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The global COVID-19 pandemic and climate crisis have brought systemic risks, including ecosystem vulnerability and biodiversity loss, into sharper focus. Indeed, researchers are drawing links between ecosystem degradation and global pandemics due to resource use, land use change, climate change, exploitation of wildlife, and other factors. Conversely, the preservation of natural capital can also help bolster resilience against physical and transition risks associated with climate change.
Given the increasing focus of policymakers, investors and civil society, we expect the spotlight on the materiality and impact of companies’ biodiversity risk management to intensify in 2021 and beyond.
Businesses contribute to biodiversity loss through their impacts on ecosystems and reliance on natural resources. Indeed, water, land and ecosystem services can be critical for the production of goods and services. Research from across Moody’s has found that biodiversity and nature-related risks pose a significant threat to a wide range of industries and sectors. A Moody’s Investors Service report found that 12 sectors with $2.1 trillion in combined debt, including all extractive industries, face high or very high natural capital risk. In addition, a Moody’s ESG Solutions study found that 38% of large publicly traded companies have at least one facility associated with habitat loss, based on a sample of 5,300 corporations.
Risks to ocean health and marine diversity are also increasing, with regional and local regulation and enforcement frameworks posing a challenge for governance. Going forward, we expect investors to place a greater emphasis on identifying and engaging with companies within sectors most exposed to marine biodiversity risk – including shipping, offshore oil and gas, offshore renewable energy, marine aquaculture, marine fisheries and seabed mining.
The emergence of biodiversity as a factor in financial decision-making also calls for the development of consistent indicators for assessing and disclosing nature-related risks and opportunities, and continued research into the best way to capture both a company’s impact on biodiversity and its dependence on nature. That’s why Moody’s has joined the Taskforce on Nature-related Financial Disclosures (TNFD), a new industry-led initiative working to significantly shift global financial flows from nature-negative to nature-positive outcomes. As a member of the TNFD, Moody’s will work with leading organizations across key sectors and geographies to develop a reporting framework and act on evolving nature-related risks.