In his latest thought leadership article, Nathan Carr, Chief of Staff and Head of Legal, explores why biodiversity is becoming a material financial consideration and how banks can work with businesses to finance nature-positive solutions and build long-term resilience.
The new risk on the block and why the demise of Bees will sting us all.
For years, climate change has dominated boardroom discussions on environmental risk. Yet another threat is rapidly emerging from the shadows: biodiversity degradation.
At the center of this challenge lies a tiny but indispensable workforce, the world's bees and other pollinators such as moths, butterflies and beetles. Their decline is no longer merely an environmental concern. It is becoming an economic, financial and social risk with direct implications for global food security, inflation, financial stability and long-term prosperity.
So why do bees matter, beyond honey?
Bees are considered “natures matchmakers” by performing one of the most valuable services: pollination. Approximately three out of every four crops producing fruits, vegetables, nuts and seeds for human consumption depend, at least in part, on pollinators like our bees. According to the Food and Agriculture Organization of the United Nations, pollinators support 87 of the world's 115 leading food crops and influence around 35% of global crop production.
As a consequence of climate change, deforestation and pollution our bee populations are under threat with 30% of the wild bee species in Europe now endangered. Without healthy pollinator populations, the production of many nutrient-rich foods will decline significantly. Crops such as almonds, cocoa, apples, coffee, berries and tomatoes rely heavily on pollination services. The decline of bees therefore threatens not only agricultural yields but also dietary diversity, nutrition and global food security.
From Environmental Crisis to Economic Risk
The loss of biodiversity (beyond bees, think of coastal erosion, soil erosion, coral bleaching, deforestation, overfishing) is often discussed in ecological terms, but its economic consequences are equally profound.
Healthy ecosystems provide critical services including pollination, water purification, soil fertility, flood control and climate regulation. The European Central Bank (ECB) has highlighted that ecosystem services underpin significant portions of global economic activity and that the degradation of these services can create material risks to price stability and financial stability.
The World Bank has estimated that the collapse of selected ecosystem services, including wild pollination, could reduce global GDP by as much as US$2.7 trillion annually by 2030. That’s not too far off.
Some regions heavily dependent on agriculture and ecosystem services could face substantially larger economic contractions.
This risk is particularly acute because biodiversity loss often progresses silently. Unlike a financial crisis that unfolds over weeks or months and is documented on all our mainstream media, biodiversity degradation accumulates over years. By the time the impacts manifest and become visible in crop failures, declining fisheries or water shortages, restoration becomes significantly more costly and complex.
The Inflation Connection
Few immediately connect bee populations with inflation rates, yet the link is both direct and powerful.
Reduced pollinator populations mean lower crop yields. Lower yields create supply constraints. When supply falls while demand remains constant or increases, prices rise. The result is food inflation that ultimately reaches consumers' shopping baskets and pockets.
Recent research examining pollinator loss in Europe suggests that declines in wild pollinators could reduce crop yields, lower agricultural exports and increase food prices, creating measurable welfare losses for consumers and economies alike. [
For lower-income households, the impact is particularly severe. Food typically represents a larger proportion of household expenditure. As prices rise, families must either spend more on essentials or reduce consumption, eroding living standards and widening inequality.
In this sense, biodiversity loss and the resultant impact on CPI is becoming a hidden tax on consumers.
Why should businesses and Banks Care?
The financial sector often views biodiversity as an issue for environmental specialists rather than bankers. This perception is rapidly becoming outdated. This is because nature-related risks increasingly translate into financial risks through several channels:
- Reduced borrower revenues due to lower agricultural productivity.
- Supply chain disruptions affecting food and commodity producers.
- Increased insurance losses linked to ecosystem degradation.
- Regulatory changes imposing stricter environmental requirements.
- Reputational risks associated with biodiversity destruction.
All of these factors impact the credit risk of a customer, industry or portfolio.
The ECB has noted that nearly three-quarters of the euro area's banking exposure is linked to companies that depend significantly on ecosystem services.
It’s an obvious next step to deduce that a loan portfolio concentrated in agriculture, fisheries, forestry, food processing or tourism may therefore carry substantial hidden biodiversity risk. What appears to be a strong credit exposure today could become vulnerable tomorrow if ecosystem services deteriorate, including those of up and downstream suppliers and counterparties.
In practical terms, biodiversity risk has joined climate risk as a legitimate financial risk category.
Integrating Biodiversity into Credit Decisions
Forward-looking banks are increasingly recognising that biodiversity degradation is not merely an ethical concern but a predictor of future credit quality.
Banks are having to move beyond viewing biodiversity as a corporate social responsibility issue and embedding it into core risk management frameworks.
This requires incorporating biodiversity assessments into lending, investment and portfolio management decisions through assessing a customers;
- Dependence on ecosystem services such as pollination, water availability and soil quality.
- Exposure to biodiversity-related regulatory changes.
- Impacts the business has on ecosystems and natural habitats.
- Biodiversity transition plans and resilience strategies.
- Nature-related physical and operational risks.
Frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) provide practical methodologies for identifying, assessing and managing nature-related dependencies, impacts, risks and opportunities.
From Risk Manager to Transition Partner
Perhaps the most important role for banks is not simply identifying biodiversity risks but helping customers navigate them.
Just as financial institutions are supporting clients in the transition to a low-carbon economy, they must now support the transition to nature-positive and biodiversity-resilient business models.
Banks can play a catalytic role by:
- Financing regenerative agriculture.
- Supporting sustainable farming practices that protect pollinators.
- Encouraging habitat restoration and ecosystem conservation.
- Linking financing terms to biodiversity performance indicators.
- Funding nature-based solutions.
- Providing technical guidance and transition finance to affected sectors.
Rather than withdrawing financing from biodiversity-exposed sectors, banks should see the opportunity side of the coin and help customers build resilience and adapt to what is already here. There are no quick fixes, however, and transition to nature-positive business practices will require capital, expertise and long-term partnerships.
Those institutions that proactively engage with clients to understand their dependency and vulnerabilities will be better positioned to manage risk, unlock new growth opportunities and strengthen portfolio resilience.
The Bee Line
The decline of bees may appear to be a niche environmental issue, but it represents something far wider and more significant. It is an early warning signal of a broader erosion of the natural systems upon which economies, businesses and societies depend.
Biodiversity degradation is emerging as one of the defining risks of the coming decade. Its effects will be felt through food shortages, rising prices, weaker economic growth and increasing financial instability. The World Bank's estimate of potential annual global GDP losses of US$2.7 trillion illustrates the scale of the threat.
For banks, the message is clear: biodiversity risk is an inextricable wrapper of credit risk, market risk and systemic risk and banks that integrate nature into decision-making today will be better equipped to protect shareholder value tomorrow.
And for society at large, the lesson is even simpler: if the bees disappear, the consequences will reach far beyond our gardens. They will be measured in the cost of our food, the health of our economies and the resilience of our financial systems.
The sting, unfortunately, will be felt by us all.
