Carbon metrics have reshaped how financial markets assess environmental risk, influencing capital allocation, lending and corporate strategy. Yet, carbon alone does not capture the full environmental risk embedded in portfolios. While carbon markets have succeeded because emissions are uniform and tradable, this logic obscures material risks linked to nature loss. By examining how finance depends on and contributes to ecosystem degradation, this paper shows that nature-related risk is endogenous to finance and partly non-diversifiable. Moving beyond carbon is necessary to safeguard long-term value and financial stability.

The limits of a carbon-centred lens
Carbon dominates environmental risk assessment in finance. Emissions targets, transition plans and net-zero commitments now influence capital allocation, lending and corporate strategy (World Bank, 2025), reframing climate change from an ethical concern into a financially material risk.

Carbon pricing shows how finance can respond when a risk is defined and monetised. More than 60 countries have introduced carbon pricing schemes under their Paris Agreement commitments while instruments, such as EU Allowances, trade across regulated markets (The Renewable Energy Institute, 2025). In 2024, 80 carbon pricing instruments covered about 28% of global GHG emissions, generating over US $100billion (World Bank, 2025).

Carbon pricing works because carbon is globally comparable: a tonne of emissions has the same climatic effect wherever it is released, making it suitable for standardisation, and trading. Nature-related risk, however, is multidimensional, location-specific and threshold-driven. Degradation of a watershed, soil system or habitat cannot be captured by a single metric. The same metric may be resilient in one geography and fragile in another due to water scarcity, soil degradation, regulatory pressure or ecosystem collapse.

“Beyond carbon” therefore means shifting from one environmental output to assessing nature as productive capital: the natural systems that underpin economic activity. Carbon tools are not flawed, but their simplicity can create blind spots.

Nature as an economic input
Economic activity is embedded in nature. Businesses depend on ecosystem services, such as water supply, soil fertility, pollination and climate moderation. These flow from natural capital, defined as the stock of natural assets including soils, biodiversity, freshwater and ecosystems. Financial exposure arises through an impact–dependency relationship (Dasgupta, 2021): dependencies show how production relies on ecosystem services, while impacts show how business activities degrade or restore them across operations and value chains (TNFD, 2023).

Impacts are not evenly distributed. Food, infrastructure, fashion, and energy account for roughly 90% of human-driven biodiversity impacts (Kurth, 2021). Dependencies, however, are pervasive, with about US$44 trillion of global economic value generation moderately or highly dependent on nature (World Economic Forum, 2023). Meanwhile, UNDP estimates that a nature-positive transition could unlock US$10.1 trillion in annual business value and create 395 million jobs by 2030 (UNDP, 2023).

Ecosystems, therefore, are productive assets, yet degradation risks and restoration opportunities remain poorly reflected in financial analysis.

Nature risk is already embedded in portfolios
Nature loss is often framed as an external shock, but much of the risk is endogenous to financial decisions. (Dasgupta, 2021) (UNEP, 2026). By prioritising short term returns or growth in high-impact sectors, financial flows can accelerate natural capital depletion and later inherit the instability as credit risk, insurance losses and asset impairment. Finance is not merely exposed to nature loss; in many cases it contributes to it.

This helps explain why nature risk remains mispriced even when data exists. Financial activity can tighten ecological constraints while treating them as distant. When those constraints bind, repricing tends to be sudden rather than gradual (Bolton, et al., 20220).

Nature exposure is material. At least 10% of the UK’s bond, equity, and loan portfolio is highly dependent on nature, while £2.5 trillion, representing 44% of upstream financial exposures, is linked to sectors with high nature dependencies and rapid natural capital depletion (Evison, et al., 2023). This challenges diversification. Nature-related shocks can affect correlated assets simultaneously through shared water supplies, supply chains, and ecological thresholds. Water scarcity, soil degradation, and biodiversity cross regions and industries, creating systemic, partially non-diversifiable exposure (Bolton et al., 2020).

The financing imbalance reinforces this vulnerability. While US$220 billion flows annually into nature-based solutions, US$7.3 trillion supports nature-negative activities, including US$2.4 trillion in harmful subsidies. This represents US$30 spent on degradation for every US$1 invested in nature protection (UNEP, 2026).

How Nature Loss Becomes Financial Risk
TNFD classifies nature-related risks as physical, transition, and systemic (TNFD, 2023). Systemic risks warrant particular attention, as ecosystems can shift abruptly, triggering cascading economic impacts (Bolton et al., 2020).

The financial impacts are already visible:

Water shortages reduced Indian thermal power generation by more than US$1.4 billion between 2013 and 2016 (Dasgupta, 2021).
Wetlands reduced flood damages during Hurricane Sandy by over US$625 million (Narayan, et al., 2017).
Bayer lost nearly 40% of its market capitalisation following the acquisition of an agrochemical business linked to pollinator harm (Dasgupta, 2021).

Measurement as financial Due Diligence
Climate risk entered finance because emissions could be translated into comparable metrics (TCFD, 2017). Nature cannot be reduced to a single number, but it is measurable. Frameworks, such as TNFD, tools such as ENCORE, and UNEP-WCMC’s Nature Risk Profiles, allow the identification of dependencies, impacts and geographic concentrations of risk.

Measurement reveals concentrated exposure, correlated risk and feedback loops where finance both drives and inherits ecosystem degradation. Emissions data alone cannot reveal exposure to water stress, soil degradation or biodiversity loss. Using carbon as a proxy for all environmental risk creates blind spots and may delay repricing until it becomes disruptive.

Conclusion: Beyond Carbon as Analytical Maturity
Carbon pricing demonstrates what finance can achieve when risk is uniform and monetisable. It has now mobilised over US$100 billion annually, covering 28% of global emissions (World Bank, 2025). Nature-related risk is different, location-specific, multifactorial and increasingly systemic, yet already measurable enough to influence decisions.

Moving beyond carbon complements climate analysis. It recognises that long-term financial value depends on natural systems, and that finance is often implicated in their decline. Addressing nature-related dependencies and impacts is therefore essential to mature financial risk analysis.

Written by Dr Annaëlle Hip Kam, Sustainability Scientist, Tunley Environmental