Unaddressed nature risks in climate targets

𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸 𝗶𝘀 𝗻𝗼𝘄 𝘀𝗵𝗼𝘄𝗶𝗻𝗴 𝘂𝗽 𝗶𝗻 𝗗𝗖 𝗱𝗲𝗳𝗮𝘂𝗹𝘁𝘀, 𝘄𝗵𝗲𝘁𝗵𝗲𝗿 𝘄𝗲 𝗺𝗼𝗱𝗲𝗹 𝗶𝘁 𝗼𝗿 𝗻𝗼𝘁. For DC trustees, climate and Nature risk is often discussed at a system level. But the impacts that matter most to members are physical and local. 𝗙𝗹𝗼𝗼𝗱𝗶𝗻𝗴, 𝘄𝗮𝘁𝗲𝗿 𝘀𝘁𝗿𝗲𝘀𝘀, 𝗮𝗻𝗱 𝗱𝗲𝗴𝗿𝗮𝗱𝗲𝗱 𝗹𝗮𝗻𝗱 𝗮𝗹𝗿𝗲𝗮𝗱𝘆 𝗮𝗳𝗳𝗲𝗰𝘁: • house prices and insurance availability • employer locations and job security • infrastructure, utilities, and food costs These risks are unevenly distributed by place, yet still largely unpriced in portfolios. Last year, at the SG Pensions Enterprise Climate & Nature Masterclass, I explored what this means for DC schemes and why place-based physical risk is becoming a default-fund issue rather than an “impact” add-on. DC members will retire into the places most shaped by these physical outcomes. Managing that reality is increasingly part of good default design. 𝗠𝘆 𝗳𝗶𝘃𝗲 𝗸𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀: 1️⃣ 𝗧𝗵𝗲 𝗳𝘂𝘁𝘂𝗿𝗲 𝘄𝗼𝗻’𝘁 𝗹𝗼𝗼𝗸 𝗹𝗶𝗸𝗲 𝘁𝗵𝗲 𝗽𝗮𝘀𝘁 As climate pressures increase, physical risks rise non-linearly, particularly around water: too much, too little, too dirty. 2️⃣ 𝗧𝗵𝗲𝘀𝗲 𝗿𝗶𝘀𝗸𝘀 𝗮𝗿𝗲 𝗮𝗹𝗿𝗲𝗮𝗱𝘆 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹𝗹𝘆 𝗺𝗮𝘁𝗲𝗿𝗶𝗮𝗹 They affect listed equities, real assets, infrastructure, and supply chains, and therefore long-term DC outcomes. 3️⃣ 𝗟𝗮𝗻𝗱 𝗮𝗻𝗱 𝘄𝗮𝘁𝗲𝗿 𝗺𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗮𝗺𝗽𝗹𝗶𝗳𝘆 𝗼𝗿 𝗿𝗲𝗱𝘂𝗰𝗲 𝗿𝗶𝘀𝗸 Degraded landscapes worsen floods and droughts. Restored landscapes slow water, improve resilience, and reduce costs. 4️⃣ 𝗡𝗮𝘁𝘂𝗿𝗲 𝗰𝗮𝗻 𝗳𝘂𝗻𝗰𝘁𝗶𝗼𝗻 𝗮𝘀 𝗶𝗻𝗳𝗿𝗮𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲 Healthy rivers, wetlands, and coastal systems provide services such as flood protection, water regulation, and water quality that can be contracted and paid for. 5️⃣ 𝗪𝗵𝘆 𝘁𝗵𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿𝘀 𝗳𝗼𝗿 𝗗𝗖 𝗱𝗲𝗳𝗮𝘂𝗹𝘁𝘀 This isn’t about complexity or niche assets. Small, well-governed allocations alongside infrastructure and real assets can help reduce physical risk across the wider default portfolio, strengthening long-term member outcomes. This framing fits naturally within existing default-fund governance and climate-risk management processes, and aligns with growing regulatory expectations on managing financially material climate risk for DC members and their assets. For trustees and IGCs, it’s increasingly a question worth putting to advisers when reviewing default resilience: How exposed are our portfolios to place-based physical risk? 📎 Slides attached: 𝘚𝘎𝘗𝘌 𝘊𝘭𝘪𝘮𝘢𝘵𝘦 & 𝘕𝘢𝘵𝘶𝘳𝘦 𝘔𝘢𝘴𝘵𝘦𝘳𝘤𝘭𝘢𝘴𝘴 – “𝘛𝘩𝘦 𝘙𝘪𝘴𝘪𝘯𝘨 𝘐𝘮𝘱𝘰𝘳𝘵𝘢𝘯𝘤𝘦 𝘰𝘧 𝘗𝘭𝘢𝘤𝘦-𝘉𝘢𝘴𝘦𝘥 𝘐𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨” #DCTrustees #DefaultFunds #MemberOutcomes #ClimateRisk #PortfolioResilience #UKPensions #NatureAsInfrastructure #SGPE

Dryland regions, which make up over 40% of the Earth’s land surface and support more than 2 billion people globally, are among the world's most climate-sensitive and socio-politically marginalised areas. Characterised by high interannual rainfall variability, weak infrastructure, and limited access to services, these regions are uniquely vulnerable to climate extremes, particularly droughts, which account for more than 80% of disasters in arid and semi-arid zones (UNCCD, 2022). Anticipatory action (AA), defined as pre-emptive measures taken before a predicted hazard materialises, has gained global traction in response to the rising frequency of shocks. It is now embedded in Forecast-based Financing (FbF), Early Warning Early Action (EWEA) frameworks, and anticipatory humanitarian aid pilots by the IFRC, FAO, WFP, and Start Network. These systems typically rely on triggers such as rainfall anomalies, vegetation stress, or IPC classifications, and are intended to release funds before a shock becomes a humanitarian crisis. Most anticipatory frameworks prioritise model-based, probabilistic forecasts from meteorological and satellite data. While technically sophisticated, these systems frequently fail to engage with the knowledge systems already used by local populations. Dryland communities have developed complex ecological observation methods, including biological indicators, seasonal memory, and mobility strategies, to detect and respond to early signs of stress. These approaches, however, are rarely recognised, formalised, or resourced in national or international anticipatory systems. Research in regions such as the Sahel, the Horn of Africa, and Central Asia shows that anticipatory behaviours at the community level often precede formal alerts (e.g., Hermans & McLeman, 2021; FAO, 2020). Yet, without validation by scientific metrics, these actions are excluded from planning, funding, or coordination. This creates a persistent disconnect between institutional forecasts and lived realities. If anticipatory action is to succeed in drylands, it must be grounded in plural knowledge systems, not just imported science. This does not mean rejecting meteorology, but instead designing systems that: 1. Co-produce risk thresholds with local actors; 2. Recognise non-probabilistic indicators, including ecological, cultural, and spiritual signs; 3. Build trust and decentralised ownership of early action protocols; 4. Allocate resources to strengthen local anticipatory capacities—not bypass them. Innovation in anticipatory action must begin by asking: Whose knowledge counts? If the answer continues to exclude dryland communities and their ways of knowing, then anticipatory systems will remain too late, rigid, and narrow to meet the challenges ahead. #AnticipatoryAction #Drylands #ClimateResilience #KnowledgePluralism #ForecastBasedFinancing #EarlyWarningSystems #UNCCD #ClimateAdaptation #HumanitarianInnovation #GlobalSouth

Public finances are increasingly vulnerable to physical climate and nature risks, with extreme weather events acting as triggers for broader fiscal transmission risks. The real impact unfolds through second- and third-order effects that affect infrastructure, businesses, households, and the financial system. Nature plays a critical role in this dynamic. Healthy ecosystems can absorb shocks and mitigate losses, while degraded ecosystems can exacerbate damages and increase fiscal exposure. When infrastructure fails, governments often step in as insurers of last resort, leading to emergency responses, reconstruction efforts, and public guarantees that convert physical damage into immediate expenditure pressures. Business disruptions result in insurance claims, reduced output, and shrinking tax bases, transforming climate shocks into revenue shocks. Households face similar challenges; when insurance is inadequate or unaffordable, recovery relies more on public transfers and welfare spending, raising contingent liabilities. As physical risks grow, private (re)insurance may retreat or adjust pricing, shifting risk to public balance sheets rather than eliminating it. This creates a direct link between climate and nature risks and sovereign risk, leading to rising deficits, increased debt levels, and greater contingent liabilities that weaken fiscal resilience. These factors influence sovereign credit ratings and borrowing costs, impacting access to international capital markets. Financial institutions are also at risk due to defaults, asset repricing, and correlated losses, which can reinforce systemic risk loops. The key takeaway is that adaptation, resilience, and nature protection are essential for fiscal stability, not merely environmental considerations. Ignoring this connection does not postpone costs; it exacerbates them. Source: Tackling the Insurance Protection Gap, WWF; Krichene & Kirvalidze (2025), Allianz Research.

Climate resilience is a strategic investment in future growth PEPUKAYE BARDOUILLE & MAHMOUD MOHIELDIN For emerging markets and developing economies, or EMDEs, investing in resilience is not a luxury; it is an imperative. Climate disasters and ecological degradation are impeding their economic prospects and straining their finances. Perhaps more importantly, these shocks are exacerbating unsustainable debt burdens at a time when donor countries are slashing development aid, making it harder for EMDEs to finance investments in climate adaptation. Over the past two decades, the 74 economies comprising the Climate Vulnerable Forum and the Vulnerable Group of Twenty have suffered more than $525 billion in losses — equivalent to roughly 20 percent of their collective gross domestic product — due to climate shocks. This includes acute disasters like floods, hurricanes, and droughts, as well as slower-moving events such as desertification and coastal erosion. Meanwhile, the degradation of natural ecosystems through deforestation and biodiversity loss has aggravated food and water insecurity and increased climate risks by eliminating natural carbon sinks. These dynamics create formidable obstacles — namely, limited fiscal space and high capital costs — that trap countries in a vicious cycle of vulnerability. Breaking free requires a significant scaling-up in financing for climate-adaptation efforts. To that end, the Sharm El-Sheikh Adaptation Agenda, launched in 2022, proposes 30 adaptation targets in key sectors such as agriculture, public health, and infrastructure with the goal of spurring inclusive, effective, and equitable action by 2030. The proposed outcomes are not merely defensive; they create jobs, boost productivity, and improve creditworthiness. Unfortunately, these benefits are not reflected in current macroeconomic frameworks. The problem is structural. Existing macro-fiscal tools — such as the debt-sustainability frameworks used by the International Monetary Fund, the World Bank, and, by extension, sovereign credit ratings — account for climate and nature-related risks, but do not sufficiently recognize the economic benefits of reducing those risks. Natural disasters, climate-related or otherwise, are rightly treated as threats to fiscal stability. But the investments required to mitigate their effects are seen only as adding to the debt burden, rather than as critical for reducing losses or as driving the development of growth-enhancing strategic assets. For example, investments in flood-resilient infrastructure in Vietnam have not only reduced damage costs but also boosted land values, improved public health, and increased worker productivity. And investments in nature-based solutions such as restoring mangroves or wetlands can simultaneously address climate, food, and water challenges, and boost infrastructure performance. To read more: https://lnkd.in/ecBtwX5z

77.6% of Earth’s land experienced drier conditions during the three decades leading up to 2020 compared to the previous 30-year period. I recently wrote about the gap between companies mentioning nature in their strategies but failing to consider it material. Here’s a stark reminder of why that mindset needs to change. Aridification, the long-term drying of land caused by reduced precipitation and increased atmospheric evaporative demand, is rapidly reshaping our planet. Unlike temporary droughts or human-driven water scarcity, aridification represents a permanent climate shift, driven largely by human-induced climate change. This isn’t just an environmental crisis—it’s a business risk: 💧 Freshwater scarcity can disrupt supply chains, manufacturing, and agricultural outputs. 🌳 Ecosystem degradation accelerates biodiversity loss, threatening the resources companies rely on. 🔄 Cascading effects like migration, wildfires, and sandstorms increase operational and market instability. For businesses, this trend makes freshwater access and ecosystem health undeniably material. Ignoring these risks now could mean unpreparedness for major disruptions later. Do you work for a company that's considered the impacts of aridification or has included it in climate transition plans? I'm writing an article and would love some examples. Link to full UNCCD report: https://buff.ly/3CcziAp #Sustainability #ClimateChange #Water #Nature

While much attention these days is being paid to climate-related disclosure requirements (think mandatory EU requirements and the pending mandatory SEC requirements), there is an equally important and similar effort that is, of necessity, playing catch-up with climate-related concerns, namely the risk of nature and biodiversity loss. Like climate in the throes of an existential crisis, nature is deteriorating globally, and biodiversity is declining faster than at any time in human history. The continued degradation of our life-sustaining ecosystems poses threats to societies and to business, including societies’ ability to mitigate and adapt to climate change.  And all too often, the business world thinks of nature as unlimited and an endless source of critical inputs for operations and the value chains on which those operations depend.    In an effort to change valuation, pricing and risk approaches to put a value on the nature ecosystem and thereby facilitate the integration of nature into strategic decision-making and allocation of capital, the Taskforce on Nature-related Financial Disclosures (TNFD) has published its recommendation for corporate and financial institution disclosure. The final TNFD recommendations provide businesses and financial institutions with a disclosure and risk management framework to identify, assess, respond to and disclose, nature-related issues. The TNFD recommendations build on the language, structure and approach of the Taskforce on Climate-related Financial Disclosures (TCFD), and are consistent with the International Sustainability Standard Board’s IFRS S-1 Standard. TNFD Recommendations are also aligned with the requirements of Target 15 of the Kunming-Montreal Global Biodiversity Framework for corporate reporting, which calls for assessment and disclosure of nature-related risks, impacts, and dependencies, enabling companies now to align their corporate reporting with global policy goals as they are doing on climate-related issues.     While the disclosure focus on climate and nature are separate, reaching sustainable outcomes means recognizing that climate and nature are interlinked and that to get to net-zero, nature-based solutions and nature systems will be critical. As many learned with carbon and climate, one needs to start with awareness, and that in turn requires information. Perhaps too, the broader focus on environment (and seeing climate as a subset of nature) may allow people to move past the polarization that climate debates engender. After all, it is far easier to grasp the destruction of a forest or the pollution of waterways than it is to grasp the relationship between carbon and the consequences of global warming.   My latest briefing note explores nature-related issues and summarizes the TNFD recommendations. It is available here: https://bit.ly/3ZTRJkE      

We’re ignoring nature risk—and it’s costing us billions. Right now, most companies and investors don’t properly account for the risks tied to nature—and the consequences are adding up. Biodiversity loss and ecosystem collapse are ranked as the third most severe global risk over the next decade by the World Economic Forum. Why does this matter? 📊 Take a look at this chart. 📈 It shows how deeply businesses depend on nature for things like clean water, healthy soils, and pollination. When nature breaks down, companies face physical risks, like supply chain disruptions and rising costs. At the same time, their own impact on nature leads to transition risks, as regulations tighten and customers demand more sustainable practices. These risks flow upstream into the financial system—impacting investors, insurers, and even central banks—ultimately creating systemic risk that affects us all. The problem? We’re treating nature as an externality, like it exists outside the financial system. But it doesn’t. And until we start properly measuring and pricing these risks, businesses and investors will continue to be blindsided by the fallout. This is why we need to get serious about Nature Investing and Nature Finance. It’s not just about protecting ecosystems (though that’s critical); it’s about building resilience in our economy and our portfolios. What do you think? How do we start making nature risk part of the conversation for companies and investors? #NatureRisk #InvestingInNature #Sustainability #COP16 BloombergNEF

🌱No Net Zero Without Nature! We cannot afford to wear carbon blinders!🌱 New work from Glasgow Financial Alliance for Net Zero (GFANZ) on the essential work of integrating nature into net-zero transition planning! This accessible report emphasizes why embedding nature into net zero strategies is no longer optional—it's essential. Here are some of my perspectives on the most important takeaways from this work: -Nature as a Key Asset and Risk Factor: GFANZ highlights that nature and biodiversity underpin almost half of global GDP. From agriculture to manufacturing, sectors rely heavily on nature, and failing to integrate it into transition plans introduces blind spots in climate risk assessments. -More Comprehensive Transition Planning: To align with net zero, organizations should set clear, science-based targets that address both carbon emissions and nature impacts. The report suggests concrete steps to manage land use, resource extraction, and biodiversity loss—tied directly to risk management. Practical Tools for Integration: GFANZ proposes tools and frameworks that help companies assess their nature impacts and dependencies, including regulatorily-aligned disclosure methods that add critical transparency to natural capital risks. Why This Matters Now: Financial institutions are rapidly ramping up their climate commitments, but this report reminds us: without nature as part of the equation, net zero is unsustainable. The shift toward nature-inclusive finance isn't just about mitigating risks; it’s about harnessing opportunities in regenerative practices and biodiversity-friendly innovations. This is how we future-proof the path to net zero. 👉 Ready to act? This is your moment to champion #NetZero strategies that bring nature to the forefront. Engage with this consultation and share your perspectives! ➡️ Check out the report here: https://lnkd.in/etgN-D89 #SustainableFinance #ClimateAction #Nature #COP16 #Transitionplanning #GFANZ

When nature becomes a security risk Britain’s national security thinking has long focused on familiar threats. A new U.K. government assessment adds another. Global biodiversity loss and ecosystem collapse, it argues, now pose a direct and growing risk to national security, with implications that reach beyond conservation into food supply, economic stability, migration, and conflict. The assessment is explicit about its framing. This is not a scientific review or environmental strategy, but an intelligence-style analysis designed to inform security planning under uncertainty. Its central conclusion is delivered with high confidence: ecosystem degradation already threatens U.K. prosperity and security, and those risks are likely to intensify through mid-century. At the core of the report is the idea of cascading risk. Ecosystems underpin food production, water availability, climate regulation, and disease control. When they degrade, effects rarely remain local. Crop failures ripple through global markets. Water scarcity destabilizes fragile states. Disease outbreaks spread rapidly through interconnected societies. Biodiversity loss is framed not as a standalone environmental issue, but as a multiplier of existing economic, social, and political stresses. The assessment identifies several pathways from ecosystem decline to security risk. Degraded soils, fisheries, and pollinator populations reduce yields and increase volatility in global food markets. With roughly 40% of its food imported, the U.K. is exposed to disruption in major producing regions, particularly for fresh produce, animal feed, and fertilizers. Food insecurity and declining rural livelihoods are also major drivers of migration. Scarcity can intensify conflict and enable organized crime. Ecosystem degradation further raises pandemic risk by increasing the likelihood of zoonotic disease outbreaks. The report highlights “critical ecosystems” whose collapse would have outsized global effects, including the Amazon and Congo rainforests, boreal forests in Russia and Canada, the Himalayas, and coral reefs and mangroves in Southeast Asia. Severe degradation in any of these regions could disrupt food systems, alter weather patterns, and release large carbon stores, compounding climate risks. While confidence is high that these systems are degrading, the timing of irreversible tipping points remains uncertain. For the U.K., food security stands out as a central vulnerability. The report is blunt: under current diets and production systems, Britain cannot feed itself without imports. Ecosystem collapse abroad would translate directly into domestic inflation, dietary constraints, and political pressure. The assessment avoids apocalyptic language. It emphasizes uncertainty and limits of knowledge. Yet its implication is clear: Biodiversity loss has moved from the margins of environmental policy into the core of national security planning. ⚠️ Full piece: https://mongabay.cc/iyd8Jn