Financing Biodiversity II: A biodiversity-informed framework to evaluate business risk & opportunity

This article is part of a series of thought leadership articles by the Paia team. Read Financing Biodiversity I to find out about the complexity of putting a dollar value on nature.

How should biodiversity and ecosystem services be integrated into the evaluation of business risk and opportunity? With rapidly depleting natural resources, and an increased focus on biodiversity preservation, businesses must pay attention to nature-related considerations.

After all, all economic activity is dependent on healthy ecosystems, directly or indirectly. Including the concept of natural capital in business risk assessments enables us to better capture the benefits of ecosystem services, such as water purification and pollination, in economic terms. Biodiversity refers to the variety of life at the genetic, species, and ecosystem level, and forms the living component of natural capital stocks. The interactions between biodiversity and non-living natural resources generate most of the flows, from the provision of essential resources to climate regulation, that benefit society[i].

Biodiversity is vital to the long-term success of many businesses. For example, in the pharmaceutical industry, biodiversity is critical to drug discovery, providing molecular diversity and medicinally important organisms[ii]. In the agriculture industry, plant and animal breeders take advantage of underlying genetic diversity to improve yield and quality, enhance pest resistance, and lengthen the growing season. Biodiversity can also underpin product innovation in these two critical industries by providing natural ingredients that provide flavour, aroma, nutrition, or medicinal attributes.

But businesses may not realise their dependence and impacts on biodiversity. With over 60% of natural capital impacts embedded in supply chains[iii], biodiversity restoration and protection are critical to safeguarding the sustainable procurement of raw materials. For example, fashion apparel brands like Kering source wool, cashmere, and cotton from farms and forests across the world. Kering’s in-house environmental profit-and-loss accounting tool (EP&L) converts its natural impacts into monetary terms. It has shown that Kering’s natural impacts are highest during raw material production, specifically around land-use and biodiversity.

Even businesses with no direct relationship to natural capital stocks must consider their biodiversity dependence and impacts along their value chain. For example, banks like ING have acknowledged their business’ impact on biodiversity, through their loans to companies[iv]. Their portfolio companies may be affected by biodiversity loss, which in turn exposes ING to biodiversity risks as a financier.

The global momentum for biodiversity protection is accelerating. Being nature-positive is becoming a key element of net zero emissions; governments and financial institutions around the world are connecting climate and nature. Recognition worldwide that nature loss poses financial, and even existential, risks to businesses is also growing. The Taskforce on Nature-related Financial Disclosures (TNFD) guidelines, complementary to the Taskforce on Climate-relate Financial Disclosures (TCFD) [v], is an upcoming framework that seeks to better understand the financial risks and opportunities posed by biodiversity on businesses. With TCFD becoming a regulatory response for governments around the world[vi], businesses can expect tightening biodiversity regulations if the TNFD follows the TCFD’s success. The Science Based Targets Network is also developing guidance for companies to set targets for nature, as another indicator of a global movement towards greater corporate responsibility for biodiversity.


Biodiversity - Informed Framework for Business Risk and Opportunity Infographic

In light of this global movement, the Paia team presents a biodiversity-informed framework for evaluating business risk and opportunity. The intention of the framework is not to provide answers, but to facilitate decision making and scaffold the evaluation of biodiversity-related opportunities and risks.

This framework positions biodiversity dependence at the centre of all risk and opportunity assessments, as all economic and business activity is rooted in biodiversity. Around biodiversity dependence revolve 4 interdependent pillars: Revenue, Cost, Compliance, and Capital.

There are tensions and trade-offs across each pillar. For example, revenue may be generated in the short-term through resource extraction. But unsustainable resource extraction is likely to generate higher costs in the long term, and additionally rule out opportunities for the development of new revenue streams synergised with nature.

As another example, growing recognition of our dependence on biodiversity and ecosystem services could also spur the scaling of biodiversity-related finance, lowering the cost of capital. With lower capital costs, biodiversity-related revenue opportunities could be more accessible. But access to capital is also accompanied by higher compliance requirements, which impose higher operational costs.

In this way, we can begin to imagine tensions and trade-offs across all 4 pillars. To facilitate deeper consideration, the rest of this article will expand upon the opportunities and risks of each pillar.



What new revenue streams might be unlocked from biodiversity restoration and protection?

Business action for biodiversity may lead to entirely new business models. By seeking to restore and protect biodiversity, businesses may generate new services and products. For example, Unilever has begun integrating biodiversity into its supply chain management, resulting in products sourced from regenerative framing practices.

Entirely new businesses may also be created in ecosystem restoration, as these 5 startups have realised. New markets may develop or existing markets may expand – the ecotourism sector has been forecasted to grow by 10-30%, and the organic food and beverage sector by around 16%[vii]. New revenue streams may also be unlocked, in the form of payments for ecosystem services in wetlands and forests, or if novel scientific discoveries generate licensable patents in future.


Will biodiversity legislation impact revenue generation?

Companies will have to examine their revenue generation sources and predict the trends of biodiversity legislation in their target markets. For instance, a land reclamation company must be aware of the potential protections that may be legislated for coastal ecosystems, which may halt projects in those waters.

What is the impact of declining ecosystem services on the revenue stream?

Many revenue streams are directly or indirectly dependent on ecosystem services. For example, the $7 billion almond industry in California depends on US bee colonies for pollination[viii]. But honeybee populations have been rapidly declining, due to industrial agricultural methods that put biodiversity last and monoculture first[ix].



How can biodiversity protection reduce recurring costs?

Recurring operational costs may also be reduced by investing in measures or technology that protect ecosystems. For example, by investing in higher security for fish farms to prevent escape, companies can reduce costs incurred to replace the fish as well as prevent genetic contamination with wild stocks.


What are the potential business costs of degrading natural capital?

The continued degradation of natural capital stocks and biodiversity often results in tangible and intangible costs. These costs might include potential legal liabilities and pollution clean-up, the loss of ‘social license’ or reputation, and the costs incurred from supply chain disruptions due to emerging infectious diseases (e.g. Covid-19).

What are the potential costs of altering natural features?

The removal of certain parts of the natural environment could lead to cascading costs. For example, the Catskills watersheds in New York[x] provide a natural way to filter contaminants from water. Man-made changes to the watersheds such as road construction could reduce the water quality available to businesses and individuals, leading to an increase in costs for energy and resources needed to artificially clean the water.



What opportunities could accompany compliance requirements?

Compliance requirements can facilitate the discovery of business opportunities. Mandatory climate reporting requirements have encouraged companies to undertake deeper reflection into how climate positive policies could benefit them. For example, tax benefits and subsidies could enable them to develop cleaner technologies that are more competitive in a greener market. Nature-related or biodiversity reporting could similarly translate into business opportunities.

Could compliance build internal capacity for biodiversity-related assessments?

Biodiversity risks, like climate risks, must eventually be integrated into strategic business planning. Additional compliance requirements may present an opportunity for businesses to adapt early by building up internal knowledge and familiarity with biodiversity-informed cost and benefit analyses.


What will be the operational resources committed to compliance?

Complying with the requirements of green financing is likely to necessitate certain steps by the business operation to minimise or even preserve or restore biodiversity. Such compliance would include resources needed to measure, report and verify impacts to biodiversity, and expertise needed to conduct studies to establish biodiversity baselines either revolving around the direct operations of a business, or along supply chains. Companies must question if they have the requisite expertise or whether they can outsource these changes to a third-party.

What are the financial costs of the baseline level of compliance?

The operational resources detailed above will come with a financial cost. Companies need to establish a basic understanding of how much additional costs would be added to the project’s income statement.



What are the current and potential opportunities for access to financial capital?

With growing investor motivation, more funds with biodiversity related objectives will be launched. Just as how investors have recognised that climate impacts present “unhedgeable risk”[xi] to investment portfolios, investors are now realising that long-term value creation is dependent on biodiversity protection and restoration. The Finance for Biodiversity Pledge, a coalition of 26 asset managers, insurers and banks formed in 2020, is a strong indication of investors’ shifting perception towards the importance of being nature-positive[xii]. As another harbinger of funding opportunities to come, AXA launched a climate & biodiversity fund in 2019[xiii].

As momentum for biodiversity-related financing builds, companies could also consider engaging with a wider set of financiers. With more private sector financing options, there may be more opportunities for public funds to cushion biodiversity financing through blended financing.


What is the future cost of capital?

Cost of capital could increase if funds begin to divest from assets that do not take care of biodiversity, similarly to how the availability of capital for fossil-fuel related stocks is shrinking. Just as for any other investment, companies can consider the extent of capital increments depending on whether the capital was obtained from debt investors or equity investors, both of which have different risk and return expectations. Current access to capital may also be at risk of being withdrawn. Although legislation may not mandate certain actions, institutional investors and banks tend to be quick to respond to the demands of the collective pool of investors that finance them. These financial institutions may hence shed investments in companies deemed to be laggards in biodiversity protection, raising the cost of capital for companies.

What would be the impact of violating sustainable finance requirements?

Access to financial capital for biodiversity-related projects can come with onerous requirements. Businesses must consider carefully if they can keep up with the requirements throughout the lifespan of the project, and the consequences of being unable to comply.


The concept of natural capital allows us to frame our dependence and impact on nature in economic terms – and the connection between biodiversity and financial flows has never been more salient. Economic development can no longer be segregated from ecosystem services, and growing recognition will spur legislative and capital shifts. As your business learns to navigate the integration of biodiversity considerations into their evaluation of business risks and opportunities, the Paia team hopes this framework constructively facilitates your reflection.

Stay tuned for Financing Biodiversity IIII, our final article in this series, where we will reflect more deeply on biodiversity as an asset.

If you are ready to embark on your nature-positive journey, contact us today.


[i] Biodiversity and natural capital, Cambridge Conservation Initiative:

[ii] Biodiversity, drug discovery, and the future of global health: Introducing the biodiversity to biomedicine consortium, a call to action, Journal of Global Health:

[iii] Biodiversity, and a Conservation Hierarchy for Kering S.A,  Bull, J, P. Addison, M. Burgass & S. Sinclair.

[iv] Biodiversity, ING:


[vi] Companies, investors face new pressure from compulsory disclosure of climate risk, S&P Global:

[vii] Biodiversity: Finance and the Economic and Business Case for Action. OECD:

[viii] Business benefits of biodiversity in agriculture, BCG:

[ix] California’s almond trade is exploiting one of nature’s most essential workers, IFIS:

[x] A billion Dollar Investment in New York’s Water, New York Times:

[xi] The Business Case, Climate Action 100+:

[xii] Finance for Biodiversity Pledge:

[xiii] AXA & Biodiversity, AXA:

Reopening economies – key risks and opportunities

By Nicole Lim

Today marks the last day of the “circuit breaker” in Singapore. Come tomorrow (2 June), Singapore will enter the first phase of the three parts to reopening the Singapore economy. Singapore is not alone, many countries and economies are already reopening while navigating through some semblance of a pre-COVID way of life – the new normal. How these upcoming weeks and months unfold will be critical for the fight against COVID-19, but also for setting our path towards a more sustainable future. How will we build back better?

Possible risks

The World Economic Forum (WEF) recently released two new reports which highlights key risks, challenges and opportunities the world is facing as a result of COVID-19. Based on inputs from 350 of the world’s top risk professionals, the COVID-19 Risks Outlook Report identifies the following most likely fallouts for the world, with economic risks topping the charts. This is no surprise, seeing as how the pandemic has halted much economic activity and saw governments pushing out trillions of dollars for recovery packages. Against this backdrop, these risks create far-reaching implications on ESG issues, as outlined in the report. Without going into too much detail, the environmental front will face risks from potential setbacks and stalling of progress for climate and environmental action. Countries run the risk of returning or developing emissions-intensive ways of operating as they look to reboot their economy post-pandemic. On the social front, WEF and many other thought leaders have identified rising inequality, negative effects on mental health, and long-lasting repercussions on youths, as some key societal risks. Cybersecurity and the inequality rising from the (forced) acceleration of widespread digital adoption has also been identified as a key risk. Underscoring all these risks is the need for strong, effective, and visionary governance practices to build back better. The report also outlines some key questions for decision-makers to consider.

An opportunity to build back better

Despite it sounding all doom and gloom, WEF also articulates that these risks are not forecasts – that decisive and bold action can set a path to a global sustainable recovery. Here’s a direct quote from the same report:

“As economies restart, there is an opportunity to embed greater societal equality and sustainability into the recovery, accelerating rather than delaying progress towards the 2030 Sustainable Development Goals and unleashing a new era of prosperity.”

The European Union’s proposal for a recovery plan which places emphasis on a green transition is one such example. The plan emphasises investing for the next generation, has significant funds directed at circular models and renewable energy, as well as proposals for adapting to new levels of digitalisation.

Beyond public sector responses, the report also notes that the global private sector will play a pivotal role in shaping a post-COVID future.

“As businesses seek to restructure supply chains, redesign manufacturing systems and respond to changing consumer demands, global sustainability could be shaped for years to come by the decisions taken today.”

In Singapore, we are seeing signs of such a green recovery from the private sector. Just last week, it was announced that CapitaLand secured a four-year S$500m sustainability-linked loan form UOB. This comes with Group CEO Lee Chee Koon highlighting that,

“The pandemic has raised global awareness of the importance of ESG (criteria), as major disruptions to businesses can come from anywhere… We are reviewing CapitaLand’s sustainability strategy… which will allow (us) to better future-proof our company.”

Also last week, the National University of Singapore (NUS) raised S$300 million through its inaugural green bond. Being the first of its kind among Asian universities, the bond will go towards financing green projects, which will be evaluated against NUS’ new Green Finance Framework. The university will be working alongside two major Singaporean banks, DBS and OCBC, on this commitment. Innovations and partnerships such as these would be pivotal in a post-pandemic recovery.

Be it in the public or private sector, one thing is certain – this pandemic has given the world the tools to manage a global risk. From newfound working practices, to altered ways of commuting and consuming, and to galvanising a global cohesive response to a crisis – emerging from this pandemic, we will have the opportunity to build back better.

scenario analysis risks opportunities

Applying Scenario Analysis in Climate-related Risks and Opportunities

by Lim Sze Wei & Stefan Ullrich.

Investors are beginning to get on board with the global fight against climate change, a movement that was until recently the territory of non-profit organisations and environmentalists. According to the inaugural Global Climate Index 2017 for Asset Managers by the Asset Owner Disclosure Project (AODP), a majority of 60% of asset owners are now taking action on climate change, while 40% continue to ignore the associated risks and opportunities. The report also found that the world’s top 50 asset managers are well ahead of their asset owner clients in their approach to managing the financial impact of climate change on investment portfolios [1]. Blackrock, the world’s largest investor with US$6.317 trillion [2] assets under management (AUM) has warned that high-level directors could be voted out of companies that are failing to mitigate climate-related risks posed to individual firms [3].

Investors are increasingly paying more attention to companies’ environmental, social, and governance (ESG) issues, urging them to disclose the impacts of climate change on their business and assessing how these topics are managed. It is therefore very likely that shareholders will increasingly demand responses to ESG related topics, specifically climate-related risks, in the near future.

In response to the growing demand for organisations to properly assess, understand and report climate-related risks, and at the request of G20 leaders, the Financial Stability Board (FSB), a body that makes recommendations on the global financial system, established the Task Force on Climate-related Financial Disclosures (TCFD) in December 2015.

In its recommendations for organisations from both the financial and non-financial sectors, published in June 2017, the Task Force concluded that a key forward-looking tool to grasp the complexities of climate change is scenario analysis and recommended that companies explore physical, strategic, and financial risks and opportunities that could emerge from a range of climate-related scenarios, including a 2oC scenario. (Note: An increase of global temperature by more than 2°C has come to be the majority definition of what would constitute intolerably dangerous climate change. The UNFCC Paris Agreement’s key aim is to keep global temperature rise to well below 2°C above pre-industrial levels and to ideally limit the increase to no more than 1.5°C.)

What is scenario analysis?

Scenario analysis (sometimes called “scenario planning” or “scenario and contingency planning”) is a structured process for organisations to analyse possible future events by considering several scenarios i.e. stories about how the future might unfold and how it will affect them. It is a tool that intends to explore alternatives that may significantly alter the basis for “business-as-usual” assumptions, therefore enhancing critical strategic thinking.

While scenario analysis is a relatively recent tool to asses climate-related risks and opportunities and their potential business implications, it is an established method for developing strategic action plans that are flexible and robust to cover a range of future states.

Scenario analysis is also a good ‘storytelling’ tool in connecting the various and complex interactions, behaviours and emergent properties of our natural, economic and social systems. It recognises the ‘human science’ perspective in the diverse epistemologies of the climate, economic, and social narrative. It assists multiple business actors to broaden the focus to encompass a richer set of considerations thus providing decision makers with the understanding of complex systems associated with climate-related risks and opportunities, effects from various forms of intervention, and to then tailor strategic and targeted approaches in managing these risks.

The tool is also useful in helping transcend sustainability and climate change discussions from just the sustainability department, into the boardroom and the offices of the CFO, COO, CIO, etc. – thereby strengthening internal relations of an organisation and its ability to respond quickly and effectively to emerging threats and opportunities.

Given that the foundation of scenario analysis is based on forward-looking assessments, it is also a useful communications tool for informing stakeholders about the organisation’s position pertaining to climate-related risks and opportunities.

How to use the scenario analysis?

If your organisation is just beginning to use scenario analysis, the TCFD recommends that you can begin with qualitative scenario narratives of storylines. As your organisation gains experience with qualitative scenario analysis, the scenarios and associated analysis of development paths can be guided by quantitative information such as using datasets and models (e.g. developed in-house or provided by third-party providers) to illustrate pathways and outcomes.

In identifying scenarios, the TCFD recommends using a range of scenarios that enlighten participants on the future exposure to both transition and physical climate-related risks and opportunities, tailored to the industry, economic sector, and geographical location of the organisation’s value chain.

A key scenario recommended by the Task Force is business-as-usual, which is critical for identifying the likelihood of physical risks (e.g. water scarcity, land degradation, flooding, extreme weather events), their magnitude and the necessary adaptation measures. This scenario will assist organisations with understanding the physical impacts from acute and chronic weather events which will interrupt businesses and operations across the supply chain.

Another key scenario which the Task Force recommends is a scenario which is consistent with keeping global warming below 2oC. This scenario assesses transition risks and its impacts under the assumption of meeting the science-based targets (SBT), in alignment with agreed international climate change commitments. This scenario will assist organisations to identify reduction targets and measures required for transitioning into a low-carbon economy. For information on SBT, please refer to

The typical categories of transition risks and/or opportunities an organisation should consider when applying scenario analysis are summarized in the table below:

Market and Technology Policy and Legal Reputation
As markets respond to climate change, supply and demand will shift for certain products and services. For example, reduced market demand for higher carbon products/commodities, and increased demand for energy-efficient, lower carbon products and services.

Organisations may also be impacted by improvements in technology, including technology that accelerates the transition to a lower-carbon economy. These new technologies will disrupt and displace parts of the current system.

How will these changes impact the financial security of investments? And what should key decision makers do to mitigate these disruptions?

International, national and state level legislations are evolving in response to the need for mitigation of climate change and to catalyse climate change adaptation. Organisations that fail to change are at risk of non-compliance.

For example, there is an increased threat to securing license to operate for high-carbon activities, and an increased risk of legal action against companies that have contributed to the causes of climate change.

Secondly, with the introduction of policies on pricing externalities (e.g. carbon tax), there is also an emerging concern about increased operating costs.

Stakeholders such as investors, lenders, and consumers are increasingly expecting responsible conduct from businesses. Failure to appropriately demonstrate adaptation risks loss of trust and confidence in management.

A client case study

In 2018, Paia Consulting was commissioned by a South East Asian client in the financial sector to conduct focus-group discussions (FGD) with a broad range of stakeholders, including senior management, representatives from all business units, and key external stakeholders.

The objective of the discussion is to solicit feedback from key internal and external stakeholders on the organisation’s sustainability strategy, materiality, and potential focus areas.

As part of the FGD, Paia applied the scenario analysis approach and presented two scenarios highlighting

  • physical risks from a business-as-usual approach, and
  • transition risks from government legislations and policies in meeting the national climate change commitments, i.e. the Intended Nationally Determined Contributions (INDC) under the Paris Agreement.

During the scenario analysis exercise, participants were asked to discuss and identify the effects of the scenario on the organisation, the organisation’s response to improve its resiliency, and initiatives which can be undertaken to achieve a different outcome or to thrive in these changing environments.

As a result of this scenario analysis exercise, participants were able to grasp and consider the multi-faceted ESG risks which can affect their organisation, and suggested potential solutions the company should develop to overcome key ESG risks.

[1] Global Climate Index 2017, Asset Owners Disclosure Project.