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Climate Metrics

Biodiversity Metrics: Beyond Carbon to Nature and the TNFD Framework

Pomegra Learn

Why Are Biodiversity Metrics Becoming Important for Investors?

Biodiversity and nature-related risks represent the next major frontier in climate-adjacent ESG analysis. While carbon metrics have dominated ESG climate assessment for over a decade, growing scientific consensus holds that biodiversity loss — the erosion of species diversity, ecosystem function, and natural capital — poses financial risks comparable in scale to climate change. The Taskforce on Nature-related Financial Disclosures (TNFD), which published its final recommendations in September 2023, is the biodiversity analog of TCFD — establishing a framework for companies and investors to disclose their dependencies and impacts on nature, identify nature-related financial risks, and develop strategies for managing them. Understanding biodiversity metrics is increasingly essential for investors with long-term perspectives and ESG mandates extending beyond carbon.

Quick definition: Biodiversity metrics are quantitative measures of a company's or portfolio's dependencies on and impacts on ecosystems, species, and natural capital — used to assess nature-related financial risks and opportunities, including regulatory risk, physical risk from ecosystem degradation, and market risk from changing consumer and regulatory expectations around nature.

Key takeaways​

  • Biodiversity and nature loss are material financial risks: the World Economic Forum estimates that $44 trillion of global economic value — more than half of global GDP — is moderately or highly dependent on nature and ecosystem services. Companies dependent on ecosystems for water, pollination, clean air, or raw materials face financial risk when those ecosystems degrade.
  • The TNFD (Taskforce on Nature-related Financial Disclosures), whose final recommendations were published in September 2023, provides the primary framework for nature-related disclosure — structurally analogous to TCFD's four pillars (Governance, Strategy, Risk Management, Metrics and Targets) but focused on nature rather than climate.
  • Key biodiversity metrics include: land use change (deforestation and habitat conversion); water use and pollution; biodiversity intactness index (BII); mean species abundance (MSA); species habitat impact; and supply chain biodiversity footprint — though most of these are at early stages of standardization and data availability.
  • The most nature-dependent sectors are agriculture and food, fishing and aquaculture, forestry, mining, pharmaceuticals (depending on biodiversity for drug discovery), tourism, and infrastructure — but many supply chain dependencies create indirect biodiversity exposure across sectors.
  • Data infrastructure for biodiversity metrics is significantly less mature than for carbon: no equivalent of Scope 1/2/3 GHG accounting exists for biodiversity; no equivalent of CDP's systematic data collection exists for nature disclosures; and physical biodiversity measurement requires specialized ecological expertise beyond most financial market participants.

Economic Dependencies on Nature​

The WEF's "New Nature Economy" reports estimated that:

  • $44 trillion of global economic value depends moderately or highly on ecosystem services
  • High-dependency sectors represent approximately 13% of global GDP: construction ($4T), agriculture ($2.5T), food and beverages ($1.4T)
  • Moderate-dependency sectors include mining, chemical manufacturing, and energy generation through hydropower

Ecosystem services that underpin economic value include:

  • Pollination: Approximately one-third of global food production depends on pollination by bees and other insects. Pollinator decline directly threatens agricultural productivity.
  • Water regulation: Healthy forests and wetlands regulate water flows, reducing flood risk and maintaining water quality. Ecosystem degradation increases both drought and flood risk for water-dependent industries.
  • Climate regulation: Healthy ecosystems store carbon (forests, peatlands, oceans) and regulate local climates. Ecosystem destruction releases stored carbon and reduces climate regulatory capacity.
  • Soil formation: Agricultural productivity depends on healthy soil biology. Industrial agriculture practices that degrade soil biology create long-term agricultural yield risk.
  • Fisheries: Global fish stocks depend on ocean ecosystem health. Overfishing and ocean acidification threaten food security and fishing industry revenues.

The TNFD identifies three types of risk:

Physical risks: Direct impacts from degraded or destroyed ecosystems on business operations — loss of water supply from aquifer depletion; increased flood damage from loss of wetland buffers; pollination service loss affecting crop yields; timber resource depletion affecting supply chain.

Transition risks: Regulatory changes, market shifts, and social norms changes in response to nature-related issues — new land use regulations restricting deforestation; supply chain transparency requirements exposing nature-damaging practices; consumer and investor preferences shifting against products linked to biodiversity harm.

Systemic risks: Broader macro-economic impacts from large-scale ecosystem collapse — similar to climate systemic risk, nature loss could cause cascading economic impacts if key ecosystems cross tipping points.

The TNFD Framework​

Structure: LEAP Approach​

The TNFD recommends a LEAP (Locate, Evaluate, Assess, Prepare) approach for companies and investors to identify and assess nature-related issues:

Locate: Where does the business interface with nature? Identify which operations, supply chains, and activities interact with natural ecosystems — both by location (specific geographies with high biodiversity value) and activity type (water use, land use change, pollution, invasive species introduction, overexploitation).

Evaluate: What are the dependencies and impacts on nature? For each business interface with nature, evaluate: what ecosystem services does the business depend on? What are the business's impacts on those ecosystems (positive and negative)?

Assess: What are the risks and opportunities? For each dependency and impact, assess financial materiality — which nature-related risks and opportunities are material to the business?

Prepare: How should the business respond? Develop strategies to manage material nature-related risks and opportunities, set targets, and prepare TNFD-aligned disclosures.

TNFD Disclosure Recommendations​

Like TCFD, TNFD organizes recommendations around four pillars:

  • Governance: Board oversight and management roles for nature-related issues
  • Strategy: How nature-related risks and opportunities affect strategy and financial planning
  • Risk and Impact Management: How nature-related risks are identified, assessed, and managed
  • Metrics and Targets: Nature-specific metrics and targets for managing material nature-related issues

TNFD's final recommendations are voluntary but are expected to be progressively incorporated into regulatory frameworks — similar to how TCFD recommendations became mandatory in many jurisdictions.

Biodiversity metric categories​

Key Biodiversity Metrics for Investors​

Deforestation Exposure​

The most commonly used biodiversity metric for investors today — specifically, whether a company's supply chain is linked to deforestation:

Forest 500: Scores 500 companies and 150 financial institutions with the greatest exposure to tropical deforestation risk based on their supply chain linkages to key forest risk commodities (palm oil, soy, beef, leather, timber, paper).

Trase.earth: Supply chain mapping tool that traces commodity flows from production regions to companies, quantifying deforestation risk linkages for soy, palm oil, beef, and other key commodities.

CDP Forests: CDP's forest questionnaire collects company disclosure on deforestation risk management for key commodities — parallel to CDP Climate for climate disclosure.

Zero-deforestation commitments: Many large consumer goods companies and financial institutions have made zero-deforestation commitments for specific commodity supply chains. Progress against these commitments can be tracked through supply chain monitoring and satellite imagery.

Biodiversity Intactness Index (BII) and Mean Species Abundance (MSA)​

BII measures the remaining completeness of a natural ecosystem relative to its undisturbed state — typically expressed as the percentage of original biodiversity that remains. A site with 70% BII has lost 30% of its original biodiversity.

MSA measures the mean species abundance relative to an undisturbed reference state. Like BII, it is expressed as a percentage — 60% MSA means species abundance is, on average, 60% of what it would be in an undisturbed state.

Both metrics require spatial data (geographic location of operations) combined with ecological modeling. Tools like ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure — from UNEP-WCMC) and Biodiversity Footprint for Financial Institutions (BFFI) use asset location data combined with ecological databases to produce BII or MSA impact estimates for corporate operations.

Water Quality and Pollution Metrics​

Nature-related water impacts include both quantity (water withdrawal from stressed aquifers) and quality (pollution of water bodies):

  • Water Stress Index: AQUEDUCT (World Resources Institute) provides water stress scores by watershed — used to identify operations in high water stress areas
  • Chemical pollution: Pesticide and fertilizer runoff, industrial discharge, and mining water contamination are relevant for agricultural, chemical, and mining sectors
  • Ocean plastic: Plastic pollution in oceans affects marine biodiversity and is increasingly material for packaging companies facing regulatory and reputational risk

Land Use Change​

Agricultural expansion, urban development, and infrastructure development that converts natural habitat into developed land is a primary driver of biodiversity loss globally:

  • Satellite data from Global Forest Watch, NASA, and ESA provides remote sensing of forest cover change
  • Supply chain mapping tools (Trase, Global Canopy) link company supply chains to specific land use change events
  • Specific metrics: annual deforestation area linked to supply chain (hectares); habitat conversion linked to operations (hectares by habitat type)

Regulatory Developments​

EU Corporate Sustainability Reporting Directive (CSRD): ESRS E4 (Biodiversity and Ecosystems) requires large EU companies to disclose material biodiversity impacts, dependencies, risks, and targets. This creates mandatory biodiversity disclosure requirements for thousands of EU companies, though the exact scope of required metrics will be progressively specified.

EU Deforestation Regulation: The EU regulation on deforestation-free products (EU DR, effective December 2024) requires companies placing cattle, soy, palm oil, coffee, cocoa, wood, and derived products on the EU market to demonstrate they are deforestation-free. This creates direct supply chain due diligence requirements with financial consequences for non-compliance.

Kunming-Montreal Global Biodiversity Framework (2022): The COP15 agreement established global biodiversity targets including "30x30" (protecting 30% of land and ocean by 2030). These targets create the policy foundation for increased corporate biodiversity regulation globally.

TNFD adoption: Multiple jurisdictions are considering how to incorporate TNFD recommendations into mandatory reporting frameworks, similar to TCFD adoption. The EU taxonomy is expected to eventually extend to include biodiversity criteria beyond its current climate focus.

Data and Methodology Challenges​

No universal biodiversity unit: Unlike GHG emissions (expressed in tonnes of CO₂ equivalent), biodiversity has no single universal unit. Different metrics measure different aspects of biodiversity — species count, abundance, ecosystem function, habitat area — and there is no consensus on how to aggregate these into a single "biodiversity footprint."

Geographic specificity required: Biodiversity impact depends fundamentally on location — a factory in a biodiversity hotspot has vastly different biodiversity impact than the identical factory in an already-disturbed industrial zone. This requires asset-level location data at high spatial resolution.

Limited corporate disclosure: Very few companies currently disclose biodiversity-related metrics that meet investment-grade standards. The data collection infrastructure (equivalent to CDP climate questionnaire) for nature is nascent.

Ecological expertise requirement: Interpreting biodiversity metrics requires ecological expertise that most financial market participants lack — the combination of financial analysis and ecological assessment needed for nature-related financial risk analysis is rare.

Real-world examples​

Nestlé deforestation monitoring: Nestlé uses satellite monitoring through Global Forest Watch and supply chain tracing tools to monitor deforestation in its palm oil and cocoa supply chains. Progress reports against zero-deforestation commitments are disclosed annually. Investor engagement with Nestlé on biodiversity has focused on whether monitoring systems are adequate and whether sourcing commitments are credible.

Crédit Agricole TNFD pilot: Several major European financial institutions, including Crédit Agricole, participated in TNFD pilot testing during the framework's development phase, assessing how TNFD's LEAP approach would work in practice for a banking institution with diverse corporate and agricultural lending portfolios.

Common mistakes​

Treating biodiversity risk as equivalent to climate risk in data availability: Climate metrics have 15+ years of data development, standardization, and corporate disclosure infrastructure. Biodiversity metrics are at approximately a 2010 equivalent moment for climate — early frameworks, limited data, methodological heterogeneity. Expectations calibrated to climate metric maturity will lead to disappointment with current biodiversity data quality.

Focusing only on forests: Forests are the most visible biodiversity metric because deforestation is measurable via satellite. But biodiversity loss also occurs in marine environments (ocean acidification, overfishing), freshwater ecosystems (pollution, damming), grasslands, and other ecosystems that are less amenable to remote sensing monitoring.

FAQ​

How does TNFD relate to TCFD?​

TNFD is structurally modeled on TCFD but addresses nature-related risks rather than climate risks. Both use the four-pillar structure (Governance, Strategy, Risk Management, Metrics and Targets). TNFD integrates with TCFD because many climate risks are also nature risks (deforestation releases carbon; ecosystem degradation reduces climate resilience). The frameworks are designed to be complementary — a company implementing both addresses the major physical sustainability risks its business faces.

When will biodiversity metrics be mandatory?​

EU companies subject to CSRD are subject to mandatory ESRS E4 (Biodiversity and Ecosystems) disclosure requirements — potentially with phased in specificity as detailed standards develop. The EU Deforestation Regulation creates mandatory supply chain biodiversity due diligence for specific commodities. Outside the EU, TNFD adoption by national jurisdictions is at early stages, with some markets (UK, Singapore, Australia) indicating interest in TNFD-aligned requirements. Broad mandatory biodiversity metrics are likely 3-7 years from widespread implementation as of 2025.

Summary​

Biodiversity and nature-related financial risk is emerging as a material investment consideration, with the WEF estimating $44 trillion of global economic value dependent on ecosystem services. The TNFD framework (September 2023 recommendations) provides the TCFD-equivalent architecture for nature-related disclosure, structured around Governance, Strategy, Risk Management, and Metrics and Targets with a LEAP (Locate, Evaluate, Assess, Prepare) approach. Key biodiversity metrics include deforestation exposure, Biodiversity Intactness Index, Mean Species Abundance, water stress, and land use change — but data infrastructure is significantly less mature than for carbon metrics. Regulatory development (EU CSRD ESRS E4, EU Deforestation Regulation, Kunming-Montreal Framework) is creating the policy foundation for increased mandatory biodiversity disclosure. Geographic specificity, lack of a universal biodiversity unit, and limited corporate disclosure are the primary current limitations.

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