The Way Out: Holistic Company-Level Assessments

A view is emerging among businesses and investors,¹³ on how to assess nature-related risks and opportunities in a way that is decision-useful. This simple, yet robust approach provides a sector-specific, company-level and holistic assessment of corporate performance, which is explained and visualized in Table 1 below.

1. Investors should focus on high-risk, high-impact sectors, identified by the TNFD,¹⁴ the Finance for Biodiversity Foundation,¹⁵ or the World Economic Forum.¹⁶
2. For each priority sector, investors should select the most material pressures on biodiversity. To that end, several tools exist, such as the updated 2024 open-access ENCORE data.¹⁷
3. The third and final step consists of identifying, for each combination of priority sector and material pressure, a diverse set of relevant key performance indicators.

Table 1. Proposed Method to Analyze Nature-Related Risks at the Company Level

This method is supported by real-world applications, such as Robeco’s biodiversity traffic light system, which relies on a wide range of indicators.¹⁸ For instance, in the metals and mining industry, Robeco assesses:

• Current performance based on hazardous waste generation, non-greenhouse gas (GHG) air emissions, water consumption, and recycled materials used.
• Future performance by looking at commitments to protect and restore nature, reduce water consumption, and manage tailings storage facilities.

Proof of Concept: Risk and Opportunity Assessment of a Large Chemicals Company

To illustrate this method, we leverage Morningstar Sustainalytics’ Nature Data and look at a large chemicals company. The company is anonymized and will be referred to as Company X. 

Relevant nature-related indicators for the chemicals industry are shown in Figure 1 below. Before proceeding, it’s important to note that while material pressures (i.e., the factors that influence biodiversity and ecosystem processes)¹⁹ could be the same across industries, relevant indicators are industry specific.

Figure 1. Examples of Relevant Indicators for the Chemicals Industry

^{Source: Morningstar Sustainalytics}

I draw your attention to the diverse set of indicators necessary to assess company exposure to and management of nature-related risks and opportunities. Company X’s uneven performance across products and themes, represented in the heatmap in Figure 2, provides a helpful illustration.

Figure 2. Company X's Performance Across Select Sustainalytics ESG Research Products

^{Source: Morningstar Sustainalytics.}

^{Note: Assessment based on data as of May 7, 2025.}

Three complementary rules can be used to interpret the data:

1. When applicable, look at the average score on ESG risk management indicators, or at the performance of operational metrics (e.g., GHG emissions intensity) relative to a benchmark.
2. Focus on indicators that fall below or above a threshold, which would indicate risks and impacts are too high: for instance, a risk management score equal or below 25 (weak)²⁰ or a category 3 or higher controversy (where 3 is significant and 5 is severe).²¹
3. Pay close attention to the most material data points. For a chemicals company, that could be involvement in pesticides and production of hazardous substances.

In line with those three rules, the following analysis of the company’s performance related to material pressures is suggested.

Pollution: Company X could improve the scope and enforcement of its risk management, as it scores weak or average on four out of six indicators. This explains, in part, Company X's controversies related to pollution, including PFAS, which carries reputational and legal risks. However, the company has eliminated long-chain PFAS from its products and production processes. Company X is scored 25 (weak) on hazardous waste management, which is concerning given the amount of waste produced.

Environmental impact of products: Company X's product mix is average compared with other companies within the subindustry. The company is not involved in pesticides, unlike several of its peers. While the company offers hazardous products, the risks are contained by a hazardous substances management policy that is assessed as strong with a score of 75, which includes activities to reduce or phase out hazardous substances.

Water: Company X’s management of water-related risks is strong to adequate. Its score of 50 (adequate) on the water stewardship commitment indicator shows it could be more ambitious, especially regarding its supply chain. The poor operational metrics scores – 25 (weak) for water intensity (25) and 0 (weak) for water intensity trend, which are respectively above and well above the subindustry or industry benchmark – suggest risk management policies are not fully enforced.

Climate Change: Along with its industry peers, the company has large GHG emissions. Our forward-looking analysis shows Company X is not on the right track to decarbonization due to insufficient management policies: 75 (strong) on GHG emissions policy – supply chain, 50 (adequate) on GHG reduction program – supply chain, and 0 (no program) on low carbon transition investment planning program.

Opportunities: The company’s water purification technologies activities (which comprise 9.67% of its revenue) are directly relevant to halting and reversing biodiversity loss. Its activities in technologies for green buildings and energy efficiency materials, account for 11.57% of its revenue and contribute to mitigating climate change.

Deriving Management and Investment Decisions from the Risk and Opportunity Assessment

Based on the information from Sustainalytics' Nature Data and the analysis above, there are several ways investors can use the assessment in their management and investment decisions.²² To demonstrate, the examples below are applied to Company X.

Securities selection for funds: The combination of the company’s controversies related to PFAS and its average risk management scores means it might not pass binding investment criteria or a positive screen (e.g., selecting investments among the top 40% of highest-scoring companies of a proprietary ESG tool within a best-in-class strategy) of a sustainable fund (e.g., under article 9 of the Sustainable Finance Disclosure Regulation [SFDR]).²³

Sustainable fixed income: Company X could issue a green bond, whose proceeds would finance its water purification activity. A sustainability-linked bond could also be offered, conditional, for instance, on the improvement of the company's risk management policies and the reduction in water intensity.

ESG analysis and risk assessment: Investors could closely monitor the company’s pollution and water risk management performance, with a focus on indicators such as hazardous waste management and water stewardship commitment.

Target setting: Following guidance from the Finance for Biodiversity Foundation, Company X could set a target to phase our hazardous products, for instance.

Stewardship and engagement: Investors could engage the company with the aim of ensuring that hazardous products are actually phased-out and improving Company X’s pollution-related risk management policies and programs.

Compliance: Investors could check Company X’s compliance with the criteria and revenue thresholds of their existing sectoral policies.

Conclusion

Amidst ongoing debates about how investors can best assess nature-related risks and opportunities, I propose a method that uses already existing data, fits both the maturity and needs of diverse types of financial institutions, and is aligned with international guidance. This method further allows investors to make actual management and investment decisions.

I encourage investors to replicate the method and provide feedback to help the financial community collectively improve. And to keep in mind the urgency to act and that the place to start is where they are, right now.

References

1. Finance for Biodiversity Foundation. Finance for Biodiversity Pledge Hits 200 Signatories. 2025. https://www.financeforbiodiversity.org/finance-for-biodiversity-pledge-hits-200-signatories/. 
2. Taskforce on Nature-related Financial Disclosures. Early Adopters. Accessed on June 5, 2025. https://tnfd.global/engage/tnfd-adopters/. 
3. World Economic Forum. Nature Positive: Corporate Assessment Guide for Financial Institutions. April 22, 2025. https://www.weforum.org/publications/nature-positive-corporate-assessment-guide-for-financial-institutions/. 
4. Redgrave, G. 2025. “How are pension funds approaching nature?”. Environmental Finance. May 27, 2025. https://www.environmental-finance.com/content/analysis/how-are-pension-funds-approaching-nature.html. 
5. Convention on Biological Diversity. 2025. Kunming-Montréal Global Biodiversity Framework 2030 Targets (with Guidance Notes). https://www.cbd.int/gbf/targets.  
6. Such as the Corporate Biodiversity Footprint and the Global Biodiversity Score.
7. ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) is a free, online tool that helps organizations explore their exposure to nature-related risk and take the first steps to understand their dependencies and impacts on nature.
8. Climate Transparency Hub. 2025. English version available for the 2024 report on ’29 LEC’ / SFDR reports of French investors. May 5, 2025. https://climate-transparency-hub.ademe.fr/ressource/english-version-available-for-the-2024-report-on-29-lec-sfdr-reports-of-french-investors/. 
9. Redgrave, G. 2025. “How are pension funds approaching nature?” Environmental Finance. May 27, 2025. https://www.environmental-finance.com/content/analysis/how-are-pension-funds-approaching-nature.html. 
10. Nature Positive Initiative. Nature Positive Initiative launches global piloting programme. May 7, 2025. https://www.naturepositive.org/news/latest-news/pilot-launch/. 
11. Gambetta, G, 2025. “Getting into the Weeds: Understanding “state of nature” metrics”. Responsible Investor. November 14, 2024. https://www.responsible-investor.com/getting-into-the-weeds-understanding-state-of-nature-metrics/. 
12. Science Based Targets Network. Target Tracker. Accessed on June 5, 2025. https://sciencebasedtargetsnetwork.org/company/target-tracker/. 
13. Examples include the Finance for Biodiversity Foundation “Nature Target Setting Framework”, the World Economic Forum “Nature Positive: Corporate Assessment Guide for Financial Institutions”, the UNEP-FI and Principles for Responsible Banking “Nature Target Setting”, and the Business for Nature “Sector Actions Towards a Nature-Positive Future.”
14. Taskforce on Nature-related Financial Disclosures. 2025. Additional guidance for financial institutions. Accessed on June 5, 2025. https://tnfd.global/publication/additional-disclosure-guidance-for-financial-institutions/. 
15. Finance for Biodiversity Foundation. 2024. Nature Target Setting Framework for Asset Managers and Asset Owners. July, 2024. https://www.financeforbiodiversity.org/publications/nature_target-setting_framework_for_asset_managers_and_asset_owners-2/. 
16. Nature Positive Initiative. 2025. Nature Positive Initiative launches global piloting programme. May 7, 2025. https://www.naturepositive.org/news/latest-news/pilot-launch/.
17. ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure). 2024. Major upgrade for ENCORE launches. July, 2024. https://encorenature.org/news/major-upgrade-for-encore-launches-july-2024. 
18. Robeco. 2025. Measuring nature with the Robeco Biodiversity Traffic Light. April 15, 2025. https://www.robeco.com/en-int/insights/2025/04/measuring-nature-with-the-robeco-biodiversity-traffic-light.   
19. IPBES. “Models of drivers of biodiversity and ecosystem change.” N.d. https://www.ipbes.net/models-drivers-biodiversity-ecosystem-change. 
20. Sustainalytics’ scores indicators out of 100. The scoring categories for most indicators is broken down as follows: 0-25 weak, 25-50 is adequate/average, 50-100 is strong. For more details, see the ESG Risk Rating Methodology. 
21. Sustainalytics’ assesses company involvement in incidents with negative environmental or social impact, known as controversies. The controversies are assessed on a 5-point scale from 1 (low environmental and/or social impact) to 5 (severe environmental or social impact). For more details, see the Controversy Ratings methodology. 
22. They do not constitute investment advice and are solely presented for the purpose of proving the decision-usefulness of the Nature Data Package and the methodology presented.
23. SFDR article 9 funds pursue a sustainable investment objective. Per the disclosure requirements, the prospectus must clearly define the sustainable investment objective, describe how the investments do not significantly harm other environmental or social objectives, and explain how Principal Adverse Impacts are taken into account.