Author: Justin Lai Zheng Yang
As biodiversity loss accelerates globally, its implications for financial stability and economic resilience are becoming increasingly evident. The SGFC–Imperial Workshop on Biodiversity and Finance, held in London on 6 June 2025, brought together leading academics, policymakers, and practitioners to explore how ecological complexity can be integrated into financial analysis and decision-making. Discussions throughout the day highlighted both the systemic risks posed by biodiversity degradation and the emerging opportunities for financial innovation, valuation, and risk management.
Biodiversity as a foundation of resilience
The workshop opened with Professor Andrew Lo (MIT) delivering the keynote, Biodiversity in Theory and Practice, which framed biodiversity as nature’s risk management system. Drawing from probability theory, Prof Andrew illustrated how diverse ecosystems, much like diversified financial portfolios, buffer against rare but catastrophic shocks. As environmental variability increases, preserving biodiversity plays a critical role in reducing systemic ecological and financial vulnerability.
Throughout the discussions, functional and hydraulic biodiversity were identified as particularly important. Ecological traits such as drought tolerance, water-use efficiency, and root depth diversity enable ecosystems to maintain productivity and carbon storage even under growing climate pressures. As biodiversity degrades, these adaptive capacities weaken, recovery times lengthen, the social cost of carbon rises, and economic risks are amplified.
The financial materiality of biodiversity loss
Biodiversity degradation increasingly translates into financial risks that are material for firms, investors, and regulators. In Quantifying the Financial Impacts of Nature Degradation, Julja Prodani (De Nederlandsche Bank, NGFS) outlined how physical risks—such as declines in crop yields, fisheries, and water security—and transition risks arising from policy adjustments impact financial stability through increased default probabilities, insurance claims, and asset repricing.
Biodiversity risks also directly impact firms’ innovation pipelines and corporate valuations. In Nature-Dependent Innovations, Professor Moritz Wiedemann (Erasmus University Rotterdam) examined patents and technologies reliant on biological systems, such as rainforest-derived pharmaceuticals and bio-based materials. These innovations often hold higher novelty and ESG alignment, yet remain vulnerable to extinction risks when dependent on specific species. As such, biodiversity preservation becomes not only an environmental concern, but a material business risk tied to future revenue streams.
Professor Simon Levin (Princeton), in his keynote Complex Systems and the Economics of Biodiversity, argued that biodiversity loss challenges the foundations of long-term economic growth. Conventional GDP measures fail to account for ecosystem maintenance services such as water purification, pollination, and disease regulation. Incorporating natural capital into economic accounting frameworks offers a more accurate, if more constrained, assessment of sustainable growth trajectories.
Advancing biodiversity measurement and valuation
A recurring theme across the workshop was the challenge of measuring and valuing biodiversity in ways that are scientifically credible, operationally feasible, and financially meaningful.
Professor Franklin Allen (Imperial College London), in Do Investors Care About the Rainforest? Evidence from Voluntary Carbon Offsets around the World, explored how financial markets are beginning to value biodiversity co-benefits embedded within carbon credit markets. By utilising standards such as Verra’s Climate, Community & Biodiversity (CCB) framework, biodiversity objectives can be integrated into more mature and liquid carbon markets. However, concerns remain around credit quality, verification rigour, and price stability, limiting broader investor confidence.
Professor Eleanor Slade (Nanyang Technological University), in Accounting for Biodiversity Using the Climate, Community & Biodiversity (CCB) Standards: A Case Study from Sabah, Malaysia, provided operational insights into implementing biodiversity crediting frameworks. She emphasised the importance of robust baseline assessments, scientifically sound monitoring protocols, significant upfront investments, and active community engagement for long-term project integrity.
In Measuring Biodiversity’s Value to Support Crediting Schemes – A Case Study from South-East Asia, Will Pearse and Olivia Morris (Imperial College London) highlighted the importance of developing location-specific biodiversity indicators that are both scientifically robust and practically implementable, particularly in emerging markets where data limitations remain a key constraint.
Professor Hao Liang (Singapore Management University), in Quantifying and Valuing the Biodiversity Impact of Business Operations, presented firm-level valuation frameworks that link corporate activities—such as land use, water pollution, and climate change—to ecosystem service losses and corresponding social costs. These models provide companies and investors with tools to better quantify and integrate biodiversity risks into financial decision-making.
Interlinkages and systemic uncertainty
Ecological feedback loops between biodiversity loss and climate change emerged as a major source of systemic uncertainty.
In Climatic Safety Margins of Amazon Forest Trees: Implications for Biodiversity and Carbon Balance, Professor David Galbraith (University of Leeds) presented evidence that many Amazonian species are approaching or exceeding their physiological climate tolerances. These thresholds risk triggering cascading biodiversity loss, carbon storage reductions, and wider economic disruptions.
Erik Chavez (Imperial College London), in Exploring Endogenous Feedbacks in Nature, emphasised how biodiversity loss interacts with climate processes through non-linear, compounding feedback mechanisms. As ecosystems degrade, their reduced capacity to buffer environmental shocks magnifies both ecological and financial risks. These dynamics challenge conventional financial risk models, which often fail to fully capture such complex interdependencies.
Throughout the workshop, participants acknowledged that without integrated modelling of these feedbacks, financial systems may significantly underestimate long-term nature-related risks.
Innovations in conservation finance
Despite these challenges, the workshop also highlighted innovative financial mechanisms capable of mobilising private capital for biodiversity restoration.
In The Fiscal Impact of Biodiversity Loss and a Pathway for Conservation Finance, Professor Eli Fenichel (Yale University) demonstrated how municipal bond markets can embed biodiversity risks into credit pricing. His case study on North American bat populations showed how ecosystem degradation reduces farm productivity and property tax revenues, widening bond spreads and raising municipal borrowing costs. This creates natural financial incentives for conservation, even in the absence of direct public subsidies.
The incorporation of biodiversity co-benefits into existing carbon markets, as examined by Prof Franklin, also offers a promising pathway. By allowing biodiversity objectives to “piggyback” onto more established carbon credit markets, biodiversity finance can benefit from greater institutional participation.
Looking ahead: advancing the nature-finance agenda
The SGFC–Imperial Workshop made clear that biodiversity loss is no longer a peripheral environmental issue but a growing financial and macroeconomic concern. While the complexity of measurement remains a critical challenge, significant progress is being made in developing valuation methodologies, investable instruments, and integrated modelling frameworks that better reflect the systemic nature of biodiversity risks.
Professor Enrico Biffis (Imperial College London), one of the lead researchers for SGFC’s Nature Finance Project, shared: “This workshop was a powerful step toward rigorous, science-based approaches to biodiversity finance. Feedback from market participants attending the event was incredibly positive. Thank you to all who contributed.”
Looking forward, continued collaboration across disciplines will be essential to strengthen data infrastructure, refine disclosure standards, and support the development of scalable biodiversity finance solutions. Emerging frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) provide a promising foundation, but their success will depend on credible science, financial innovation, and sustained regulatory engagement.
The Singapore Green Finance Centre remains committed to advancing the nature finance agenda, supporting research and partnerships that build resilient financial systems aligned with long-term ecological stability. Stay tuned for the next Biodiversity and Finance Workshop scheduled in the last quarter of 2025 at Singapore Management University.