Rethinking Financial Systems to Bank on Nature
This was originally published on NatCap's Substack, The Natural Capital Review.
FinBio, a multi-year research initiative hosted and led by the Stockholm Resilience Centre (SRC), one of the Natural Capital Alliance (NatCap)'s longtime core members, aims to make biodiversity-related research more useful and actionable for the financial sector.
In practice, this means FinBio’s research institutions and academic partners work directly with the venture capital community, large institutional investors, asset owners, and asset managers. This has enabled FinBio to understand what information about nature and nature loss a company needs, not only for reporting purposes, but also their long-term planning and investment strategies.
Megan Meacham is the NatCap Director at SRC and the Programme Manager and Lead Researcher at Mistra FinBio. She's come away from the work so far with a clear-eyed understanding of what this kind of systemic change actually requires.
"At FinBio, we are thinking about a future in which finance doesn't undermine nature, and thinking about how this would actually operate. To do that we have to build out a lot of different strategies, with relevance for different kinds of financial actors. In other words, we are thinking about finance for the future. I define finance as three activities: it lets us do daily things — trade, or buy things. It lets us do big things — big projects that need someone to take a loan out to do, or mobilize a lot of money. And it helps us deal with surprises, which right now means insurance."
What Megan points out is that the financial system must always be able do those three things successfully, but there's no reason the actual structure of the systems has to stay the way they are:
"There's no reason for daily transactions to work the way we see them today, or loans to function the way they do today, or insurance the way we see it today to operate. So, really we are playing within those ideas, and imagining what new futures could look like."
In this conversation, we discuss the specific tools FinBio is developing and what gaps remain when it comes to incentivizing the private sector. We take a stab at understanding how nature can be better valued and incorporated within the financial system writ large.
Q: Let's start with the basics. You work with the private sector. How do you frame nature-related risks for businesses, and why should businesses be paying attention right now?
What we've seen in the last 6 to 18 months is that there is no business as usual. Change is happening so quickly that instead of short-term versus long-term change, right now it's more about gradual versus abrupt change – and this can be unpredictable and non-linear [i.e., steady changes can suddenly accelerate/be disrupted]. This matters a great deal to businesses who want to and need to anticipate change, who need to think about their supply chain, [to understand] how stable it is and what are the risk factors.
Those risk factors are often nature-related: declining productivity, natural disaster, social disruption, war, famine, things that people don’t always connect the dots back to nature on.
Imagine you're a clothing company and you source cotton. The places you source cotton from are each year becoming more and more vulnerable. At some point, it's going to be a very abrupt change to your company's production if you suddenly can’t source that material anymore. This is true across sectors. While primary sectors [i.e., those involved in extracting raw materials] are directly dependent on ecosystem service production, nature is fundamental to the entire economy, which is driven by finance. And all of finance and industry [ultimately] depends on healthy people getting to work, drinking clean water, and existing in a place that's not literally on fire. In other words, there isn't an industry or person on Earth that wouldn't be affected by ecosystem collapse.
Q: So given that framing, what is FinBio, and what are you trying to do?
FinBio focuses on a systemic approach to nature and finance. First, we need to understand, measure, and map how exactly nature is a foundational input to industry [which is the kind of information that ecosystem service assessments and accounting can help provide]. Nature and biodiversity are a complex system that fundamentally helps us maintain stability and predictability, [two factors] that businesses and finance depend on. So, first we have to have ways to measure and monitor changes to that natural system.
The second focus of FinBio is the financial system [itself]. Finance is not a single actor, but a system made up of different institutions with different roles that interact with and shape one another. Venture capital helps fund new ideas and early-stage firms that may not yet have an established market. Banks provide credit that allows successful ideas to grow and scale. Stock exchanges shape access to public capital by setting the rules for listing and disclosure. FinBio’s research shows that when one part of this system begins to reinforce sustainability practices, it can create conditions that enable other actors to do the same.
In this way, finance can either lock in unsustainable dynamics or help generate positive, self-reinforcing effects. FinBio’s aim is to show that nature, as a complex and stability-supporting system, underpins the economy, financial systems, and human well-being, and is therefore fundamental to the long-term resilience and functioning of finance itself.
To do this FinBio is leading a wide ranging number of activities, including the development of a range of specific tools:
INFORM — A science-based framework for investors to monitor and assess portfolio companies’ environmental performance. Read more about INFORM.
Earth System Impact (ESI) — A tool to better capture corporate and investment impacts on the Earth system. ESI focuses on just three corporate asset-level disclosures: water consumption, land use, and GHG (greenhouse gas) emissions. Investors aiming to reduce their environmental impact can determine which earth system domains are most affected by a particular asset, and can improve targeted engagement by providing information on where corporate environmental impact mitigation strategies can have the most effect. Read more about ESI.
Shock Tracker – The first global database of social-ecological shocks, accessible to academics and communities. Read more about Shock Tracker.
Q: Is the private sector coming to FinBio looking for answers, or are you bringing this conversation to them?
It is a bit of both. FinBio works with private-sector partners, and those collaborations are important because they help us see where financial actors need support most. Across these interactions, and more broadly across the financial community, there is a growing awareness that the world is becoming more uncertain and less stable, and that decisions increasingly have to be made outside any familiar business-as-usual scenario. This makes a resilience perspective especially relevant. One of FinBio’s roles is to help clarify how nature supports the stability and functioning of economies and financial systems, and to translate biodiversity science into information that is more directly useful in financial decision-making. Often this means acting as a bridge between raw biodiversity data and the kinds of information decision-makers can use, including what changes in nature mean for ecosystem functions, economic activity, and long-term resilience.
Q: Can you walk us through some of the challenges?
One major challenge is that biodiversity is fundamentally different from climate change. Many companies are now relatively used to climate reporting and emissions-based metrics, but biodiversity is more context-specific and harder to reduce to a single number. It can refer to genetic diversity, species diversity, or ecosystem diversity, and each of these captures something different. Biodiversity loss is also highly place-based, so the loss of species or habitat in one landscape is not directly comparable to loss in another. As a result, it is much more difficult to create simple, standardized metrics or tradable units, and biodiversity requires more context-sensitive ways of being understood and integrated into decision-making.
A second challenge is that many financial institutions are still building the internal capacity to work with nature-related issues. There is often limited shared language, limited in-house ecological understanding, and limited access to the kinds of data needed to make these issues decision-useful. In practice, what matters is often not raw biodiversity data on its own, but what changes in nature mean for the functions nature provides, for economic activity, and for financial risk. That requires translation. It also often requires spatially explicit information, such as where assets, operations, or supply chains are located, and that kind of data is still missing for many companies and portfolios. So the challenge is not only scientific complexity, but also building the common language, capacity, and data foundations needed to make biodiversity and nature relevant in practice.
Q: What is the incentive for the private sector to engage at all?
The incentive for the private sector to engage is not only that regulation and reporting expectations are increasing, although that is clearly part of it. More fundamentally, companies depend on nature in many ways, whether through water, raw materials, soil fertility, pollination, stable landscapes, or broader ecosystem functioning. Understanding those dependencies helps them better assess operational, supply chain, physical, reputational, and financial risks. In that sense, engaging with nature is increasingly about understanding what underpins the functioning of the business itself.
Q: Is that where the INFORM tool comes in? Giving investors a way to actually understand that risk?
Yes, exactly. One of the key ways finance interacts with nature is through the companies it owns, lends to, insures, or otherwise supports. Financial actors are usually not managing land, extracting resources, or producing goods themselves, but they have significant influence over the companies in the real economy that are. That means finance has a very important lever to pull through engagement: asking better questions, setting clearer expectations, and using ownership or stewardship to encourage better practices.
INFORM is a tool that we started developing to address that need, after having conversations with a pension fund. Pension funds are interesting because they own the whole market, they own a little bit of everything – they are “so-called universal owners.” Because of this, when they decide something, it matters. If a pension fund decides to change how they include a certain sector or something, that can suddenly move a lot of money. At FinBio we had a person working at the pension fund come to us and say that they needed help talking to the companies they own shares of about nature, and wanted some basic questions to ask them. Their perspective was that the questions had to be something they understood, and then when they received an answer, they would need to know how to interpret the answer. So that's how it started, as a response to a need.
Then, we distilled the main pressures on nature loss, which are reflected in the IPBES drivers of biodiversity loss: land use, invasive species, resource use, pollution etc. And we designed questions about the key environmental variables that you (owner of these many companies) should ask about
At its core, INFORM is designed to help them assess three things:
- where a company’s most material nature-related dependencies and impacts are,
- whether the company understands and manages those issues in a credible way, and
- what that implies for engagement and follow-up as an investor or owner
Before tools like this, many actors were often relying on much thinner signals, such as whether a company mentioned biodiversity at all, or had posted a target. The goal of INFORM is to help build the nature-related capacity of both investors and companies by making the conversation more structured, more decision-useful, and more scientifically grounded.
Q: It seems deliberate that these questions are being driven from within the financial system itself, rather than imposed from outside.
Yes, it is important that the financial actors, in this case owner, use their agency and leverage in the system. Often in the piloting phase we don't see what companies report, or the data. We're there to give the questions, and to give them information about how to interpret the questions. In an ideal world, this kind of data would get published openly, but we're not asking for that, that's not what we're there for. We're there to build the competence and the capacity of everyone to understand what's actually important about nature, especially given that companies are facing a lot of reporting criteria and requirements which can be very burdensome. There are lots of different reporting frameworks, and each has their own limitations and issues. A major challenge for companies is navigating all these different frameworks and knowing which one to use. We connect to those frameworks and highlight what is most critical and relevant from a scientifically grounded perspective.
Q: Speaking of reporting requirements, where is the pressure on businesses actually coming from?
The European Union has gone through a big process called the Omnibus. This basically laid out requirements for corporations, and laid out what needs to be included in their sustainability reporting. Though Omnibus got watered down and is not as strong as we would want it to be, it is what the EU passed, and marks an important step requiring nature related reporting from companies.
Q: Is reporting the primary focus of FinBio?
It's a piece of it. FinBio is a broad research program that looks at different aspects of how biodiversity and nature connect to the economy and to financial decision-making in the real world. For example, we are also exploring whether it is possible to identify signals of reduced ecological resilience and map where those signals are emerging. That kind of work matters because companies and financial institutions need to know where their operations, assets, and supply chains are located if they want to understand whether they are exposed to nature-related risks such as ecological regime shifts or other forms of instability.
Another part of FinBio looks forward rather than only trying to improve existing practice. We are studying novel financial initiatives that connect nature and finance in ways that are not yet mainstream in how large financial institutions operate today, and asking what they might tell us about possible future directions for the financial system. This includes examining diverse “finance for nature” initiatives, from market-based models to more community-led and alternative approaches, and comparing the different theories of change and values behind them. That work shows that there is not just one way finance can engage with nature, and that different actors in the financial system have different levers, different information needs, and different opportunities to support change. In that sense, FinBio takes a systems approach: we are interested not only in what companies report, but in how financial actors interact, what kinds of nature-related information are useful in different decision contexts, and what a more nature-aware financial system might look like in the future.
It’s exciting because there are so many people who now recognize that the current financial system, which drives nature loss, simply will not be able to continue to exist in the same way it looks today. And at [FinBio] we are trying to help envision what those different financial systems could actually look like.
Other Resources
For more on Megan’s story, read this January 2025 Q&A on the NatCap website. Outside of FinBio, Megan is also involved in a women-led investment company, RadCap Ventures, which is investing in early-stage startups. So even outside of work, Megan seems to keep finding my way back to finance! She says,
“It's another example of how questions around capital, opportunity, and who gets supported can really shape the kinds of futures we end up creating.”
